The Meaning of Gold in the News

`` * « Previous * Mises Daily Index * Next » * Print * Add to MyMises * Share * RSS Feed * Full-text Feed * Subscribe The Meaning of Gold in the News Mises Daily: Thursday, September 30, 2010 by Robert P. Murphy In the last week there have been several interesting developments involving gold. The price of the yellow metal set a new record, breaking through the $1,300 barrier. Meanwhile, a German firm is preparing to install gold vending machines in the United States. The German firm won't be stocking the machines with gold purchased from European central banks, however, because they have halted a decade-long policy of gold sales. No doubt sensing the danger of the public's growing recognition of the superiority of gold over paper fiat currency, the US government has been stepping up its regulation of the gold market. Last week a House subcommittee hearing investigated the allegedly underhanded practices of a major gold dealer — all in the interests of protecting the consumer, of course! In this context, it's worthwhile to review the basics of Austrian economics regarding money and the special role of gold. The Origin of Money Carl Menger was the founder of the Austrian School proper, with his Grundsätze (translated as Principles of Economics) published in 1871. In addition to being one of the three pioneers credited with the discovery of modern subjectivist price theory (which overthrew the Classical School's labor theory of value), Menger also gave economics the first satisfactory explanation of the origin of money. Most people assume that since money is a very useful institution, and since it obviously is not "natural" but was developed by humans, therefore some wise king or group of experts must have deliberately invented money. But this is a classic fallacy that Friedrich Hayek spent much of his career attacking. There are many aspects of society — including language and the market economy itself — that were not consciously planned by a group of experts. Drawing on the Scottish thinker Adam Ferguson, Hayek said they are the products of human action but not of human design. This approach fits Menger's theory of the origin of money.''