On Gold, the Optimal Amount of Money, Hypersubjectivism, and Demonstrated Preference

by Stephan Kinsella on May 10, 2025

A few years ago I criticized a paper by William Barnett II & Walter Block, “On the Optimum Quantity of Money.” ¹ See my post Comments on Block and Barnett on the Optimum Quantity of Money; Walter Block on Money as a Sui Generis Good; and the section “The Optimal Supply of Money” in A Tour Through Walter Block’s Oeuvre.

Block argues that Rothbard and Mises are wrong that any supply of money is optimal, since if new gold is mined without violating rights, that consumers demonstrate their preference for this, thus demonstrating that the old supply was not optimal. I sensed something was wrong with this; that somehow Walter was conflating descriptive economics with normative, legal, and rights matters. The fact that rights are not violated in increasing the supply of money does not mean that the previous supply was not optimal. I sensed that this was some kind of hypersubjectivism run amok.

As I wrote in my previous post,

During a brief talk just now with Walter, I asked this: Money arises from a valuable commodity like gold. The gold then has monetary value and value for non-monetary purposes. Is it possible for the gold to remain as money even if lost all other value? ³ That is, suppose it became useless for industrial purposes and nobody liked it for ornament or jewelry. Walter agreed it could remain money.

I then asked: if someone then mined gold and coined it, would this be good? He said yes, because of Rothbard utility and welfare economics. And also because of this “granularity” (my word) issue you note on p. 47. There you say:

The value of the new money would arise out of the additional transactions that would be made possible by its existence. That is, there would be transactions, previously impossible to undertake because the cost of using valuable gold to mediate such was excessive, which would now be made possible because the new monetary gold reduced the value of money at the margin. There are, at any time, a variety of potential exchanges. Some of these would create a great deal of value; others only a minute amount. The value that would be created by some potential exchanges is so small that the utility of gold in facilitating such exchanges would be less than its utility in nonmonetary uses. In such cases the potential exchanges would not occur.

Discussing with friends recently I finally thought of a way to explain my disagreement with Block on this issue. Here is cleaned-up version of that exchange:

Kinsella: (related to another issue) Dec. 1, 2011 is when I wrote:

“in note 15, you talk about atoms of gold. I am not sure that I agree that the atoms pose a limit…. why couldn’t the atoms be co-owned…? I am not sure about this. Maybey ou could just keep using math–increasing significant. AGain, I am not sure. (IN the bitcoin thing with digital currency, you can arbitrarily increase the granularity by adding more digits; in such a digital numeraire (which I confess I sort of think is the ideal money, in some sense, though not in a practical sense given some political and other problems), you never need to increase the supply at all (once it reaches its asymptotic maximum), because any supply truly is enough: you never face the granularity problem you guys allude to.”

A: This is like my insane worry that the 1 Satoshi unit of Bitcoin might someday pose a problem because it is worth a car or something after maybe a millennia of wealth increases.

B: Did you ever respond to my hypothetical? Would those who use gold as money be pleased if a large gold asteroid landed in the Nevada desert that contained 100x more gold than has been mined on earth? Now imagine it was made of copper instead. Would users of copper be upset or pleased that they can now get it much more cheaply? Explain the difference.

Kinsella: ha that is a wicked hypo. Brilliant. It would upset Walter. He would have to retreat to hypersubjectivism, as he does in his argument about the optimal quantity of gold

A: An asteroid of gold landing on Earth in a gold standard world would cause a massive amount of disruption, Cantillon effects, loss of value for latecomers, etc (a “good” argument for NSK’s position that even in a hard money world, non professional investors would diversify away from just saving the hard money;-). There would of course be additional benefits to the economy in the long term as gold is useful (so B’s hypothetical isn’t perfect and would be better if discussing a pure numererei money like Bitcoin and another inflation bug discovered in the future).

D: … regarding the free and profitable production of gold-coin money in a gold-coin money market, is that the free and profitable pursuit of the production of any good or service, including gold-coin, does necessarily logically, and in practice, guarantee an increase in social welfare. If this were not the case, then his calculation argument dissolves, and perhaps socialism is not afterall, guaranteed to result in inferior results from a free market.

B: Are just saying you don’t know why gold holders would be displeased about a gold asteroid that landed in the desert, or are you disputing that 100x increase in the gold supply would be unwelcome?

What if we got rid of the hypothetical. I feel like it might be over complicating the issue.

Why is scarcity a useful monetary property? Why is scarcity unhelpful for other types of goods?

C: Guys the argument is simple (and kinda dumb). The only thing you need to know is whether the transactions happening in the market are voluntary. If they are, then by necessity, you know social welfare is increasing. That’s it. That’s the whole argument. Mises didn’t strictly believe this because he argued against certain monopoly situations. but if you want to be a true hyper subjective rothbardian you must accept voluntary interactions can never result in a decrease in social welfare regardless of the context.

I’m not saying it’s a good argument, I’m just explaining what the argument IS. You guys seem to be struggling to understand the nature of the argument. If it’s voluntary it’s good no matter what. It’s hypersubjectivism.

Kinsella: Right. That is Walter’s argument that mining gold is good because it’s done. I think this is myopic.

A: Voluntary incest and bestiality is good too! And also suicide for hangnails.

C: Indeed. This would be the argument made by a hyper subjectivist Rothbardian type.

Kinsella: This is slightly uncharitable. One can be hypersubjective as D and Block are in economics (descriptive), without being a moral subjectivist (relativist) in terms of morals or norms.

C: I know this. I meant hypersubjectivism in economics, which is what this is. Because it is a positive expectation exchange subjectively speaking it must increase the social good. Doing all sorts of analysis about gold meteors doesn’t undermine that argument if you believe in it. I just think it’s wrong.

Kinsella: I think ultimately the failure is one of focusing only on one little thing and ignoring relevant things. Ignoring context. If you understand that money is not wealth ² you would never assume that finding new gold is an addition to humanity’s wealth, except for its non-monetary use value.

Imagine that in a gold society you can spend $9.9M to dig up $10M worth of gold. You hire people, rent diggers, and so on, and in the end, after a year or two, you net $100k. That lets you buy a $100k car. But almost no net wealth was created. Let’s say the gold premium is 90%. So that means what you did was spend $9.9M to get $100k worth of wealth in the world. You made the world poorer on net, by about $200k. But you can go buy a car for $100k. That means you are $100k. About $9.8M was basically taken from everyone else in the form of them having higher prices. It’s like you clipped everyone’s gold coins by a tiny amount.

Now it is true that you did nothing wrong. It is not stolen. This is a normative judgment—not an economic one. But it is a redistribution in wealth—this is an economic or descriptive matter. The gold mining is “wasteful” in this sense except that this cost of the gold money system is worth paying because every money system will have costs—and the advantages of having an “imperfect” money is so great it outweighs these costs.

But this does not mean you have to pretend that the gold mining in this case increased net world wealth, just because people “demonstrated their preference.” What they did was demonstrate their preference, not for having more gold mined—but rather, their preference for a world with imperfect-money-with-waste-and-costs-and-some-redistribution, over a barter society. It means actors on the market are fine with the costs of an imperfect money system. It also does not mean that you might not recognize “damn, this money we have is great, it’s like 90% perfect, but this new bitcoin money is closer to like 95% perfect.” ³

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What this all means is that figuring out what consumers are demonstrating their preference for is crucial in identifying what an action is; all action is characterized by the means employed and the ends sought. Recognizing and characterizing another’s behavior as an action instead of as mere behavior means understanding it in terms of the means-ends framework and imputing to the actor an end—his purpose in acting. The actor always demonstrates a preference for the end of his action, it is not always apparent exactly what his end is and usually requires some judgment by others when characterizing the nature of his action. For example if I buy a box of cookies from a girl scout, it might be to obtain and eat the cookie, or it may be to help out the girl scout troop.

Thus identifying the end of an actor is a matter of judgment. It is similar to the Kantian challenge of properly identifying the actual maxim of a given action—determining the subjective principle or rule that an individual uses to guide their action.

In the case of gold being mined in a way that respects property rights but still results in “waste,” redistribution, and even price inflation, it is more reasonable to say that consumers “prefer” or are okay with this practice because they prefer a system that permits non-rights violative activities that accompany the property rights and conditions that make a catallactic, monetary economy possible. People are willing to tolerate imperfections and costs of real-world, imperfect, non-ideal money because, evidently, the benefits of having an imperfect money outweigh the costs. (And as noted above, this is not incompatible with market actors preferring an even more ideal form of money, one with lower costs, such as bitcoin, if it emerged.)

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I happened to be having dinner last Saturday night (May 4, 2025) in Istanbul with Hans Hoppe, and others including Saifedean Ammous, Greg Morin, and a few others, and ran this reasoning by Hans. He immediately saw it the same way. I don’t mind operating without a net, but it’s nice to have one.