Bitcoin And Gold Energy Debate

And the answers remain the same…

Long before we had the Bitcoin energy debate, we had the gold resource cost debate. The contours were similar: the costs associated with gold refining and extraction were a waste; they were too great relative to a mere fiat standard in which notes could be printed for virtually nothing. Why bother with gold, impassive and unwavering in its supply dynamics, when you could have the cheap and highly configurable paper standard instead? The critique hinges on figures computed by economists finding extremely high resource costs associated with the gold standard. Infamously, in his 1951 essay “Commodity-Reserve Currency,” Milton Friedman criticizes the gold standard on these grounds, calculating that 1.5% of GDP would have to be devoted to the production of gold under a full reserve standard, an estimate he revises up to 2.5% in 1960.

Writing in Cato Journal in 1999, Allan Meltzer replicates Friedman’s analysis and, while conceding that Friedman’s estimates are a shade aggressive, nevertheless concludes that “the resource cost of a full commodity standard remains high.”

As George Selgin notes, contemporary economists continue to maintain that a gold standard is “expensive” relative to fiat. Selgin provides the example of Starr claiming in 2013 that “the use of paper or fiduciary money instead of commodity money is resource saving.” The lineup of critics is completed, if somewhat diminished, by the addition of Matt Yglesias reminding us that the gold standard would “impose a cost on the real economy” as the “gold held in bank vaults is gold that is not available for industrial or decorative uses.”