I Pity the Fool Who Thinks Money Measures Value
A follow-up post at Mises CA:
[L]et’s try a different thought experiment. As before, suppose the government locks in the dollar-price of gold, thinking that this will provide a “stable ruler of fixed length” by which people can measure market values. Yet a sudden resurgence of interest in Mr. T causes most Americans to want to wear more gold jewelry on their chests. If the government does nothing, then the dollar-price of gold would increase because of the heightened demand to use gold as jewelry. In order to keep the dollar-price fixed, therefore, the government has to suck dollars out of circulation. This keeps the dollar-price of gold stable, but causes a crash in the dollar-price of everything else. Far from providing a stable unit of value, it seems that locking in gold as the money allowed a sudden bout of “deflation,” at least in the way the public currently thinks of the term.
I like Dr Murphy’s sense of humour. This reminds me of a multiple-choice question he gave in one of his Mises Academy classes (I think it was the one on the Fed):
On the free market, where would most gold be stored:
a) in the vaults of the central bank
b) in the vaults of the commercial banks
c) around Mr T’s neck
🙂
Mr. T gave up the gold some years back, something about trying to help poor children learn about self respect and responsibility while wearing 50lbs of gaudy jewelery didn’t sit right with him.
Hey Mr T, can you get this done for me? I got a few bits of bling here, could make it worth your while. You see, nobody else can help, and it took me a long while to find you.
Value is a valuation and all valuations are actions.
Money doesn’t measure value, people do. People value money.