Could an Increase in the Supply of Gold Cause a Boom-Bust Cycle?

According to the Austrian Business Cycle Theory (ABCT), the artificial increase in the money supply via central bank expansionary monetary policy lowers the market interest rate. This, in turn, causes the market interest rate to deviate from the natural rate, determined by the market. Consequently, this leads to the boom-bust cycle. Understanding this, on the gold standard, where money is gold and—assuming that there is no central bank—an increase in the supply of gold will also result in the lowering of the market interest rates.

This would cause a deviation of the market interest rates from the previous interest rate. Consequently, this is going to set in motion a boom-bust cycle. This means that even on the gold standard, without the central bank, we could still have boom-bust cycles. According to Murphy,

The unsustainable boom occurs when a newly created (or mined) quantity of money enters the loan market and distorts interest rates, before other prices in the economy have had time to adjust. In principle, this process could occur even in the case of commodity money with 100 percent reserve banking.

Note again, according to Murphy, the increase in the supply of gold also could set the boom-bust cycle in motion, though Mises believed, in practice, this theoretical possibility would have a negligible effect.

Murray Rothbard disagreed with this. He held that increases in the supply of gold could not set in motion the boom-bust cycle. For him, the key reason behind the boom-bust cycle is the act of embezzlement brought about by the expansionary monetary policy of the central bank, which sets in motion an increase in the money supply out of “thin air.” According to Rothbard,

Inflation, in this work, is explicitly defined to exclude increases in the stock of specie. While these increases have such similar effects as raising the prices of goods, they also differ sharply in other effects: (a) simple increases in specie do not constitute an intervention in the free market, penalizing one group and subsidizing another; and (b) they do not lead to the processes of the business cycle.

Following this reasoning, what uniquely sets the boom-bust cycle into motion is the artificial, inflationary increase in the money supply. The increase in this type of money sets an exchange of nothing for something (i.e., the diversion of wealth from wealth-generators to non-wealth-generators and their projects). The expansionary policy of the central bank impoverishes wealth producers and enriches first possessors of the newly-created money and credit. For Rothbard, then, the boom-bust cycle emerges because of the expansionary policies of the central bank, which set in motion the act of embezzlement.

A major contributor to the inflationary process is commercial bank credit expansion. This type of credit is facilitated by the expansionary monetary policy of the central bank. This expansionary monetary policy produces false economic prosperity—the economic boom. When the limited savings come under pressure because of the false economic boom, banks start to accumulate non-performing assets. Consequently, they necessarily slow the expansion of artificial credit. As a rule—pressured by increasing price inflation—central bank’s also respond by tightening monetary policy. The unsound investments and ventures, dependent on loose artificial monetary policy, cannot survive the monetary contraction. An economic bust results.

It is the act of fraud which sets the boom-bust cycle into motion via inflationary additions to the money supply. This artificial expansion of money and credit is also responsible for price inflation.

Gold and the Boom-Bust Cycle?

The reason why miners mine gold is because there is a market for it. Gold contributes to the subjective well-being of individuals. In this sense, it is part of the pool of wealth.

Now over time, individuals have discovered that gold—being originally useful in making jewelry—has a great appeal as the medium of the exchange. As a result, they may begin to assign a much greater exchange-value to gold than before. Hence, the increase in the supply of gold amounts to the increase in wealth, distinct from the inherently artificial nature of inflation. When a producer of gold exchanges it for goods, he is engaging in the exchange of something for something. He is exchanging wealth for wealth. New gold in a system requires production and/or exchange.

Phony Warehouse Receipts, Fiat Money, or Fiduciary Media Cause Boom-Bust Cycles

Contrast this with the unbacked by gold “receipts” that are used as the medium of the exchange. These receipts were issued without the corresponding gold deposited for safekeeping. These receipts generate the same outcome as the counterfeit money does, yet on a much larger scale. This sets the stage for increased consumption without contributing to production or savings. Unbacked fiat certificates set in motion an exchange of nothing for something which, in turn, distorts the price-structure and the structure of production and leads to boom-bust cycles.

This also sets the stage for widespread embezzlement once these certificates are employed in an exchange for goods and services. Through the signals from the increased purchasing and investments, this creates an artificial economic boom. Once this process slows down or stops altogether, it halts the diversion of wealth to various activities that emerged because of inflation. As a result, these activities come under pressure and an economic bust results. Without the inflation of money and credit, which divert wealth to them, these economic activities are in trouble. Without easy money, they cannot survive or continue at the same current rate.

By contrast, in the case of an increase in the supply of gold, no fraud is committed here. The supplier of gold—the gold mine—has increased the production of a demanded commodity. Therefore, in this case there is not an exchange of nothing for something. The gold producer, by producing something demanded in the market, can exchange it for other goods. He does not create empty money to fraudulently divert wealth to himself. We can thus conclude that the gold standard, if not abused, is not conducive of boom-bust cycles. The gold standard has nothing to do with embezzlement.

That said, the inflationary increase in the money supply and the increase in the supply of gold are going to generate a change in price relations and possibly the market interest rate. This addition of gold does not set the boom-bust cycle. A boom-bust cycle, by its nature, is generated by artificial additions to the money supply.

If the interest rate change is due to an increase in the supply of gold, which is an increase in wealth, no boom-bust cycle is going to emerge. Cantillon effects, however, will result. An increase in the supply of gold can cause the prices and the market interest rate to change and this is likely to cause fluctuations in economic activity. However, boom-bust cycles are not about free market fluctuations, they are about inflationary monetary policy.

Boom-bust cycles are generated by an act of embezzlement. Such cycles are about the diversion of wealth from true wealth-generators to the holders of the new-created and artificial money. In a free market economy, there are continuous changes and there is no stability as such, but that does not equate to the disruptions caused by monetary interventionism.

Conclusion

The key for the emergence of the boom-bust cycles are inflationary increases in the money supply. These increases set in motion an exchange of nothing for something (i.e., changes in price relations, the diversion of wealth, and distortions in the capital structure).

The increase in the supply of gold is not the same. The increase in the supply of gold is an increase in the supply of wealth and production. This increase does not lead to the exchange of nothing for something.

Contrary to non-wealth-generating and unsound activities, true wealth-generating activities can support themselves without inflationary expansion of money and credit to divert wealth to themselves. Artificial increases in the money supply, not increases in the gold supply, bring about the menace of the boom-bust cycle.

Originally Posted at https://mises.org/

zerohedge
Economics , News , Politics , Science
December 7, 2024
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From Marcus Aurelius To Omar Little: A Man’s Code Is Vital

Authored by Josh Stylman via The Brownstone Institute,

With Thanksgiving weekend still fresh in our memory, my gratitude centers not on the usual holiday platitudes, but on something that has become increasingly precious in our artificial age: authentic relationships – both family and lifelong friends – that deepen rather than fracture under pressure. What binds these relationships, I’ve come to realize, isn’t shared opinions or circumstances, but a shared code – an unwavering commitment to principles that transcends the shifting sands of politics and social pressure. I’m particularly grateful for my inner circle – friends I’ve known since elementary school and family members whose bonds have only strengthened through the crucible of recent years.

Like many others who spoke out against Covid tyranny, I watched what I thought were solid relationships dissolve in real time. As the owner of a local brewery and coach of my kids’ sports teams, I had been deeply embedded in my community – a “man about town” whose friendship and counsel others actively sought. Yet suddenly, the same people who had eagerly engaged with me would scurry when they saw me coming down the street. Professional networks and neighborhood connections evaporated at the mere questioning of prevailing narratives. They reacted this way because I broke orthodoxy, choosing to stand for liberal values – the very principles they claimed to champion – by rejecting arbitrary mandates and restrictions.

In this moment of testing, the difference between those who lived by a consistent code and those who simply followed social currents became starkly clear. Yet in retrospect, this winnowing feels more like clarification than loss. As surface-level relationships fell away, my core relationships – decades-long friendships and family bonds – not only endured but deepened. These trials revealed which bonds were authentic and which were merely situational.

The friendships that remained, anchored in genuine principles rather than social convenience, proved themselves infinitely more valuable than the broader network of fair-weather friends I lost.

What strikes me most about these enduring friendships is how they’ve defied the typical narrative of relationships destroyed by political divisions. As Marcus Aurelius observed, “The impediment to action advances action. What stands in the way becomes the way.” Despite taking opposite sides of the dialectic on political and cultural issues over the decades, we found ourselves united in opposition to the constitutional transgressions and rising tyranny of the past few years – the lockdowns, mandates, and systematic erosion of basic rights. This unity emerged not from political alignment but from a shared code: a commitment to first principles that transcends partisan divisions.

In these contemplative moments, I’ve found myself returning to Aurelius’s Meditations – a book I hadn’t opened since college until Joe Rogan and Marc Andreessen’s excellent conversation inspired me to revisit it. Aurelius understood that a personal code – a set of unwavering principles – was essential for navigating a world of chaos and uncertainty. The connection feels particularly apt – like my own friend group, Rogan’s platform exemplifies a code of authentic discourse in our age.

Critics, particularly on the political left, often talk about needing their “own Joe Rogan,” missing entirely what makes his show work: its genuine authenticity. Despite being historically left-leaning himself, Rogan’s willingness to engage in real-time thinking with guests across the ideological spectrum and across a broad variety of topics, his commitment to open inquiry and truth-seeking, has paradoxically led to his estrangement from traditional liberal circles – much like many of us who’ve found ourselves branded as apostates for maintaining consistent principles.

This commitment to a code of authentic discourse explains why organizations like Brownstone Institute – despite being routinely smeared as “far right” – have become a crucial platform for independent scholars, policy experts, and truth-seekers. I witnessed this firsthand at a recent Brownstone event, where, unlike most institutions that enforce ideological conformity, diverse thinkers engaged in genuine exploration of ideas without fear of orthodoxy enforcement. When attendees were asked if they considered themselves political liberals ten years ago, nearly 80% raised their hands.

These are individuals who, like my friends and me, still embrace core liberal values – free speech, open inquiry, rational debate – yet find themselves branded as right-wing or conspiracy theorists merely for questioning prevailing narratives.

What unites this diverse community is their shared recognition that the reality being presented to us is largely manufactured, as explored in “The Information Factory,” and their commitment to maintaining authentic discourse in an age of enforced consensus.

In The Wire, Omar Little, a complex character who lived by his own moral code while operating outside conventional society, famously declared, “A man got to have a code.” Though a stick-up man targeting drug dealers, Omar’s rigid adherence to his principles – never harming civilians, never lying, never breaking his word – made him more honorable than many supposedly “legitimate” characters. His unwavering dedication to these principles – even as a gangster operating outside society’s laws – resonates deeply with my experience.

Like Rogan’s commitment to open dialogue, like Brownstone’s dedication to free inquiry, like RFK Jr.’s determination to expose how pharmaceutical and agricultural interests have corrupted our public institutions: these exemplars of authentic truth-seeking mirror what I’ve found in my own circle. My friends and I may have different political views, but we share a code: a commitment to truth over comfort, to principle over party, to authentic discourse over social approval. This shared foundation has proven more valuable than any superficial agreement could be.

In these times of manufactured consensus and social control, the importance of this authentic foundation becomes even clearer. The 2012 Smith-Mundt Modernization Act, which made it legal to propagandize American citizens, merely formalized what many had long suspected. It represented the ultimate betrayal of the government’s code with its citizens – the explicit permission to manipulate rather than inform. As anyone not under the spell has come to realize – we’ve all been thoroughly “Smith-Mundt’ed.” This legal framework helps explain much of what we’ve witnessed in recent years, particularly during the pandemic – when those who proclaimed themselves champions of social justice supported policies that created new forms of segregation and devastated the very communities they claimed to protect.

This disconnect becomes even more apparent in the realm of charitable giving and social causes, where “virtue laundering” has become endemic. The absence of a genuine moral code is nowhere more evident than in our largest charitable institutions. While many charitable organizations do crucial work at the local level, there’s an unmistakable trend among large NGOs toward what a friend aptly calls the “philanthropath class.”

Consider the Clinton Foundation’s activities in Haiti, where millions in earthquake relief funds resulted in industrial parks that displaced farmers and housing projects that never materialized. Or examine the BLM Global Network Foundation, which purchased luxury properties while local chapters reported receiving minimal support. Even major environmental NGOs often partner with the world’s biggest polluters, creating an illusion of progress while fundamental problems persist.

This pattern reveals a deeper truth about the professional charitable class – many of these institutions have become purely extractive, profiting from and even amplifying the very issues they purport to solve. At the top, a professional philanthropic class collects fancy titles in their bios and flashes photos from charity galas while avoiding any genuine engagement with the problems they claim to address. Social media has democratized this performance, allowing everyone to participate in virtue theater – from black squares and Ukrainian flag avatars to awareness ribbons and cause-supporting emojis – creating an illusion of activism without the substance of real action or understanding. It’s a system entirely devoid of the moral code that once guided charitable work – the direct connection between benefactor and beneficiary, the genuine commitment to positive change rather than personal aggrandizement.

The power of a genuine code becomes most evident in contrast with these hollow institutions. While organizations and social networks fracture under pressure, I’m fortunate that my closest friendships and family bonds have only grown stronger. We’ve had fierce debates over the years, but our shared commitment to fundamental principles – to having a code – has allowed us to navigate even the most turbulent waters together. When the pandemic response threatened basic constitutional rights, when social pressure demanded conformity over conscience, these relationships proved their worth not despite our differences, but because of them.

As we navigate these complex times, the path forward emerges with striking clarity. From Marcus Aurelius to Omar Little, the lesson remains the same: a man gotta have a code. The crisis of authenticity in our discourse, the chasm between proclaimed and lived values, and the failure of global virtue-signaling all point to the same solution: a return to genuine relationships and local engagement. Our strongest bonds – those real relationships that have weathered recent storms – remind us that true virtue manifests in daily choices and personal costs, not in digital badges or distant donations.

This Thanksgiving, I found myself grateful not for the easy comforts of conformity but for those in my life who demonstrate real virtue – the kind that comes with personal cost and requires genuine conviction. The answer lies not in grand gestures or viral posts, but in the quiet dignity of living according to our principles, engaging with our immediate communities, and maintaining the courage to think independently. As both the emperor-philosopher and the fictional street warrior understood, what matters isn’t the grandeur of our station but the integrity of our code.

Returning one final time to Meditations, I’m reminded of Aurelius’s timeless challenge: “Waste no more time arguing about what a good man should be. Be one.”

Tyler Durden
Sat, 12/07/2024 – 23:20