Question about gold as the money supply

[RussK]

That seems to be a very accurate description.

Do you have something to answer them on the 4% argument? Or is there a place where we discussed that argument?

Thanks!

I think the assumption here is that people are going to be handling the gold during common transactions, i.e., paying in gold coins; although, I have no idea how much GDP it would take to make the gold coins. It very well could be the case that minting gold money would cost 4% of GDP per year, but if that's the case it would never happen in a free market. That would give a whole new meaning to "It takes money to make money," wouldn't it? There is, however, no reason to necessarily mint gold, or any metal, for use as money, and yet still have a commodity standard.

[Steve D'Ippolito]

That 4% figure strikes me as absurd. Unless it includes the cost of the gold, but that shouldn't count; the people that own the gold will pay to have it minted so they can spend it. Physically striking coins is not terribly expensive; we are willing to pay the cost to strike quarters and dimes after all. (Nickels and cents cost more to make than they are worth but part of that is materials.)

[Rearden_Steel]

It very well could be the case that minting gold money would cost 4% of GDP per year, but if that's the case it would never happen in a free market.

4% of the GDP? Where did you get that number?

[RussK]

4% of the GDP? Where did you get that number?

That's the number that Bastian Hayek, in a post above, quoted coming from the Chicago School of Economics, when writing about Milton Freedman's complaints concerning a commodity standard for currency.

[agrippa1]

Just a wild guess, but currency in circulation hovered around 4% of GDP from the late 60's to the early 90's. (It fell from over 10% in the late 40's, and has recently topped 6%, and rising fast)

If that's where Friedman got his number, it's only a one-time 4% "investment" of resources to establish a standard, plus an annual increase of apx 4% of GDP growth. In a robust economy (5% growth), that's 0.2% of GDP every year, or about $28B in today's equivalent.

Hey, that's less than 1% of our federal budget!!!