Back to the gold standard?

sphinx "People who dress up like animals and bang each other outnumber your movement on Ground Zero at the anniversary of 9/11."
Posts: 222 Joined: 25-12-05
Submitted by sphinx on 14 November, 2007 - 15:03.

Hey folks,

What would be the effects on the American economy and working class of a return to the gold standard as the presidential candidate Ron Paul is calling for? This often comes up in conversations I have with ex-pats here. I'm curious what people here would say.

bozemananarchy
Posts: 282 Joined: 28-12-06 Location: Missoula Montana
14 November, 2007 - 17:20

I don't really think it would be possible, The feds will need alot more gold to back up all the currency floating around then they did back in the day.

On another note, Ron Paul is appearing to gather quite the diverse crowd. A whole bunch of hippies and other such rif-raf have been spouting on about him to me and how he wants to leave Iraq and legalise some drugs. This of course tickling the fancy of every other fucking hippie on the block. smile On the other hand he has even brought in some of the more crazy militia types to the point that they are having small demonstrations around town calling for the "Ron Paul Revolution". If the stars are lined up just right, sometimes you'll see a hippie and a militiaman helping eachother hold up a big placard.

syndicalistcat
Posts: 888 Joined: 02-11-06 Location: San Francisco USA
14 November, 2007 - 17:35

the gold standard was put into effect in the U.S. after the American Civil War. the effect of this was to restrict growth in the money supply. one effect of this was to drive down farm commodity prices, impoverishing farmers and driving a huge number of people off the land. that's because, as productivity in agriculture and industry in the U.S. grew in the late 19th century and early 20th century, growth in the money supply didn't follow suit. this led to a constant deflationary tendency. as farmers could get less and less per unit of output, they were unable to pay their debts.

the gold standard in the U.S. was implemented due to demands from Wall Street financiers. they had financed the Union Army based on paper money. they wanted to be able to redeem the debt in dollars worth more than what they provided. by tieing the dollar to gold, this would cause deflation, thus raising the value of their dollar-denominated debt.

of course in that era credit in general was extremely scarce. for example, until after World War II, it was hard to get houe mortgages in the U.S. Typically you could only get a mortgage for a short period like 7 years and there'd be a balloon payment at the end. Consumer credit only really developed in the '20s.

This is relevant to the issue of the money supply because expansion of credit expands the money supply. in reality there is no particular reason to tie money to gold. the right-libertarian types like gold because the idea is to have control of the money supply independent of the state. but the financial industry itself creates money, and in ways that can lead to dangerous crashes.

MJ "tastes like gym socks, orchards and godhead"
Posts: 1892 Joined: 05-01-06 Location: Massachusetts
14 November, 2007 - 17:46

1973

mikus "I think that even a cursory study of the 20th c shows the decay of capitalism."
Posts: 789 Joined: 18-07-06
14 November, 2007 - 18:05

What kind of gold standard is he calling for? The actual circulation of gold coin, or just the convertibility of the dollar?

I doubt it's the former, since that would be simply insane and very difficult if not impossible to do. The latter would be interesting... I'm undecided on gold money issues. I think the biggest problems with Marx's economic theory lie in this area but I'm not particularly convinced by other economic theories either. Money is a notoriously difficult subject.

Mike

syndicalistcat
Posts: 888 Joined: 02-11-06 Location: San Francisco USA
14 November, 2007 - 19:50

yeah, MJ, Nixon ended the backing of the dollar by hard metals in 1973, in a period of severe inflation driven partly by the Vietnam war. the dollar was backed by both gold and silver for awhile. Note also that paper money in the U.S. is printed by the Fed. The Fed is a privately owned entity, controlled by the capitalist banking sector.

Anarcho "Raise the Black Flag!"
Posts: 291 Joined: 22-10-06
14 November, 2007 - 20:49

Individualist Anarchists in the US in the 19th century spent a lot of time attacking the gold standard as it allowed the banks to charge extremely high interest as it, as someone noted, restricted the money supply. Of course, in practice, banks used lots of techniques to increase the supply to make more profits, of course, but it was a key means of restricting working class access to capital -- which was essential to proletarianise a mostly artisan/peasant (i.e., pre-capitalist) society.

Gold-bugs really have no idea how an economy works. If it were applied, the US economy would implode quite quickly. Attempts to control the money supply under Monetarism failed, but the high interest rates helped deepen the recession and the resulting unemployment helped break the back of labour militancy of the 1960s and 70s.

I can understand why right-"libertarians" support this nonsense (they are clueless about most things) but genuine libertarians should avoid it and those who advocate it like the plague.

fnbrill "Mocking In the Fee World"
Posts: 719 Joined: 13-01-07
15 November, 2007 - 00:14

The US went off the gold standard in 1933.

I find it curious that the Gold standard is being argued on its capitalist merits - deflationary, lack of credit, etc. For the working class, it could be seen as a relatiive boon, no inflation! During the Gold Standard period prices for goods and services dropped significantly and wages rose.

MJ "tastes like gym socks, orchards and godhead"
Posts: 1892 Joined: 05-01-06 Location: Massachusetts
15 November, 2007 - 00:48
fnbrill wrote:
The US went off the gold standard in 1933.

The dollar was "hard pegged" to gold at $35/ounce from 1945 to 1971. That's pretty much the same as a "standard."

RuPaul is crazy

syndicalistcat
Posts: 888 Joined: 02-11-06 Location: San Francisco USA
15 November, 2007 - 01:16

fnbrill is thinking of convertibility of dollars for gold. actually silver backed dollars had been introduced earlier as well, under the pressure of the silver mining interests. Deflation wasn't necessarily a good thing for workers in the late 19th century. Falling commodity prices meant that employers also were under pressure to cut wages, which they did. It was wage-cutting that provoked the Great Rebellion, the railway strike, of 1877. Recessions/depressions tend to reduce worker bargaining power, and the late 19th century was subject to continual recessionary tendencies, with a big depression in the 1870s and again in the 1890s. The Great Depression of the 1890s almost destroyed the AFL. It only just barely survived.

sphinx "People who dress up like animals and bang each other outnumber your movement on Ground Zero at the anniversary of 9/11."
Posts: 222 Joined: 25-12-05
15 November, 2007 - 15:24

From Wikipedia:

Quote:
Paul opposes inflation as an underhanded form of taxation, because it takes value away from the money that individuals hold without having to directly tax them. He sees the creation of the Federal Reserve, and its ability to "print money out of thin air" without commodity backing, as responsible for eroding the value of money, observing that "a dollar today is worth 4 cents compared to a dollar in 1913 when the Federal Reserve got in." In 1982, Paul was the prime mover in the creation of the U.S. Gold Commission, and in many public speeches Paul has voiced concern over the dominance of the debt-based monetary system and called for the return to a commodity-backed currency through a gradual reintroduction of hard currency, including both gold and silver.[19] A commodity standard binds currency issue to the value of that commodity rather than fiat, making the value of the currency as stable as the commodity.

....

Paul has also called for the removal of all taxes on gold transactions.[77] He has repeatedly introduced the Federal Reserve Board Abolition Act since 1999,[78] to enable "America to return to the type of monetary system envisioned by our Nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold"; it has received virtually no mainstream news coverage.[79] He opposes dependency on paper fiat money, but also says that there "were some shortcomings of the gold standard of the 19th century ... because it was a fixed price and caused confusion." He argues that hard money, such as backed by gold or silver, would prevent inflation, but adds, "I wouldn't exactly go back on the gold standard but I would legalize the constitution where gold and silver should and could be legal tender, which would restrain the Federal Government from spending and then turning that over to the Federal Reserve and letting the Federal Reserve print the money."[80] He supports parallel currencies, such as gold-backed notes issued from private markets, competing on a level playing field with the Federal Reserve fiat dollar. He believes this would restrain inflation, limit government spending, and eventually eliminate the ability of the Federal Reserve to "tax" Americans through inflation (i.e., by reducing the purchasing power of the currency they are holding),[81] which he sees as a sneaky and silent form of theft.

Paul suggests that current efforts to sustain dollar hegemony, especially since collapse of the Bretton Woods system following the United States' suspension of the dollar's conversion to gold in 1971, exacerbate a rationale for war. Consequently, when petroleum producing nations like Iraq, Iran, or Venezuela elect to trade in Petroeuro instead of Petrodollar, it devalues an already overly inflated dollar, further eroding its supremacy as a global currency. According to Paul, along with vested American interests in oil and plans to "remake the Middle East", this scenario has proven a contributing factor for the war against Iraq and diplomatic tensions with Iran.[82][83] National Journal rated Paul's economic policy as 51% conservative in 2006 (46% in 2005).[13]

Anarcho, I hear you man. It's just frustrating because I run into it a bit often here. People are attracted to Ron Paul as this candidate who is against the war, for drug legalization, hands off the internet, etc. and then they swallow the pill and think they hold the key to 'righting' the economy with his gold standard ideas.

My own understanding of the history of the gold standard is quite weak and so I thought I would ask here.

When was most of the American social wage introduced? Caffentzis says for instance in http://www.radicalpolytics.org/caffentzis/02-capitalist_crisis_proletarian_slavery.pdf that

Quote:
In response to the struggles of women these payments grew throughout the 1960s
and by the early 1970s the Nixon Administration was discussing a plan for a
“guaranteed national wage” that would regularize a nationally agreed upon bottom to
all citizens’ income.3 These discussions signaled an immense crisis for capital, because
one of greatest sources of profit arises from its ability to make the working class bear
the cost for its own reproduction on a daily and a generational basis. The guaranteed
income and the other aspects of the ‘welfare state,’ (e.g., the creation of a
nationalized medical care system for the elderly, Medicare, in 1965) threatened this
immense source of profit and exploitation. This development ended abruptly in the
mid-1970s.

My crude understanding of this period goes something like this: that American capital was faced with a militant labor force across several sectors which it broke down using primarily unemployment and offshoring. Funding the social wages for the unemployed led to deficit spending on the part of the government as well as an expansion of consumer credit, both facilitated greatly by the move off the gold standard to the dollar standard, which no longer tied the value (and therefore borrowing power) of American capital to existing commodities. Sound reasonable....? I want to read Loren Goldner's 'The Remaking of the American Working Class' on these points, until then I won't say anything definitive.

But what I really want to know is: what would it mean to introduce the gold standard now? Obviously a contraction of foreign investment, of credit...

syndicalistcat
Posts: 888 Joined: 02-11-06 Location: San Francisco USA
15 November, 2007 - 18:14

Inflation wasn't caused by the increments to the social wage in the '60s but by the war in southeast Asia. Offshoring isn't the explanation for declining wages. Wages have declined more rapidly or equally rapidly in construction, public utilities, transportation and retail as in manufacturing. but the "landlocked" industries can't be offshored. Threats of geographic relocation can work against manufacturing wages, but manufacturing was in the '70s only about a fourth of employment.