Austrian and other explanations needed (again): gold standard for currencies

[Die Neue Zeit]

[No, I don't support gold standards for currencies, and will explain my unorthodox approach when the paper is written.]



What justification is there for gold standards, other than an attempt to check on inflation?

[Demogorgon]

One could argue that it stops exchange rates from fluctuating too much, though it does so in a very inefficient way (it requires large quantities of gold to be periodically shipped across Oceans after all).

[Die Neue Zeit]

So that's it: just a throwback attempt to solve the problem of inflation? Yeesh! :(

[Demogorgon]

So that's it: just a throwback attempt to solve the problem of inflation? Yeesh! :(
You'll find a lot of them don't really understand why they support it. They just instinctively feel anything from the nineteenth century must be better than what we have now. By this I mean, they claim that, for instance, the fractional reserve system is wrong (it is actually, but they don't seem to know why) but fail to take into account that it is a fundamental component of the Gold Standard system.

Of course you could ban the fractional reserve system but that would involve rather a lot of Government intervention. I don't think many Austrians really understand this at all. I remember Tungsten saying he would do away with the fractional reserve system, so I asked him why he was suddenly so comfortable with Government regulation to ban fiduciary money and he replied he wouldn't ban it. I rest my case really:lol:

[ckaihatsu]

It is from Potosí that most of the silver shipped through the Spanish Main came. According to official records, 45,000 tons of pure silver were mined from Cerro Rico from 1556 to 1783. Of this total, 7,000 tons went to the Spanish monarchy. Indian laborers, forced by Francisco de Toledo, Count of Oropesa through the traditional Incan mita institution of contributed labor, came to die by the thousands, not simply from exposure and brutal labor, but by mercury poisoning: in the patio process the silver-ore, having been crushed to powder by hydraulic machinery, was cold-mixed with mercury and trodden to an amalgam by the native workers with their bare feet. [2] The mercury was then driven off by heating, producing deadly vapors.

To compensate for the diminishing indigenous labor force, the colonists made a request in 1608 to the Crown in Madrid to begin allowing for the importation of 1500 to 2000 African slaves per year. An estimated total of 30,000 African slaves were taken to Potosí throughout the colonial era. African slaves were also forced to work in the Casa de la Moneda as acémilas humanas (human mules). Since mules would die after couple of months pushing the mills, the colonists replaced the four mules with twenty African slaves. (Angola Maconde 1999)

http://en.wikipedia.org/wiki/Potos%C3%AD


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Used generally to describe a series of economic events from the second half of the 15th century to the first half of the 17th, the price revolution refers most specifically to the high rate of inflation that characterized the period across Western Europe, with prices on average rising perhaps sixfold over 150 years.

It was once thought that this high inflation was caused by the large influx of gold and silver from the Spanish treasure fleet from the New World, especially the silver of Peru which began to be mined in large quantities from 1545. According to this theory, too many people with too much money chasing too few goods.

The start of the price rises actually predated the large-scale influx of bullion from across the Atlantic, reflecting in part a quintupling of silver production in central Europe in 1460-1530: though this output fell by two-thirds by the 1610s, it was significant in fueling the early stages of inflation that were causing an undermining price regime in place since the previous upsurge in silver production in 1170-1320.

http://en.wikipedia.org/wiki/Price_revolution

[IcarusAngel]

"Strike out money, and one would thereby either be thrown back to a lower stage of production (corresponding to that of auxiliary barter), or one would proceed to a higher stage, in which exchange value would no longer be the principal aspect of the commodity, because social labour, whose representative it is, would no longer appear merely as socially mediated private labour." [Karl Marx,Grundrisse, Ch 4]

It seems we need to put more emphasis on "social labor" in an advanced, socialist economy.

[Die Neue Zeit]

Don't get ahead there, Icarus. I can't comment on that part until I know all the arguments against fiat money besides the usual anti-inflation rants.

[maya]

The main reason that the gold standard was abandoned back in the 1970s was that the Soviet Union and South Africa were the largest miners of gold. Either state could flood the market with cheap gold and undermine the dollar. The flood of gold into europe during the early colonial period had a similar effect - gold lost value because there was so much of it.

Bimetalism in the late 1800s gave rise to an unstable currency due to state taxes on the movement of metals.

Goldbugs and Austrians seem to think gold is magical and finite and cures fucking cancer because it is shiny and expensive. It is just as subject to manipulation as any other resource-linked currency.

[Demogorgon]

The main reason that the gold standard was abandoned back in the 1970s was that the Soviet Union and South Africa were the largest miners of gold. Either state could flood the market with cheap gold and undermine the dollar. The flood of gold into europe during the early colonial period had a similar effect - gold lost value because there was so much of it.

Bimetalism in the late 1800s gave rise to an unstable currency due to state taxes on the movement of metals.

Goldbugs and Austrians seem to think gold is magical and finite and cures fucking cancer because it is shiny and expensive. It is just as subject to manipulation as any other resource-linked currency.The Gold Standard was abandoned decades earlier than that. It was being used as a means to stabilise exchange rates under Bretton Woods until the seventies, but it was long gone as the basis for currencies before then.

The point about the Soviet Union and South Africa is a good one though. Austrians tended to support Apartheid, often very strongly, so giving that advantage to South Africa hardly bothered them, but it is ironic they wanted to give such a stranglehold over their currency to the Soviet Union.

[Skooma Addict]

Gold has been the preferred currency for hundreds of years. Originally, the dollar was defined as 1/16th of an ounce of gold (i think). Not many people these days support a genuine gold standard. Most opponents of central banking either support 100% reserve banking or free banking.

[IcarusAngel]

Since Austrians haven't really jumped in here yet to defend the Gold Standard I think I'd like to point out that it seemed that the Bretton Woods system was a good way to protect against capitalist tyranny in the sense of corporations having too much power over the federal government.

This is one of those issues best left for after the revolution imo... Really, it seems even the current Federal Reserve system, as corrupt as it is, could last for a long time and is not COMPLETE corporate tyranny.

But I'd be curious as to know what you guys think is the best system for workers as it stands now.

[maya]

Since Austrians haven't really jumped in here yet to defend the Gold Standard I think I'd like to point out that it seemed that the Bretton Woods system was a good way to protect against capitalist tyranny in the sense of corporations having too much power over the federal government.

This is one of those issues best left for after the revolution imo... Really, it seems even the current Federal Reserve system, as corrupt as it is, could last for a long time and is not COMPLETE corporate tyranny.

But I'd be curious as to know what you guys think is the best system for workers as it stands now.
The best system for workers now IMHO is greater social-political control over the production and distribution of labor and resources. There are many things money should not be used for to begin with - political power for instance. Any movement that diminishes the power of money and replaces it with democratic decsion making is win.The austrians take the polar opposite view, that everything including police and army should be bought. I'm relieved they haven't chimed in here because I doubt they could add anything new that wouldn't be a reprise of the cult of gold theme.

[IcarusAngel]

Yes. Few people here deny that socialism is better than capitalism. I've just heard some Austrian and other right-wingers (like Ron Paul) actually make the claim that the Federal Reserve is hurting the poor because of their bureaucracy and so forth and that other standards would be better for poor people.

I was just wondering if that's another Austrian lie like the claim that free-markets benefit everybody.

[maya]

Yes. Few people here deny that socialism is better than capitalism. I've just heard some Austrian and other right-wingers (like Ron Paul) actually make the claim that the Federal Reserve is hurting the poor because of their bureaucracy and so forth and that other standards would be better for poor people.

I was just wondering if that's another Austrian lie like the claim that free-markets benefit everybody.

The federal reserve is hurting the poor by bailing out corporations by creating inflation and picking winners and losers. Bureaucracy has nothing to do with it, but has a good populist dog-whistle for the Glenn Beck set.

They go on about the gold standard, but I've never heard them make the case that it would be better for the poor and working classes. Perhaps they should look into labor relations in the early 20th century to see where it would lead.

Unlike objectivists/ayn randians, austrians seem to be all over the place with what they are supposed to represent. Some are ancap, some are minarchist, some are whatever Ron Paul is (Reagan Republician?).

[Skooma Addict]

Unlike objectivists/ayn randians, austrians seem to be all over the place with what they are supposed to represent. Some are ancap, some are minarchist, some are whatever Ron Paul is (Reagan Republician?).

So?

[maya]

So?

The original question was about austrians the federal reserve. Since 'austrian' seems such a broad tent, it is possible they could have some fed supporters in there too.

[The Count]

I was reading The Revolution Betrayed when I came across Trotsky's views on having a gold standard for the Ruble:



From a technically fiscal point of view, the ruble can still less lay claim to superiority. With a gold reserve of over a billion, about 8 billions of of bank notes are in circulation in the country. The coverage, therefore, amounts to only 12.5 per cent. The gold in the State Bank is still considerably more in the nature of an inviolate reserve for the purposes of war, than the basis of a currency. Theoretically, to be sure, it is not impossible that at a higher stage of development the Soviets will resort to a gold currency, in order to make domestic economic plans precise and simplify economic relations with foreign countries. Thus, before giving up the ghost, the currency might once more flare up with the gleam of pure gold. But this in any case is not a problem of the immediate future.

In the period to come, there can be no talk of going over to the gold standard. Insofar, however, as the government, by increasing the gold reserve, is trying to raise the percentage even of a purely theoretical coverage; insofar as the limits of banknote emission are objectively determined and not dependent upon the will of the bureaucracy, to that extent the Soviet ruble may achieve at least a relative stability. That alone would be of enormous benefit. With a firm rejection of inflation in the future, the currency, although deprived of the advantage of the gold standard, could indubitably help to cure the many deep wounds inflicted upon the economy by the bureaucratic subjectivism of the preceding years.

Directly prior to this, Trotsky was addressing the dangers of inflation in the Soviet Union. Therefore, the idea of having a gold-backed currency goes back to simply stopping inflation.