Rothbard VERSUS Rabbi Nachman of Breslov on the ‘Proper’ Supply of Money

Murray Rothbard in “What Has Government Done to Our Money?”:

What is the effect of a change in the money supply? Following the example of David Hume, one of the first economists, we may ask ourselves what would happen if, overnight, some good fairy slipped into pockets, purses, and bank vaults, and doubled our supply of money. In our example, she magically doubled our supply of gold. Would we be twice as rich? Obviously not. What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor and capital. Multiplying coin will not whisk these resources into being. We may feel twice as rich for the moment, but clearly all we are doing is diluting the money supply. As the public rushes out to spend its new-found wealth, prices will, very roughly, double—or at least rise until the demand is satisfied, and money no longer bids against itself for the existing goods.

Thus, we see that while an increase in the money supply, like an increase in the supply of any good, lowers its price, the change does not—unlike other goods—confer a social benefit. The public at large is not made richer. Whereas new consumer or capital goods add to standards of living, new money only raises prices—i.e., dilutes its own purchasing power. The reason for this puzzle is that money is only useful for its exchange value. Other goods have various “real” utilities, so that an increase in their supply satisfies more consumer wants. Money has only utility for prospective exchange; its utility lies in its exchange value, or “purchasing power.” Our law—that an increase in money does not confer a social benefit—stems from its unique use as a medium of exchange.

An increase in the money supply, then, only dilutes the effectiveness of each gold ounce; on the other hand, a fall in the supply of money raises the power of each gold ounce to do its work. We come to the startling truth that it doesn’t matter what the supply of money is. Any supply will do as well as any other supply. The free market will simply adjust by changing the purchasing power, or effectiveness of the gold-unit. There is no need to tamper with the market in order to alter the money supply that it determines.

At this point, the monetary planner might object: “All right, granting that it is pointless to increase the money supply, isn’t gold mining a waste of resources? Shouldn’t the government keep the money supply constant, and prohibit new mining?” This argument might be plausible to those who hold no principled objections to government meddling, though it would not convince the determined advocate of liberty. But the objection overlooks an important point: that gold is not only money, but is also, inevitably, a commodity. An increased supply of gold may not confer any monetary benefit, but it does confer a non-monetary benefit—i.e., it does increase the supply of gold used in consumption (ornaments, dental work, and the like) and in production (industrial work). Gold mining, therefore, is not a social waste at all.

Sichot Haran [Breslov] siman 51:

העולם הזה אינו כלום רק למשוך אל התכלית הנצחי. ואין להסתכל אם יהיה לו מעות אם לאו. כי בין כך ובין כך יבלה ימיו בשוה, כי העולם הזה מטעה אותנו לגמרי. שמראה אל האדם כאילו הוא מרויח בכל פעם ובסוף אינו כלום. כאשר נראה בחוש ברוב בני אדם שעוסקים ועובדים ימים ושנים בסחורות ומשא ומתן ולבסוף כשבאין לחשבון אין נשאר בידם כלום ואם אפילו משיג מעות לוקחין אותו מן המעות. והכלל ששניהם אין להם קיום ביחד דהיינו האדם עם המעות רק או שלוקחין המעות מן האדם או שלוקחין האדם מהמעות. ומעולם לא נמצא שישאר אחד עם המעות רק כנזכר לעיל. גם היכן הוא כל המעות שעושין מימות עולם כי מעולם עושין תמיד מעות והיכן הוא כל המעות רק באמת אינו כלום לגמרי.