[P2P-F] Fwd: The Ideology of Gold.

Tue Dec 6 19:42:34 CET 2011

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From: Dmytri Kleiner/ Friends. <dk at telekommunisten.net>
Date: Tue, Dec 6, 2011 at 9:45 PM
Subject: The Ideology of Gold.
To: "Dmytri Kleiner/ Friends. Subscriber" <michelsub2004 at gmail.com>

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The Ideology of Gold.

You all know them, the "Gold Bug," often using words like "fraud" and
"debasement of our money," they decry government issued fiat money as a big
scam to rip off the masses! We need "sound money" or "real money," meaning
gold. Gold has real value, it's not "worthless" like paper!

Using gold as money, instead of government issued non-convertible currency,
will bring prosperity and stability and prevent us from being defrauded by
bakers and bureaucrats!

The concept rests on the basic premise that since gold is relatively fixed
in supply, the government can't increase the money supply, thus money is
sound. What's more, investors and savers, financial planners and contract
holders have certainty, knowing the money in their plans and bargains will
keep a stable value.

Of course, there is one small problem with this: It's hopelessly wrong.
More than just being false,
it's an ideological pretense favouring the interests of the powerful, who's
real object of disdain is redistribution of wealth from the rich to the
poor, like the majority of neoclassical theory, the real point is that
inequality is just and any attempt to help the poor will lead to economic
catastrophe.

For one, metallic currency will not prevent the money supply from growing.
Most money in the economy is created by lending, and is only tentatively
connected with the monetary base by policy and regulation, whenever a bank
lends money, it creates money, and beyond any policy or regulation, the
limit of how much money it can create is a function of the productive
output of the economy and the structure of transactions within it. Thus,
even with a metallic monetary base which the government can not increase,
the money supply can still increase through the actions of lenders and
borrowers.

The real point here is not simply controlling the money supply, but
controlling the government. Gold Bugs often characterise government
spending as wanton extravagance, telling torrid tails of Roman Emperors
Nero and Caligula, or King Charles II to illustrate their point. The
government must be kept under control! The obvious conclusion being that
rather than try to restrict the spending of potential tyrants by employing
dubious currency schemes, we instead focus on created better forms of
governance. However, better forms of governance may govern on behalf of all
the people, not just the rich, so the Gold Bugs, would rather have depraved
wanton rules, only they want to make sure these rulers are dependant on
their gold.

This is an ideological position. Constraining government spending may
prevent rulers from wanton extravagances, but also from beneficial spending
as well. In most cases, its the beneficial spending that will attract the
greater protest, as for the Gold Bug, there can no crime worse than
improving the conditions of the poor.

When pressed, the Gold Bug will admit that lending and borrowing can also
increase the money supply, every bit as much as money printing by the
government can, and what's more the government can be one of these lenders
and borrowers as well, since the government usually has an excellent credit
rating, this means it can continue still spend more gold than is collected
by borrowing it, however it must increase the income of lenders in the
process.

The Gold Bug will now launch into the second part of the diatribe, this
time not against fiat currency, but rather against "Fractional Reserve
Banking." Just as evil in their mind as the practice of printing money.
They will propose "Full Reserve Banking," where the banks are constrained
to only lend out money in proportion to what they have in long term
deposits. Since longterm deposits can not be withdrawn, the money available
to be spent is thus fixed.

With the money supply fixed, the value of money is certain to be stable!

Yet, even this is false. The value of money is not based on the volume of
money alone, but on the volume of money available in comparison to the
amount of goods that are available for purchase. Monetary Inflation is a
outcome of the ratio between monetary growth and productive growth, thus
having a stable money supply will only produce stable money value when the
economy never grows or shrinks.

Thus, even with a gold standard, the value of money is not stable. In fact,
as the economy is more likely to grow than to shrink, if the volume of
money is fixed, it's value is likely to continuously increase.

Now, who would really want money to increase in value? Those that have lots
of money.

The value of money is essentially the exchange rate of money relative to
goods and services. On one hand, providers of goods and services want more
money for what they produce, on the other hand, holders of big piles of
money want greater returns on their money. All prices fluctuate on the
market, the value of eggs is not stable to the value of corn flakes, the
value of semiconductors is not stable relative to the value of LEDs.
Fluctuations of values are best constrained, so that savings aren't wiped
out or debt rendered impossible to pay, but fluctuations are quit
manageable and deflation is certainly not preferable to inflation.

When you borrow money and you pay it back later, if the value of money goes
down you have in real terms paid back less than you borrowed, on the other
hand if the value of money goes up, you will need to effectively pay back
more than you borrow. Inflation is a transfer of wealth from lenders to
borrowers, while deflation is a transfer of wealth from borrowers to
lenders.

In many cases, borrowers include the entrepreneurs who borrow money to
invest in new business and who create economic growth. Thus deflation is
also a transfer of wealth from entrepreneurs to money lenders. So far form
being an great economic boon, so-called "sound" money, is actually a
constraint to building the capacity for creating more wealth. The ones that
benefit are those that are already rich.

Make no mistake, promoters of Gold Standards and Full Reserve Banking are
promoters of the interests of the rich, and are not so much interested in
economic stability, but in class stability: making sure the rich stay rich
and the poor stay poor.

There can be no such thing as "sound" money, money is a relationship, a way
of keeping track of what we do for each other in a large impersonal
economy. The amount of money there can be is limited only by the amount we
can do for each other. The aggregate of all the things that we do and make
for each other is called the economy. The right amount of money to have is
that which is enough for anybody who wants to buy something from anybody
that wants to sell something, in other words, the amount of money needs to
only to stay stable relative to how much their is for sale. A free economy
can not be constrained by people who want to get richer just by hoarding
the currency everybody else needs to conduct their exchanges. Paper money,
and other forms of credit are not "worthless," any more than a contract is
"worthless." Its worth comes from the promises that it represents, and we
should not be limited in what we can promise each other.

If government is untrustworthy, then we need new democratic forms to take
its place, not try to constrain it by tying its spending to some arbitrary
volume of metal, and if the banking system is not managing our money
supply, we can not help ourselves by adding even more limits on how credit
can capital can be formed, but rather we need to create ways to create
credit and capital amongst ourselves. Gold Standards and Full Reserves
don't help us do any of these things, what they do is chain us even more to
the established distributions of wealth and power and help conserve the
structure of wealth, at the expense of our common wealth.
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