The Gold Standard and the epoch of Imperialist decay

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Zanthorus
The Gold Standard and the epoch of Imperialist decay
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For various reasons I've recently been very interested in the theory of money and the question of the gold standard. It seems to me pretty undeniable that Marx has a commodity theory of money rather than just using the gold standard in his analysis because it was common at the time (As some seem to believe), otherwise his polemics against the Proudhonist schemes for expanding the credit supply by replacing specie with fiat currency would seem a bit incomprehensible, and it is pretty clear that Marx regards fiat currencies as a source of inflation. This also seems pretty well confirmed by the 20th century which so far has seen unprecedented (from the standpoint of 19th century capitalism) inflation at around the same point that specie currency was abandoned.

The problem I have is explaining why. Edgar Hardcastle, the SPGB economist who wrote a bit on the subject of Marx and inflation, seemed to regard it as basically a consequence of the ruling-class being overwhelmed by Keynesian ideology, as do most of the Austrian works on the subject (surprisingly, or perhaps not so suprisingly given that they were also pretty hostile to money cranks like Proudhon or Duhring, the latter even being mentioned by Mises in his notes on the history of the theory of money in the appendix to The Theory of Money and Credit, the Austrians seem to have some strong commonalities with Marx on the theory of money) which is not a very satisfying explanation.

One thing I did notice was that the abandonment of the gold standard by most of the major world powers coincides roughly with the 'epoch of imperialist decay'/'era of capitalist decadence', which gave me a vague thought that the abandondment of the gold standard might have been useful in facilitating economic imperialism. I'd be interested if any ICC'ers have any thoughts on this topic or can link me to anything that might help in drawing some kind of question. It seems that this is an obvious concrete example of a qualitative difference between 19th and 20th century capitalism which would go a good deal towards clarifying the concept of decadence.

d-man
commodity money

In the french section there's a recent article (Mort à crédit) which mentions Texas university changed its entire treasury to gold. I agree there's a lot of room for concrete research to be done in this area (this site goes somewhat deeper, e.g. an article on what would it be like for a return to the gold exchange standard).

Ron Paul FTW!

 

 

 

jk1921
I believe the ICC has written

I believe the ICC has written about the connection between the abandonment of the gold standard and the onset of decadence in some theoretical depth somewhere.

I think the infatuation parts of the bourgeoisie have with the gold standard lately, especially in the US--where it is a point of quasi-religious devotion for the right, is a reflection of the ideological decomposition of the bourgeoisie. They are running out of ideas about how to manipulate the economy, there is a sense of doom setting in--some of it real, some of it highly dramatizied and used as a political club--about the fate of the country. There is a sense that something is wrong with the system, but they don't know quite what it is (other than that it has something to do with central banks flooding the country with worthless money), so there is a tendency to fall back on GOLD as a tangible, physical substance of real wealth, the return to which will right the ship, eliminate inflation, prevent destructive bubbles, etc.

There was a similar tendency in the early modern era to see SILVER as the only real substance of wealth, such as in the debates surrounding the recoinage of the pound sterling at the end of 17th Century (in response to rampant coin clipping). It was one of Locke's central concerns that the coin of the realm have a real physical substance to it and that it not be manipulated by the state. Caffentzis has written about this I think. There was of course constant debates in the first half century of U.S. history over the charter of the Bank of the United States, with its opponents (most importantly Andrew Jackson) defending some kind of specisism.  More and more, in late decadence, the bourgeoisie reverts to an earlier state of thinking characteristic of its youth. I guess there is some comfort in it.

Is there some truth to the idea that the abandonement of the gold standard signals something seriously "wrong" with captialism on the historical level? Probably, but all this metallism, besides being somewhat cooky in its current incarnation, strikes me as obscuring the fundamentally social nature of captialism as a product of human society. It seems like there is a quest to found wealth on something real, tangible, pre-social or whatever, when in reality it is a product of human social relations. Of course, it is somewhat surpising to hear certain things the communist left says echoed (in a completely distorted way of course) by the whaky right-wing. But maybe it shouldn't be, sometimes we end up saying similar things about the unions! 

Zanthorous, can you give some direction on what to read regarding Marx's take on this, i.e. his critique of the Proudhonist schemes, etc? What do you mean by Marx as a "commodity theorist of money"? Is this like the "barter theory of money"?

d-man
equivalent commodity

I don't know if there are ICC texts dealing specifically with the gold standard in connection to decadence, it  certainly seems to be a gap (and this goes for marxist economics in general). Jk, maybe zanthorus is refering to ch. 2 of the rough draft.

Commodity theory of money is an essential part of Marx's overall theory, as Kautsky's review of Finance Capital says:

Quote:
There is only one point where I cannot follow Hilferding: that is his conception as though the money commodity (gold or silver) could be replaced by paper not only as a means of circulation, but also as measures of value. The real measure of value is not metal money, but the total value of the wares to be circulated (the time of circulation remaining the same) of the “socially necessary circulation value” as he calls it.

Hilferding is probably not of opinion that irredeemable paper-money as such could be the measure of value. He rightly ridicules Professor Lexis, who asserts this in the Hand-Dictionary of the State Sciences. But he does not improve matters by twisting the relationship between money and commodities, and making of the mass of commodities a measure of value, and also the creator of value in paper-money. In order, then, to make this paper-money, thus provided with a certain value, the measure of the value of the commodities, he declares:–

“Of course, all commodities are still (in pure paper currency), as before, expressed, ‘measured,’ in money. (Not gold! – K.) Money appears still, as hitherto, as the measure of value. But the greatness of the value of this “measure of value” is no longer determined by the value of the commodity which creates it, the value of the gold, the silver, or of the paper. On the contrary, this value is in reality determined by the total value of the commodities to be circulated (the date circulation remaining the same). The real measure of value is not money, but the bank-rate is determined by that which I should like to call the socially necessary value of circulation.” (Page 29.)

This, evidently, can mean nothing else than that the real measure of the value of commodities is not the money, but the real measure of the value of the money is the commodity.

If the value of the money could be determined in this way by the “socially necessary value of circulation,” that would mean the negation of the law of value for the money-commodity; it would be saying that for the latter the value is not determined by the socially necessary labour time needed for its own production. The universal applicability of the law of value would be broken through, and that would be all the more in this case, in that this would happen just in the case of the money-commodity, “the commodity the natural form of which is at the same time the immediate social social form of realisation of human labour in abstracto.” (Capital, I., page 124)

There is no necessity for any such Marxist suicide. The phenomena, which appeared after the cessation of the free coining of silver in different countries during the last decades, and on which Hilferding bases this idea, can be easily explained in other ways.

Zanthorus
commodity theory of money

jk1921 wrote:
It seems like there is a quest to found wealth on something real, tangible, pre-social or whatever, when in reality it is a product of human social relations.

It is not simply a product of human social relations though, it's a product of the atomisation of the producers, as a result of which the social relations between the producers become objectified. Money is not merely a thing, an instrument, but nor is it a mere sign or symbol, which is what you seem to be implying here, it is a materialised social relationship, the mediation between the individual labourer and the total social labour. That money is something tangible and material is as necessary and as little in contradiction with the fact that it represents a social relationship as the fact that commodities in general express social relations between the producers.

Quote:
Zanthorous, can you give some direction on what to read regarding Marx's take on this, i.e. his critique of the Proudhonist schemes, etc?

d-man already linked to the relevant section of the Grundrisse.

Quote:
What do you mean by Marx as a "commodity theorist of money"?

Well, it's difficult to pin down exactly, but commodity theorists of money all tend to view the origins of money as being it's existence as a commodity on the market, and the value of money as being determined like any other commodity, whereas e.g. the state theorists or chartalists see money as being imposed on society by the state.

Alf
 Interesting that you should

 Interesting that you should raise this. We are actually beginning a discussion about the role of money and in particular the question of inflation, which I hope will give rise to some new texts soon. We would certainly put ourselves in the 'commodity theory' camp along with Marx, but it seems to us that one of the hallmarks of the decadent period, and above all in the last few decades, has been the growing divorce between money and value as expressed in the development of unrepayable debt, fictitious capital, quantitative easing, speculation of all kinds.... 

shug
Alf's last reference to the

Alf's last reference to the divorce between money and value + unrepayable debt, fictitious capital etc seems to go to the heart of an analysis of capitalism's current crisis. There seems to be a real need for the discussion that he mentions - but why does such discussion have to be internal within the ICC, leading to "some new texts soon"? There can't possibly be security issues in such discussion. Isn't there a real danger that this approach makes your organisation appear monolithic? Is it possible that this approach to debate is a legacy of the time when discussion depended on hard copy and, with the internet, is now inappropriate and counter-productive? 

Zanthorus
Ricardo and International Trade

One interesting thing I found was that Ricardo's first pamphlet on economics which actually dealt with this very question (specie vs fiat or in the language of the times contertibility vs inconvertibility) was written in the context of the Napoleonic wars. It seems the disconnect of the bank-notes issued by the government from the bullion reserves in the bank of england vaults was drawn because the government needed to keep printing bank-notes to pay off it's war debts, but with a convertible currency it was draining the bank's bullion reserves to below critical level. This also ended up causing an inflation of about 30% however, which was blamed on various factors at the time, although Ricardo's pamphlet insists on the obvious that the depreciation of the currency was due to the fact that they kept rolling the stuff off the printing presses. It seems they returned to the gold standard in 1821 however. A similar thing seems to have occured in WWI with central banks becoming less keen to convert bank-notes into bullion because governments had been rolling the stuff off the printing presses in order to keep paying debts incurred in war-time (witness the infamous hyperinflation of weimar-era Germany) and the continuation of convertibility would've completely depleted their bullion reserves. Only this time the abolition of convertibility was permanent, at least legally (as Marx said, as long as they advocate the continuation of markets the advocates of 'inconvertibility' are just as much advocates of 'convertibility' as it's explicit champions, they merely deny it it's political expression).

jk1921
Monolithism

shug wrote:

Alf's last reference to the divorce between money and value + unrepayable debt, fictitious capital etc seems to go to the heart of an analysis of capitalism's current crisis. There seems to be a real need for the discussion that he mentions - but why does such discussion have to be internal within the ICC, leading to "some new texts soon"? There can't possibly be security issues in such discussion. Isn't there a real danger that this approach makes your organisation appear monolithic? Is it possible that this approach to debate is a legacy of the time when discussion depended on hard copy and, with the internet, is now inappropriate and counter-productive? 

Why would internal discussions lead to accusations of monolithism?

ernie
Matticks and the Gold Standard

 Paul Matticks snr makes an interesting analysis of the role of the Gold Standard and its demiss in his series of essays collected in Economics Politics and the Age of Inflation. This book was issued in 74 and at the time we made a critique of his analysis iof inflation for not taking the weight of unprductive expenditrue, especially by the state, into his analysis sufficiently. The critique was published in WR no 2, unfortunately is it not available on-line. Aside from this critique these essays contain a very interesting analysis of the role of inflation especially in the essays The Destruction of Money and Deflationary Inflation. On the historical level there is an informative historical article on the causes and impact of the Great Depression: The Great Depression and the New Deal.

ernie
Hardcastle and inflation

Zanthorus

Thank you for the links to Hardcastles interesting articles on inflation (he also makes interesting points about the reality of the post war boom and the claims about productivity growth). His analysis of the role of the weight of state spending is limited but he makes it very clear that inflation is an expression of the 20th century (or what we would call decadence).

Zanthorus
Thanks for the Mattick

I'm glad my post was of use re. Hardcastle. Thanks for the Mattick reccomendation.

d-man
Alf wrote:We are actually

Alf wrote:
We are actually beginning a discussion about the role of money and in particular the question of inflation, which I hope will give rise to some new texts soon. We would certainly put ourselves in the 'commodity theory' camp along with Marx, but it seems to us that one of the hallmarks of the decadent period, and above all in the last few decades, has been the growing divorce between money and value as expressed in the development of unrepayable debt, fictitious capital, quantitative easing, speculation of all kinds....

bump, did the discussion bring some advance?

Robert Kurz's last book "Geld ohne Wert" is topical, but I doubt that even it can add much clarity.  David Graeber sees the end of the gold-dollar-standard in 1971 as an epochal change (he says we're possibly living in the beginning of a new centuries long era of history), but can't theorise it. And then there is the popular literature by gold bugs predicting the collapse of the dollar; are they just an impotent response to the decadence of capitalism?

How does a gold-standard operate, can it exist without convertibility (say, if the Fed would try to keep the gold price of a dollar stable - a peg, but without necessarily stating this policy, like it seems was the case under Greenspan)? The amount of gold reserves in a central bank (so called 100% "backing") it seems is irrelevant for the value of money (and what money: M1, M2).

However is the situaton in the last 4 decades totally unprecedented, or is there rather not continuity as well? Consider the following:

Quote:

The government is on the brink of bankruptcy. It has reduced the country to ruins and scattered it with corpses. The peasants, worn out by suffering and hunger, are incapable of paying taxes. The government gave credits to the landowners out of the people’s money. Now it is at a loss as to what to do with the landowners’ mortgaged estates. Factories and plants are at a standstill. There is unemployment and a general stagnation of trade. The government has used the capital obtained by foreign loans to build railways, warships, and fortresses and to store up arms. Foreign sources have now been exhausted, and state orders have also come to an end. The merchant, the supplier, the contractor, the factory owner, accustomed to enriching themselves at the treasury’s expense, find themselves without new profits and are closing down their offices and plants. One bankruptcy follows another. Banks are failing. All trade exchanges have been reduced to the barest minimum. The government’s struggle against revolution is causing daily unrest. No one is any longer sure what the morrow will bring.

Foreign capital is going back home. “Purely Russian” capital is also seeping away into foreign banks. The rich are selling their property and going abroad in search of safety. The birds of prey are fleeing the country and taking the people’s property with them.

For many years the government has spent all its state revenue on the army and navy. There is a shortage of schools. Roads have been neglected. In spite of this, there is not enough money even to keep the troops supplied with food. The war was lost partly because military supplies were inadequate. Mutinies of the poverty-stricken, hungry troops are flaring up all over the country.

The railways are economically sick through the government’s fault. Many millions of roubles are needed to restore the railway economy.

The government has pilfered the savings banks, and handed out deposits to support private banks and industrial enterprises, often entirely fictitious ones. It is using the small saver’s capital to play the stock exchange, where that capital is exposed to risk daily.

The gold reserves of the state bank are negligible compared with the existing claims of government loans and the demands of trade turnover. It will be reduced to nothing if gold coin is demanded for every transaction.

Taking advantage of the absence of any control of the state finances, the government has long been issuing loans which far exceed the country’s means of payment. With these new loans it is covering the interest on old ones.

Year after year the government issues false accounts of expenditure and revenue, showing both to be less than they are in reality and robbing indiscriminately to show a surplus instead of an annual deficit. Officials are free to rob the treasury which in any case is already exhausted.

...

http://www.marxists.org/history/ussr/government/1905/11/27.htm

Here (p. 75) btw is an anecdote how German citizens in 1914 felt when the gold standard was abandoned.

d-man
Interest rate swaps

Often the figure of around 700 trillion dollars for the amount of derivatives is cited in order to warn for inflation or such, but if you look e.g. only at interest rate swaps which make up the majority of derivatives, then I think what is counted is their notional amount (wikipedia):

Contrast a bond with an interest rate swap:

  • In a bond,the buyer pays the principal amount at issue (start), then receives coupons (computed off this principal) over the life of the bond, then receives the principal back at maturity (end).
  • In a swap, no principal changes hands at inception (start) or expiry (end), and in the meantime, interest payments are computed based on a notional amount, which acts as if it were the principal amount of a bond, hence the term notional principal amount, abbreviated to notional.

But this huge figure of over 700 trillion dollars which is always thrown up, is based on the nominal amount, which is actually pretty irrelevant; as the same report of the BIS itself states:

Nominal or notional amounts outstanding provide a measure of market size and a reference from which contractual payments are determined in derivatives markets. However, such amounts are generally not those truly at risk. The amounts at risk in derivatives contracts are a function of the price level and/or volatility of the financial reference index used in the determination of contract payments, the duration and liquidity of contracts, and the creditworthiness of counterparties. They are also a function of whether an exchange of notional principal takes place between counterparties. Gross market values provide a more accurate measure of the scale of financial risk transfer taking place in derivatives markets.

My impression is thus that this big number is not relevant to the issue of the value of money.