Loyalties

One of the newly rich founders of Facebook, Eduardo Saverin, renounced his U.S. citizenship in favor of Singapore. There is much speculation about the reasons, but Mr. Saverin has denied that it was for financial reasons. He said it made things simpler.

Whatever the reasons, Mr. Saverin demonstrated a serious problem with the idea that it would be easy for the government to raise more money by increasing the taxes on the rich,. It is not easy to pin down the rich and take their wealth. They are mobile and have the power to escape.

Furthermore, the loyalty of the rich is to the markets, generally speaking, not to a place or a political system. Sure, many of the rich will pay a high price to be American, but the higher we raise that price, the higher the number of rich who will leave. Keep in mind that this includes rich companies as well as rich individuals.

If you have read the other works on "The Other Side Of Capitalism," you may have asked yourself who are the rich and who are the poor. Now you have the answer. The rich are those who have the resources to escape from where they are in order to chase opportunities or avoid problems. The rest are poor whether they are called "middle class" or not. That is why the rich are "external" and the poor are "internal," no matter what their personal feelings may be.

So the poor are those who do not have the resources to escape. Generally, they are those who travel very little outside their own country and who make their livings primarily in the currency of their home country. Also, they are generally net borrowers – their debts exceed their cash. (Some would say that their debts exceed their "assets" rather than their "cash," but the events of the Great Recession show for example that house prices can vary widely. One's assets may not be worth as much as one expects when the crunch comes and you have to pay in cash. Your safety net can disappear and you will not know it until it is too late.) Most of the poor belong in the "internal" markets.

Let us not take this metaphor too far about the rich being "external," however. Google is an American company and Warren Buffett is an American citizen, for example. They probably take their American roots very seriously. At the same time, however, Warren Buffett will move capital from America to China if he sees opportunities there. Also, it is commonly known that Google's growth prospects are better in China than in the U.S. As a result, Google finds itself squeezed between freedom of speech and hitting its expected financial goals. We cannot expect Google to be a strong advocate of free speech and the American way if it has to compromise with the Chinese.

The same is true of Warren Buffett, though let us not pick on Mr. Buffett in particular – think of George Soros or Bill Gates if you prefer. In the same way, you may want to think of Ford or Caterpillar rather than Google. The common factor among them is that all of them need to go where the growth is in order to maintain their riches. To the extent that their businesses grow faster in China, for example, their political and business outlook becomes more Chinese and less American.

The consequences of this include not just the growing disparity of income and wealth between the rich and the poor, but the growing divergence in interests and prospects. The interests and prospects of the poor are internal. That is their focus.

The interests and prospects of the rich are increasingly external, yet the rich control not just their own wealth, but also the money of the poor through jobs, bank accounts, retirements accounts, lending, and interest rates. If the best returns are found in other parts of the world, the rich will want to invest everyone's wealth externally. The poor might prefer to earn some lower returns in order to maintain jobs locally. Since the rich control the money, their interests prevail.

The rich and the poor are no longer pulling together in the U.S., they are pulling apart. The rich will move on to their external interests and take the money with them. There is no way to bring them back because the loyalty of the rich is to the global markets and the loyalty of the poor is to their internal markets.

This is not so obvious in the United States because the nation is so rich. It becomes obvious in the case of some of the leaders of poor countries, where they impoverish their own people and ruin their national currency so that they can become rich in dollars or euros and invest their wealth elsewhere. That is what happens when the rich control the currency split between rich and poor. Better for the American people to anticipate and control this process before the rich do.

The best way to do that is to cut the cord and start using separate currencies now. If the rich cannot own or control the currency of the poor, then the link is broken and they cannot misuse, misappropriate, or threaten the wealth of the poor, and they cannot threaten the economy. With separate currencies, their mistakes and misdeeds affect primarily themselves.

The rest of society can never adequately tax or punish the rich because the rich usually influence policy more than the poor. (Most politicians are rich, or are becoming rich, after all.) Also, the rich can run away if all else fails them. Therefore methods that use law in the attempt to solve these problems are only temporary and are only partially effective.

We should not hate or despise the rich for all this any more than we should hate or despise gravity for pulling us down. It is a natural result of their positions and identities, and most of us would like to be rich, too. What we need to do instead is separate ourselves from their external interests and keep them from using our own capital against us. We cannot do that while there is only one type of money and the rich have control of it. What we need are separate currencies controlled by the internal majority.

TheOtherSideOfCapitalism (tosoc.org)

Copyright © 2012 TheOtherSideOfCapitalism

One Size Does Not Fit

Those Type A personalities can be fun. They are energetic, outgoing, and hard-working. They are a little crazy. A little sociopathic. But they can also be very, very productive. Every workplace should have a few to help keep the others moving.

Type A personalities tend to do better than most. Capitalists love them and many capitalists are Type A themselves. Things might be easier if everyone in the markets were like them. Of course, very few are like them.

Participation in the markets varies widely. Some people cannot change their own clothes, much less trade in the markets. Disease and accident can make anyone totally dependent on society. Infancy and extreme age have the same effect – we all come full circle if we live long enough. As far as money is concerned, we all fit somewhere along the line between those who need someone else to act for them and the very few who are geniuses with money.

We do not expect one size of shoe to fit all of us in our diversity, but somehow we have come to believe that one currency does. We say that the social safety net is necessary but we look down on those who receive aid even in currency substitutes, such as food stamps, subsidized housing, or progressive taxation. The ideal is still to earn your living by competing successfully in the private markets.

The trouble is that the money geniuses end up with all the money. It is what they do. Even when they make mistakes, they still end up with all the money because they find ways to make others pay for their mistakes. The Great Recession is an example. The rich were able to coerce the U.S government into saving them and helping them pay each other bonuses. While the rest of us were losing our jobs and houses, our own government took on trillions more debt in our name to save the rich.

Printing money and transferring some wealth from the rich to the poor has helped, but it is only a partial solution. All it does is prop us up again so that we can be exploited in the market again. The rich like that and they support it.

The rich really are powerful. We have to acknowledge just how powerful they are before we will understand the need for better solutions. The results of the Great Recession should make it clear that the U.S. government is almost powerless against them. So long as the rich can hold the economy hostage against government action, all the talk and new regulations are just fairy dust in our eyes to keep us from seeing just how little is really being done.

One reason why the rich can hold the economy hostage is that one currency tightly links every part of the economy to every other part. The rich have enough economic power to make a mess of one part of the market and the trouble spreads freely to all the other parts.

The other reason is that governments and central banks cannot focus their economic power tightly enough. One might expect that they have the final say over the currency, but that is not true. They represent everyone, even the rich, and the rich have the most influence over economic policy. Also, those in the government get paid in the common currency just like everyone else. Individually, they are as subject to economic pressure and exploitation as anyone else. Finally, governments have obligations to other countries and their economies. Even if they see the exploitation and want to help, they may be unable to do so because they are pulled in so many directions at once.

Suppose instead that the government had at least two currencies, one being a national internal currency and the other being an international external currency. Government policies would control the relationship between the two. Other countries and the rich would not be allowed to own the internal currency or anything denominated in it, but would have to work only with the external currency. Those in the internal economy would generally not own any external currency or anything denominated in it.

It may not be obvious to the reader right away, but this division automatically creates capital controls. A rich person would not be able to simply lend money directly to a poor person any more. These transactions would have to be approved according to government policies. Essentially, the rich person would be lending to the government on behalf of the borrower. The government would act as a cutout in the process of paying for the house and from that position, it would be better able to deal with exploitative behavior on anyone's part.

Furthermore, this division would allow the central bank to better focus its efforts. The government would have more flexibility and could apply different policies to the different currencies as needed. That is not possible with a single currency.

The rich would not be able to damage the internal economy directly, either intentionally or not. The government would be able to deal with the rich separately and not be influenced so easily by the threat of a ruined economy and a starving population.

The poor could work and build wealth without fear that unexpected and sudden economic crashes would cause them to lose their jobs, their savings, and their homes to the benefit of the rich. There would still be economic blows, but the government could focus its internal policy efforts toward cushioning those blows and helping the people keep what they have earned.

All this would only be possible using the best money technology and for the most part, electronic money. A rich person could buy a hamburger in the internal economy using a debit or credit card, but only at an exchange rate determined by government policies. Furthermore, there would be limits. The rich person would not be allowed to buy all the hamburgers in town. Cornering any internal market would be prevented automatically by the computers and software that handle the transactions.

Doing that might be as simple as exponentially raising hamburger price exchange rates as more hamburgers are bought. Bankrupting a rich person on that last trillion-dollar hamburger purchase would be a far more effective deterrent, and a more fitting punishment, than any fixed law or regulation could provide.

If two currencies are good, three might be better. As has been pointed out before, perhaps we need as many currencies and markets as is needed to keep them all balanced. People would be assigned to markets and moved between markets depending on their economic competitive power. Just in terms of the stages of a person's life, the young would be placed in less-competitive markets and then moved to more-competitive markets as they gain experience and capability. Then as they enter extreme old age, they will return to less-competitive markets that are more suitable to their energy level and mental capability.

One size does not fit all and one currency does not fit a complex and diverse economy. We now have the money technology tools and information processing capability to manage multiple currencies at once. This will give strength and focus to monetary and fiscal policies that governments have never had before, allowing them to keep capitalism working at top speed and also keep it from flying apart due to the pratfalls of the rich.

TheOtherSideOfCapitalism (tosoc.org)

Copyright © 2012 TheOtherSideOfCapitalism

Who's Afraid Of Another Currency?

(Sorry, this article still needs editing.)

The Treaty of European Union (the Maastricht Treaty) states the purpose of the Community in Article 2.

The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing the common policies or activities referred to in Articles 3 and 3a, to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.’

Some of the actual steps, such as a common currency, are laid out in Articles 3 and 3a.

Money has been around for thousands of years and there have been many ways to make it. Certain types of sea shells, the shells of certain sea snails, metal lumps and coins, certain weights of barley, and printed notes have all been used as money. In recent years, electronic money has been used. Humans have not found that the nature of the money counters is as important as the concept of money, the number of units, and which currency the money is denominated in.

In recent centuries, there has been a trend toward reducing the number of currencies and a trend toward paper banknotes with a few types of coins minted for the smallest denominations. Money became nationalized, and generally one currency was made dominant within national boundaries. This facilitated trade within the nation and the national currency was a source of national pride.

In the extreme, there are many today who believe that only gold is real money. They essentially believe that there is only one real currency, a universal currency, and that money should be (or at least represent) fixed quantities of gold. This is the general idea behind the various proposed gold standards.

Without being a scholar on the history of the European Economic and Monetary Union, it is difficult to know what the arguments were for a single currency, or whether there were any arguments at all. Perhaps everyone assumed that, just as political unification of Germany in the nineteenth century meant monetary unification of various German currencies into the mark, the political unification of Europe in the twentieth century could only mean monetary unification of the various national currencies into the euro.

Another possibility is that separate national currencies were seen as impediments to trade and the flow of capital. National currencies in the hands of national central banks might tempt national governments to implement nationalistic monetary policies during economic downturns, tending toward economic divergence rather than the convergence required by the treaty.

Another purpose may have been competition with the United States. There may have been a desire to create the euro to compete with the U.S. dollar. That way, the union could issue euro-denominated debt backed up by an aggregate economy that was larger than the economy of the United States.

Finally, we might speculate that there was an enticing vision that any group of Europeans could get on a train, travel to any other EMU country, and spend the euros in their pockets just as easily as they could at home.

All this made the capitalists very happy – a single currency, free trade, and free flow of capital. It looked good, and it worked well for about ten years. However, even on the capitalist side of capitalism, there were some concerns about the lack of a firm fiscal policy and questions about how a single monetary policy could deal with potentially very diverse fiscal policies. Those fears proved well-founded.

In fact, the failure of capitalism in Europe was the very impetus that started us searching for solutions on the other side of capitalism, the side that supports capitalism in general, but acknowledges the structural problems in capitalism and does not hold so strongly to the ideas of a single currency, free trade, and free flow of capital. As we have said elsewhere, it is hard to see how adhering to these principles has helped Greece in the current economic crisis.

There is little doubt that at the time the Masstricht Treaty was conceived, a single currency looked like the best solution. The cost of multiple currencies was high.

Money technology has changed since then, and the cost of multiple currencies is quite diminished now. Indeed, many companies set up gift cards and rewards programs that have some of the characteristiscs of money, and electronic money, credit card transactions, and debit transactions have the effect of physical transactions without any physical money changing hands. Food stamps in the United States act a lot like money. Finally, many credit cards allow transactions anywhere in the world in "foreign" currencies using spot exchange rates that neither the buyer nor the seller necessarily ever sees or needs to know.

With good credit cards, any group of people can travel to Europe and spend money using their cards just as easily as they can anywhere else. It does not take exchanges to physical euros to do that any more.

Briefly, it does not seem necessary to refute the argument for the euro in order to be consistent with tradition or with history. We think that the vast majority will agree with us that these things have no place in these discussions.

It seems that the purposes of the euro are to allow Europe to have a union currency that can compete against the U.S. dollar and to discourage or prevent individual members from going their own ways with their own currencies. However, money technology has reached the point where this can be handled a different way. The ease of electronic commerce means that while European governments can participate in the euro zone, each government can have one or more currencies that are only used internally. This will prevent the governments from going their own ways and allow the euro to compete with the dollar, but it also gives the governments the flexibility to deal with the problems caused when the common market becomes unbalanced.

As far as travel is concerned, even if Greece uses the drachma internally, other Europeans could still easily travel to Greece and electronically exchange euros for drachmas at spot rates regulated by the Greek government. Greeks in the drachma system could do the same kind of thing when travelling in the rest of Europe, the difference being that their exchange would be drachmas for euros.

There no longer seems to be any reason to force all Europeans to be paid in euros and for them to spend in euros. It seems to be enough that the governments use euros in external dealings and prevent any internal currencies from being used or collected externally. With the advent of electronic money, it should be relatively easy for national governments to maintain membership in the euro zone and at the same time to restrict and regulate the use of any internal currency, keeping the ability to make sure their citizens have enough currency. It is now clear that they cannot always rely on other European nations to do that for them.

TheOtherSideOfCapitalism (tosoc.org)

Copyright © 2012 TheOtherSideOfCapitalism

The Rich You Will Always Have With You

The Democratic People's Republic of Korea (also known as North Korea) recently selected Kim Jong-un as Supreme Leader, replacing his father who had replaced his grandfather. The Democratic Republic was established by the egalitarian communist Soviet Union, which had ended its own long misrule by Imperial dynasts to establish its Union of Socialist Republics. Ironically, it now looks like a new dynasty is being born in North Korea.

For that matter, the patron-client relationships under the nomenklatura in the old Soviet Union contradicted that nation's egalitarian beginnings.

The recent historical examples of North Korea and the Soviet Union should make us suspect that no overtly egalitarian system can adhere to its principles for long. Real people do not fit well in such systems.

However, even in the face of experience, the theory behind egalitarian systems is still attractive and simple. It looks good compared to capitalism. Capitalism divides society into layers based on wealth and has a built-in intolerance of the rich for the poor and the poor for the rich. Overt unfairness, insecurity, anger, and accusation make capitalism look ugly. Egalitarian theorists seem to offer a fair, calm, safe, and rational alternative.

Egalitarianism presents a pretty picture, but it is just a picture. It relies on people to control themselves, but many do not. Egalitarianism needs for people to think of the common good, but many will not. Most of all, it relies on people to think of themselves as equal to others when so many are convinced that they are better than everyone else. These characteristics are built into the human race. All the gulags and re-education camps created in the communist world failed to expunge these characteristics from the people.

Worse than that, perhaps, is that egalitarianism holds that society is best without the the rich. That might be true of the idle rich, but it is not true of the active rich. The idea that the worst decision-makers should dispose of the same amount of resources as the best decision-makers is absurd on the face of it. We may not like the rich, but if we got rid of them, the waste and stupidity of our own society would force us to bring them back, as we have seen happen in China and Russia.

Finally, egalitarianism fails because it has a false concept of wealth. It is a common misconception, and it is the idea that wealth consists of quantities of things, like money. Instead wealth is a combination of psychological inspiration, social interaction, and things. Things only mean wealth in the context of a society with active markets, and active markets require the energetic participation of individuals who have a vision of what it means to be rich. The vision and energy of the rich and those who want to be rich keep the markets active.

It is counter-intuitive, but this means that we can not take the wealth of the rich to secure the lives of the people. If we try it, we take the rich out of the markets, and the markets lose their steam. Wealth disappears like magic gold losing its spell and turning to trash in the sunlight.

The above shows that the core of capitalism is not money and trade. The core is vision and energy combined with resources, and it expresses itself first through communal activity, inspiration and service. Then comes satisfying workers and satisfying customers. Only after all these come trade and income and wealth. No one would know what wealth is without the rich to show them. Another word for the work of the active rich is leadership. Helping capitalism succeed means providing an infrastructure to support these activities.

However, this does not mean that the active rich can be safely mixed with the poor under a single currency. The reasons for this are explained elsewhere in more detail, but it boils down to a few points. The active rich are so good at gathering money into their own hands and they become so economically powerful that they unbalance and distort their own markets. The effort and single-mindedness required to build businesses and become rich can make them social outliers and a bit sociopathic. They cannot be about fairness. They have to enforce the rules of the marketplace, contrary to their own consciences if necessary. They can exploit the poor without even recognizing what they are doing, and they are so good at diverting blame that they make plausible explanations about how the poor did it to themselves. In the end, they are able to make the poor pay for the mistakes of the rich.

Solutions to this must be of a kind to "firewall" the poor away from the rich using new currencies. The rich will not be allowed to own any of the primary currency (or currencies) used by the poor majority. The government will establish exchange rates and manage the flow of capital from the primary currencies into the secondary currencies used by the rich. This will allow the government tremendous flexibility to regulate the treatment of the poor and isolate the problems of the rich.

For example, suppose the Greeks had had an internal drachma economy for poor Greeks while the Greek government and rich Greeks worked in the euro market. However bad we might think that Greek social policies have been, those problems could have been isolated in the internal drachma market, and the government could have printed more drachmas as needed to deal with them.

At the same time, the Greek government could have isolated external problems to the external markets, and it would not have had nearly so much debt denominated in euros. Maybe Greece could not have avoided all the external economic problems, but it could have done better than it actually did.

In the real event, the Greek government had no flexibility when the euros started to leave Greece, and the problem has both impoverished the Greeks and harmed the worldwide economy. The rich northern European states are trying to impose poverty policies on Greece, and the only reason they can even try is that all Greek debt is denominated in euros. The single currency is the connection that must be broken as the first step in our solution to these problems.

We know that egalitarian principles fail, based on recent history if nothing else. We know that we need the rich and we know that policies to get rid of them are doomed in the long run. Yet we also know that, without controls, the rich can cause enormous economic problems, including increased poverty for the innocent poor. If we can correct that, it will go a long way toward making capitalism more just and fair. It can be done by the use of multiple currencies under government control, economically separating the rich and the poor.

TheOtherSideOfCapitalism (tosoc.org)

Copyright © 2012 TheOtherSideOfCapitalism

Economic Tolerance and Diversity

At a scientific institute not far from Moscow, Cold War Soviet scientists were tasked to invent better antiaircraft armaments for defense against the capitalist West. The courtyard of the building was quite nice and when the weather was good, some of the scientists liked to stroll around and around, thinking about how to get the job done. The guards complained. "They should spend more time at their desks working!"

This illustrates one of the major weaknesses of the communist system: a narrow and intolerant view of the economic person. There were relatively few legitimate ways of participating productively in the economy. The rest were either discouraged as suspicious, or they were criminalized. The cost of missed opportunities was high, and this inflexible and dogmatic form of communism almost immediately proved itself unable to adapt to changing conditions. It rapidly died out. So much for the imperatives of history.

Meanwhile, capitalism has proved its superiority, survived, and is going from strength to strength ... or not.

Certainly capitalism embraces diversity and tolerates a wide variety of people in economic activity. Capitalism is also fair in the sense that the money one makes is both the reward of one's merit and the measure of one's success. Birth (as in noble or common), gender, and skin color are nothing compared to the size of one's bank account.

At the same time, capitalism stratifies the members of society by wealth (roughly, into the rich and the poor). It is through that mechanism that capitalism becomes deeply intolerant. This comes about in many ways, only of few of which will be mentioned here.

Successful capitalists on the whole may be more tolerant than most people, and there is some reason to believe that is true. What frustrates the rest of us is that there may be relatively few rich bigots, but each of them has enough money to make their bigotry hurt many other people, and they can fiinance the harm they do for a long time.

Below the truly rich in the economic layers are the nearly rich – the fearful climbers. The fearful climbers are those who desperately want to be truly rich; to achieve it, they feel that they just need one more good deal, or a little help from above. They are fearful of moving down, and therefore fear those below them who are moving up. They are likely to find justifications for stepping on the hands and kicking the heads of those who are lower on the economic ladder.

For those on the bottom, the rich and the climbers may have some sympathy for the helpless ones, those who cannot even find the ladder. However, they generally have harsh words for the "lazy and shiftless" ones who know exactly where the ladder is, but refuse to climb. This ill feeling is mutual. Those who drop out are just as deeply intolerant as those who buy in.

Finally, while capitalism is fair on the surface, it becomes more and more unfair as the rich get richer and the markets become unbalanced. Capitalism seems equitable because all the rich do is take advantage of their advantages. Everyone does – it is only human. That seems fair enough until the rich gain so many advantages that others can no longer compete. The competition is too rigged.

It becomes so rigged that the rich can successfully demand that the poor bail them out of their mistakes. This is the deepest intolerance of capitalism, when the poor are made poorer to save the rich from the consequences of their own mistakes, and none of the rich think it is wrong. After all, they have arranged things so that they can blame the poor.

At the same time, the poor become so oppressed that their situation is no different from what they would experience under a dictatorship. The promise of capitalism becomes a lie for the poor, and they blame the rich. Typically they then make the mistake of framing solutions in terms of the currency they share with the rich. They need money, and they can imagine only a few ways to get it – they think mainly in terms of taking it from the rich. The poor are just as stuck on this side of capitalism as the rich.

On the other side of capitalism, we look for a deeper tolerance, accepting the rich for who they are and the poor for who they are. We know that the strong hands will always take from the weak hands, and that the people are made up of both types. We have to work with that fact. We cannot abandon either type of person. At the same time, competitive capitalism works very well when it is working. We do not want to give capitalism up, either. Convincing all this diversity to work in harmony is the problem.

The key to finding the solution is that capitalist exploitation takes place through the common currency. The rich have the money, the poor have to earn it, and governments have please both sides. The rich can create artificial scarcities of money, scarcities that the government is hesitant to make up because it has to weigh the effects on everyone, not just the poor. One currency rules us all. Single currencies and economic bigotry are intertwined.

Therefore solutions will involve multiple currencies, at least one for the rich and at least one for the poor. The rich might be able to create a scarcity of money among themselves, but they would not be allowed to own the other currency. The government would therefore have the flexibility to deal with the problems of the poor almost independently of policies to deal with the problems of the rich.

We had to suffer through the disadvantages of capitalism for so long because we did not have the technology to maintain multiples currencies. We do now, and we should start to use it.

Both capitalism and communism are deeply intolerant, capitalism perhaps moreso in nature than communism. Capitalism survives because it is better than communism at motivating and inspiring the people. By breaking the currency link that allows the rich to exploit the poor, we have a chance to offset the faults of capitalism and bring to it a deep tolerance.

TheOtherSideOfCapitalism (tosoc.org)

Copyright © 2012 TheOtherSideOfCapitalism

Fool's Gold Standards

We hear that "only gold is REAL money." Therefore, it is said, we should return to the gold standard and tie our money supply to gold. Paper money is intrinsically worthless. For example, the dollar has lost 98% of it value since 1900 or so. The dollar can only be a true store of value when it represents an amount of something real and lasting. Alternatively, maybe our money should BE gold.

If the above seems like absolute truth to you, then you may be interested in some of the reasons why so many disagree.

If gold were truly the only real money, then one would expect to find many historical examples of cultures in which gold was also the currency. There are in fact very few examples, if any. Certainly no advanced national culture has used physical gold in a significant quantity to handle everyday purchases for thousands of years.

The main reason for this arises out of Gresham's law. ("Roughly, bad money drives out good money.") Yes, gold makes a good currency, so good that it is hoarded rather than spent. Eventually it all ends up in the "strong hands" and goes out of circulation. Governments learned long ago to keep most of the gold to themselves and substitute alloys of silver and copper or paper notes for physical gold. For the average person, physical gold always has been largely mythological.

That is why most "gold standard" proposals are about limiting the national money supply based on the national gold supply. This is a lost cause from the beginning, however, and no one should spend very much time thinking about it. Once gold is not used as the currency, then the connection between gold and the currency is open to manipulation. The money supply is then dependent on the discipline and plans of those who control it, not on the gold supply.

Policymakers have learned to pay almost no attention to the price of gold. The primary reason is that the gold supply is not flexible enough. The need for currency fluctuates too widely and too quickly for the gold supply to keep up. Gold stands still, but economies do not.

During a first-grade girls soccer game, one of the girls came to the coach in frustration and asked, "Where am I supposed to stand?" The coach was embarrassed because it showed how poorly he was coaching. Soccer is not about standing still. Markets are not about standing still, either. There is no commodity or item that can permanently preserve a constant value.

Finding a constant store of value is most important to the "strong hands" who are able to gather large quantities of anything they want. They are net lenders and tend to want a strong, deflating currency so that the purchasing power of both the principal and the interest increases from year to year on the money they lend out. That is why the Great Depression of the 1930's was a great time for those who had money. Another reason is that there was a real reluctance among policymakers to increase the money supply and counteract the profitable deflation.

Just the serious mention of re-establishing a gold standard should raise the spectre of another deep recession or depression. The purpose of such a policy would be to stabilize the money supply in the favor of the rich. We see this already in Europe, where poverty policies (known as austerity policies in the financial press) are being pushed on poor Greeks to stabilize the savings of rich Germans.

On this side of capitalism, the capitalists often interpret an increasing money supply and inflation as due to mistakes on the part of policymakers, perhaps even the result of secret populist agendas. At best, the rich see it as a cost of doing business in the U.S.

On the other side of capitalism, inflation is seen as the natural result of an unbalanced market where the strong hands have all the money and policymakers have to print more in order to keep the weak hands in the game. Any gold standard is seen as even worse, a step toward a worldwide single currency that could hardly fail to destroy capitalism in the end.

While the concept of a gold standard glitters for many of us, historical experience shows that most of us would never see any gold even if it were made the standard. In fact, the result of a tight monetary policy would be the gathering of all strong currency into the strong hands. Everyone else would live at the mercy of the rich, only participating in the markets as permitted. We should not allow ourselves to be fooled by promises about gold standards.

TheOtherSideOfCapitalism (tosoc.org)

Copyright © 2012 TheOtherSideOfCapitalism