Can commodity money lead to boom-bust cycles?
Would it make any difference if the money stock was expanded due to a rising demand for money? The answer is no. What matters here is that new money which is not backed up by any real goods and services was created. This in turn means that regardless of the reasons an increase in money supply always leads to the impoverishment of wealth producers and to the boom-bust menace. Is this conclusion also valid for commodity money? The introduction of money made it possible for individuals to specialise and engage in trade on a much wider scale than the barter economy would have permitted. Historically, many different goods have been used as the medium of exchange. On this Mises wrote that, over time, there would be an inevitable tendency for the less marketable of the series of goods used as media of exchange to be one by one rejected until at last only a single commodity remained, which was universally employed as a medium of exchange; in word, money.” (Ludwig von Mises, The Theory of Money
