If someone keeps their powder dry by removing their purchasing power by saving or hording, there forgo consumption now for consumption in the future right?

They are speculating that this economic act will get them more goods and services in the long term right?

What could possibly be wrong with this? This is the reward for not taking part in the current consumption.

I’ve read Rothbard’s argument on this (“it doesn’t matter what the supply of money is” [1]), and this makes perfect sense for a point in time. I also agree that price deflation through technological progress is something to be celebrated rather than feared. Where I struggle is when there are large changes in population, goods, and services over time.

Imagine a tribe of 10 people, with 10 cows, and 10 gold lumps, all divided equally. The tribe, after a long and difficult voyage, arrives at an island that has no gold, but does have fertile land. The tribe grows to 91 people and 90 cows. Suppose one original lump were hoarded, while the others were repeatedly divided among the growing population, so that the hoarder, who led an autarkic life, had 10 1/10th lumps (decilumps), while the other 90 had a single decilump each. The price for a cow would now be 1 decilump rather than 1 lump, and the hoarder cashing in would be able to buy 10 cows rather than 1 (subsequent to this transaction, inflation would mean that a decilump no longer buys a cow).

Is it fair that the hoarder’s gold should appreciate in this way? Would it not be better if the gold lump supply had increased exactly in line with the population of cows and people, so that the hoarded lump buys 1 cow, just as before (no more, no less). The practical question of how to achieve this purchasing-power-preserving expansion of the money supply seems separate from the question of whether the preservation of purchasing power is desirable in principle.

My example is, of course, highly simplistic and stylised, and there may be reasons why such a situation will never arise in practice. Alternatively, we may argue that it doesn’t matter that the hoarder profits by hoarding.

I fully agree that the way the money supply is inflated at present (whether by the printing press or Fractional Reserve Banking) is severely unjust, as well as disruptive to long term economic growth.

That said, I do have some lingering concerns about gold as money. I fear that if there had not been a switch to fiat money (evil as it is), the massive upswing in population since WWI [2] would have caused a corresponding increase in demand for gold, and diversion of resources from productive industries to mining. Rothbard’s answer about non-monetary uses for gold doesn’t seem fully satisfying.

It’s clear that I have much more reading to do, so I should probably get to it! Thanks again for your response.

[1] http://mises.org/money/2s8.asp
[2] http://en.wikipedia.org/wiki/File:World-Population-1800-2100.png

The right amount of money today is just what it is today. Sounds like a politician’s answer right?
Here is a thought experiment.
Let us assume we are a stand alone country. If there were 60 million of money units, I will call them MU, one for each person in this country or 600 million MU’s, the existing goods and services will be sold, assuming we all bought our pounds worth or ten pounds worth of goods for either £60m or £600m.
Note we would all have the same goods and services each time. The money unit would give a higher price if we all had 10 MU’s chasing the goods and services than if we all had 1 MU each. Either way we get the same goods and services which after all is what we are using the medium of money for, to exchange indirectly goods and services that I may produce for another that someone else produces that I cannot barter in exchange for.
So you can conclude that the optimal amount of money is actually any amount.
If there was say £1.7 trillion of money in the UK and this was enough to transact all the goods and services and suddenly there was £1.9 trillion, then you can see that there has been a 10% plus devaluation in our purchasing power. So this new amount, if given to everyone equally would actually see a uniform price rise and that is it, it would be of no economic merit. The problem is that when the money is injected into the economy, imaging if you were one of the lucky first to get the money, you could go out and spend when the price is low before other people have the new money and you can get real goods and services exchanged for money without having to produce anything yourself (just like the counterfeiter) . This is called quantitive easing. This causes wealth to be transferred from the last recipients of the new money, those on fixed income to the first recipients, the bankers who funnel the money though the system and place the bond sales and purchases and people on the government payroll. This is negative wealth redistribution.
Also, when this new money enters into the system we get a massive distortion in investment when businessmen are flusher with cash; they invest in their next most important projects as they think there will be customers with this new purchasing power. Think of the dot.com boom as a classic example. When the party stops and people realise there has been no real wealth created, the bust happens.
So if the optimal amount is what it is today, we should never print anymore. When businesses become more efficient, which is the ongoing aim of capitalism; they will have more goods and services to sell with the same MU’s in circulation. This will mean things will be cheaper i.e. your purchasing power has gone up. This is a benign price deflation and should be welcomed as you have more money to spend on other things. Think of the price of computers and you get the picture.
If money is backed by a commodity such as gold, then I believe the gold stock goes up at about 2% per annum around the world. This may be more acceptable to run a small inflation and know that the government can never destroy your money as they can with paper money.
Psychologically people in recent times, have only got used to rising prices i.e. inflation, so it may be worth while moving to a commodity backed solution like gold or a Freidman like 2% new money inflation rate a year shrinking to nothing until people adjusted in their minds.
I hope this is helpful.

I don’t doubt that governments, historically and recently, have irresponsibly manipulated the money supply to the advantage of themselves and their cronies.

I expect we’re in a gold bubble at the moment, which distorts the figures somewhat, but not enough to affect your point. At the height of the last bubble, in January 1980, gold hit $850/oz ($42.5 per 1/20oz) meaning that by then the dollar had lost 97.65% of its value. I gather that by August 1999, the price of gold had fallen to around $250/oz ($12.5 per 1/20oz), so the dollar at that point had lost 92% of its pre-WWI value. Still quite staggering.

What do you think would be the ideal change in the money supply over time?

a) it should remain constant
b) it should grow at the rate at which gold is produced (discovered, mined, and refined)
c) it should grow at some other rate, in line with increased real wealth in the economy