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Could an Increase in the Supply of Gold Cause a Boom-Bust Cycle?

Could an Increase in the Supply of Gold Cause a Boom-Bust Cycle?
Gold nuggets, flakes and dust mined from the creeks and rivers of California, in a file photo. Don Bendickson/Shutterstock
Frank Shostak
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Commentary

According to the Austrian Business Cycle Theory, an artificial increase in the money supply via central bank expansionary monetary policy lowers the market interest rate. This, in turn, causes the market interest rate to deviate from the natural rate, determined by the market. Consequently, this leads to the boom-bust cycle. Understanding this, on the gold standard, where money is gold—and assuming that there is no central bank—an increase in the supply of gold will also result in the lowering of the market interest rates.

Frank Shostak
Frank Shostak
Author
Frank Shostak, Ph.D., is an associated scholar of the Mises Institute. His consulting firm, Applied Austrian School Economics, provides in-depth assessments and reports of financial markets and global economies. He has taught at the University of Pretoria and the Graduate Business School at Witwatersrand University.