Commentary on Political Economy

Tuesday 30 August 2011

Gold and Labor Standards - Part 4

So the reason why some sections of the capitalist elite long nostalgically for... "the golden age" of the Gold Standard is precisely, as we saw in the previous Parts, that the Gold Standard introduces a strong element of "automaticity", of "impersonality", of "objectivity" to the workings of the capitalist economy to the degree that individual capitalists are left to their own devices (with the repressive assistance of the State, through police and the military) in dealing with worker antagonism over wages and living standards. The Gold Standard emphasises the "private nature" of the ownership of social resources by enjoining to the State not to interfere with the money supply by "printing money".

The problem with the alleged "automaticity" of the Gold Standard is that it is not "automatic" at all! In reality, not only is a regime of specie convertibility strictly unrealistic because there is simply not enough "gold metal" to satisfy the needs of convertibility. Not only is the Gold Standard "deflationary" because it leads to a downward spiral of falling wages, falling consumption and therefore falling production and investment... leading to more falling wages, and so on, until the social fabric itself is torn asunder. But the chief problem with metallic or commodity money (such as gold) is that it is so "private" that capitalists tend "to hoard it" at the very earliest sign of economic or financial crisis!! In other words, just when gold is needed to ensure that falling wages are met with rising investment, the loss of confidence that ensues any recession leads to the collapse of "convertibility"! - With disastrous consequences, as you may imagine!

So we may already begin to foreshadow why the Labor Standard is not only "preferable" to the Gold Standard - but also why it is indeed "inevitable" that "fiat money" and floating or flexible exchange rates become the norm. We will look at these reasons in our next intervention.

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