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If the market will settle on gold or any other commodity as money the amount of this commodity is going to be in line with people’s requirements.

Given that a commodity that is selected as money is part of the stock of wealth the increase in the supply of such commodity is not going to set in motion the menace of boom-bust cycle. This should be contrasted with the increase in the money supply out of “thin air”.

https://mises.org/wire/we-dont-need-central-bank-deal-changes-demand-money

Frank Shostak

Historically, many different goods have been used as money. On this, Ludwig von Mises observed that, over time,

[T]here would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in a word, money.1

Similarly, Murray Rothbard wrote in “What Has Government Done to Our Money,”

Just as in nature, there is a great variety of skills and resources, so there is a variety in the marketability of goods. Some goods are more widely demanded than others, some are more divisible into smaller units without loss of value, some more durable over long periods of time, some more transportable over large distances. All of these advantages make for greater marketability. It is clear that in every society, the most marketable goods will be gradually selected as the media for exchange. As they are more and more selected as media, the demand for them increases because of this use, and so they become even more marketable. The result is a reinforcing spiral: more marketability causes wider use as a medium, which causes more marketability, etc. Eventually, one or two commodities are used as general media-in almost all exchanges-and these are called money.

Through the ongoing process of selection, people settled on gold as their preferred medium of exchange. Some commentators, cast doubt that gold can fulfill the role of money in the modern world. It is held that, relative to the growing demand for money because of growing economies, the supply of gold is not growing fast enough. On this according to Insider from June 15, 2011,

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Contact Frank Shostak

Frank Shostak‘s consulting firm, Applied Austrian School Economics, provides in-depth assessments of financial markets and global economies. Contact: email.

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