Debating the Gold Standard and other Problems

[¿Que?]

So I've been hanging out at Occupy Nunya a lot, and I hear a lot of people talking about ending the fed and investing in gold and that our currency is not back by gold and other arguments of this nature. I think the left in our city has been very good about confronting these folks by not letting them take the reigns of the "movement" however, I don't think the left has been strong in responding to their actual economic arguments.

So let me lay down a couple of arguments and maybe people can post responses to them.

1. There is nothing inherently wrong with capitalism, we just need to end the fed.

2. The dollar is losing value (or our economic problems are due to) the fact that the dollar is not backed by gold.

3. Everyone should take their money out of BoA and invest in gold.

Also, if you can clarify what the fed does and wtf fiat money is, that'd be great too. I'll be on wikipedia while I wait for responses.

Thanks.

[Die Neue Zeit]

Ask Paul Cockshott about tying currencies instead to labour hours. As currencies depreciate, labour's purchasing power tends to depreciate as well.

[¿Que?]

Ask Paul Cockshott about tying currencies instead to labour hours. As currencies depreciate, labour's purchasing power tends to depreciate as well.
Much appreciated. Can you recommend a specific article detailing what you just said?

[Die Neue Zeit]

http://reality.gn.apc.org/econ/Berlinpaper.pdf

[Klaatu]

1. There is nothing inherently wrong with capitalism, we just need to end the fed.

I have no idea if there "is something wrong with the Fed" or not, but we DO need to end Capitalism.



2. The dollar is losing value (or our economic problems are due to) the fact that the dollar is not backed by gold.

That is utter nonsense. That's because the standard gold price itself can be reset (which it has been during it's tenure) so then what's the point of having a gold standard anyway; it becomes a redundancy, because it can be legally debased (according to the U.S. Constitution, actually)



3. Everyone should take their money out of BoA and invest in gold.

There's nothing wrong with buying gold, but it is not really the best investment. The best investment a person can make is in their own education and the tools of their trade.

[the Left™]

Wouldnt moving to a gold standard just accelerate inequalities because of gold reserves being finite and having less ways to redistribute wealth?

[Apoi_Viitor]

Also, if you can clarify what the fed does and wtf fiat money is, that'd be great too. I'll be on wikipedia while I wait for responses.

Thanks.

I guess you never had a libertarian phase...

Fiat money = paper money that is not "intrinsically valuable".

Basically, the argument for ending the fed and reverting to the gold standard is this.

The Fed usually deflates the value of currency to increase consumer spending. This causes a distortion in the market, which in turn causes businesses to go awry.

Reasons why this is wrong:

Money backed by Gold is still subject to random fluctuations. The key difference is that by having a fixed commodity that backs a currency, the govt can't really manipulate it. Also, currency fluctuations and market fluctuations were much more volatile under the gold standard.

I think this is the only link on "Austrian" economics that I have bookmarked, but:
http://krugman.blogs.nytimes.com/2010/12/19/paleomonetarism/

[Klaatu]

There is one basic tenet the gold standard people do not realize is this: A country's supply of money must increase to accommodate increasing population. That is, more gold must be mined and coined into currency (or paper, credit, and electronic funds "backed" by gold) or else wage/price collapse can occur. And this in turn leads to an intrinsic volatility of employment, market value, and other domino-effect chaos.
It is simply about a shortage of money (money itself obeys the laws of supply-and-demand!)

The present system of floating exchange rates, while not perfect, is superior to the "fixed price" of the now-archaic gold-standard system.

Think of gold standard as a capitalist system, needing to be put to rest and buried forever (this process was actually complete by 1971)

[Veovis]

There is one basic tenet the gold standard people do not realize is this: A country's supply of money must increase to accommodate increasing population. That is, more gold must be mined and coined into currency (or paper, credit, and electronic funds "backed" by gold) or else wage/price collapse can occur. And this in turn leads to an intrinsic volatility of employment, market value, and other domino-effect chaos.

And then the workers' revolution!

Hey - maybe we should be supporting this. :blink:

[Klaatu]

And then the workers' revolution!

Hey - maybe we should be supporting this. :blink:

Do you mean what I think you mean: actually go back to a gold standard so the economy can collapse,
and then we can finally take over and eliminate capitalism? :tt1:

[Lynx]

Gold is popular between crisis, and too inconvenient the rest of the time. The odds of reverting to feudalism are greater than resurrecting the gold standard.

[¿Que?]

Ok folks, I don't ask much from this community, but I will need your help soon. I am about to get into it about this very subject on facebook, and I am woefully undereducated on the subject. I posted some Krugman articles (I knwo I know, bourgeois economist and whatnot) but I will need a strong communist case against the gold standard. The liberal economics is only going to get me so far...

I'll keep you guys posted.

[Paul Cockshott]

Advocacy of the gold standard has historically been the perogative of spokesmen of the most extreeme rentier interest. The aim of the latter in proposing it is preserve as far as possible the real value of loans made by the banks to other sections of society. The present crisis however arises, as did that of the 1930s, from the fact that the mass of loans by the banks exceeds what the rest of society can pay back.
If indebtedness by states and individuals ( mortgage, credit cards etc) is to be reduced then in consequence the balancing assets of the banks and rentier class in general must be reduced.
The debts can not be 'paid back' by the state since the state is not a source of new value. State revenue comes from taxation, so the only effective ways to reduce state debt are:
a) an increase in the taxes levied on the rentier class, so that their assets are taxed away to pay off the debt
b) inflating the currency to reduce the real value of all debt - state debt included
c) open cancellation of debts - which is likely to occur with Greece

A move to a gold standard is a way of preventing solution b. Since those who propose the gold standard also oppose solutions A) AND c) any move towards it at the present day would indicate a victory for the most reactionary monetary policies - ones which prevent any real solution and in Jennings Bryan said would crucify the economy on a cross of gold.

[JamesH]

Advocacy of the gold standard has historically been the perogative of spokesmen of the most extreeme rentier interest. The aim of the latter in proposing it is preserve as far as possible the real value of loans made by the banks to other sections of society. The present crisis however arises, as did that of the 1930s, from the fact that the mass of loans by the banks exceeds what the rest of society can pay back.
If indebtedness by states and individuals ( mortgage, credit cards etc) is to be reduced then in consequence the balancing assets of the banks and rentier class in general must be reduced.
The debts can not be 'paid back' by the state since the state is not a source of new value. State revenue comes from taxation, so the only effective ways to reduce state debt are:
a) an increase in the taxes levied on the rentier class, so that their assets are taxed away to pay off the debt
b) inflating the currency to reduce the real value of all debt - state debt included
c) open cancellation of debts - which is likely to occur with Greece

A move to a gold standard is a way of preventing solution b. Since those who propose the gold standard also oppose solutions A) AND c) any move towards it at the present day would indicate a victory for the most reactionary monetary policies - ones which prevent any real solution and in Jennings Bryan said would crucify the economy on a cross of gold.

Is returning to a gold standard still in the interest of the rentier class? It seems they're doing fine on their own within the current system of sovereign currency.

What were the class interests at the time of the Great Depression that propelled the US to abandon the gold standard?

[Die Neue Zeit]

^^^ I think the strata interests, not class interests, behind that abandonment were those of trade capital, with finance capital subordinated to it. This occurred years before the neoliberal onslaught of trade capital with subordinated finance capital.

[Jose Gracchus]

I think Boris Kagarlitsky's "trade/industrial capital" model has a lot of holes. Isn't he a MR-type underconsumptionist? I remember him trying to claim modern Russia is more ideally capitalist/classical liberal than the West once, which is really dumb and is like the polar opposite of Ticktin's treatment of the Putin-era Russian social formation, plodding along after Stalinism.

[Die Neue Zeit]

I think Boris Kagarlitsky's "trade/industrial capital" model has a lot of holes.

That's only because it hasn't been developed further, which I suggested in the Weekly Worker should be done. I like his refreshing take, as it knocks down the hypes of finance capital and financialization.


Isn't he a MR-type underconsumptionist?

I don't think so. Source?


I remember him trying to claim modern Russia is more ideally capitalist/classical liberal than the West once, which is really dumb and is like the polar opposite of Ticktin's treatment of the Putin-era Russian social formation, plodding along after Stalinism.

Did he? His articles in the Moscow Times are critical of Russia's economic backwardness.

[Revolution starts with U]

1. There is nothing inherently wrong with capitalism, we just need to end the fed.

There is a lot inherently wrong with capitalism and ending the FED is not an option.



Also, if you can clarify what the fed does and wtf fiat money is, that'd be great too. I'll be on wikipedia while I wait for responses.

Fiat money is money established by the "good nature" of the government; ie, "legal tender."

[Paul Cockshott]

Is returning to a gold standard still in the interest of the rentier class? It seems they're doing fine on their own within the current system of sovereign currency.

What were the class interests at the time of the Great Depression that propelled the US to abandon the gold standard?
Returning to the gold standard is impossible given the need for the amount of credit to grow at least in line with capital accumulation. Consider the problem Marx starts out with explaining m-c-m' ie, the exponential growth in the monetary value of capital in the hands of Mr Moneybags. If you have a gold standard the aggregate stock of money capital can only grow at a rate proportionate to the growth of the world gold stock. As we show in staffnet.kingston.ac.uk/~ku32530/PPE/cockshott.pdf
the gold stock has grown only at 1.6% per annum over the last century. The gold standard tends to hold down the growth of m-c-m' to this rate unless it is supplemented by a growth in commercial credit based on fractional reserve banking. However that type of growth in credit used to hit periodic crises when the ratio of gold to bank liabilities grew too high. At the present time, due to the rapid spread of the capitalist system of production to new areas of the world, the world capital stock is probably growing at about 7% per annum, so any attempt to tie the growth of world money stock to gold would mean a very strong deflationary pressure - prices in gold coin would have to fall at about 5.5% per annum. If all debts were denominated in gold coin, then those who held debt, the bond holding class, would be in a position to appropriate an ever growing portion of the capital stock. The effect of this would be to put a large number of industrial firms out of business as they would be unable to survive and pay their debts in such a deflationary environment: look at the early 30s for comparison. But now the situation would be much worse because the ratio of world growth in value ( in embodied labour hours ) to growth in gold stock is much more extreeme than in the 1930s since we have had 80 years during which the growth in value has far exceeded the growth in gold stocks. The world deflationary consequences of a shift to the gold standard would be extreeme.

[u.s.red]

I think the total value of the world economy is something like 75 trillion u.s. the value of all the gold in the world, i suspect, is less than 1 trillion. a guaranteed , sure fire way to create the worst depression in the history of the world is to go back to the gold standard

[blackandyellow]

A lot of the time you will hear people say things like "the Fed is responsible for debt as it charges our government debt to print money" or something like that. However in reality, any profits the Fed makes are rebatted back to the treasury.

[IndependentCitizen]

I'll just add; those arguing for the return of the gold standard tend to be right-wing libertarians....