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The benefits of expediting government gold sales

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  • Henderson, Dale W.
  • Salant, Stephen W.
  • Irons, John S.
  • Thomas, Sebastian

Abstract

Additional gold can be made available either by mining at high cost (approximately $250 per ounce in 1997 dollars) or by mobilizing government stocks at zero cost. Governments own massive above‐ground stocks but loan out only a small percentage of these stocks. Making all government gold available for private uses immediately through some combination of sales and loans maximizes total welfare from private uses, a consequence of the first welfare theorem. We simulate a calibrated version of our model to quantify the effects of liquidating government stocks on alternative dates. If governments sell immediately rather than never, total welfare increases by $340 billion; if they make an unanticipated sale in 20 years, $105 billion of that amount is lost. By depressing prices, such sales benefit depletion and service users but injure private owners of stocks above and below‐ground. However, the injury to above‐ground stock owners is more than offset by the benefits to service users—often the same individuals. Mine owners would be the principal losers; however, they could be compensated (twice over) from government sales revenue without any need for tax increases.
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Suggested Citation

  • Henderson, Dale W. & Salant, Stephen W. & Irons, John S. & Thomas, Sebastian, 2007. "The benefits of expediting government gold sales," Review of Financial Economics, Elsevier, vol. 16(3), pages 235-258.
    • Handle: RePEc:eee:revfin:v:16:y:2007:i:3:p:235-258
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    1. Dale W. Henderson & John S. Irons & Stephen W. Salant & Sebastian Thomas, 1997. "Can government gold be put to better use?: Qualitative and quantitative policies," International Finance Discussion Papers 582, Board of Governors of the Federal Reserve System (U.S.).
    2. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-648, August.
    3. Robert P. Flood & Peter M. Garber, 1987. "Gold Monetization and Gold Discipline," Palgrave Macmillan Books, in: Robert Z. Aliber (ed.), The Reconstruction of International Monetary Arrangements, chapter 10, pages 183-211, Palgrave Macmillan.
    4. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39(2), pages 137-137.
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    Cited by:

    1. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.

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