Gold backing better? F. Soddy's "The Gold 'Standard' Snare"

[Helphand]

"Fiat currencies are backed by nothing and are just worthless paper!" We're hearing that quite a lot currently but is it true? Probably not, since gold has virtually no intrinsic value, the gold standard was in part responsible for the 1930s Depression  and the availability of gold should not act as an arbitrary limitation on the currency necessary to reflect economic activity. Col. Barry Turner's phrase comes to mind: "You don't stop running a railway for want of tickets; you print more tickets!"
  I've found Fr. Denis Fahey's books good reading on the vices of gold backing for currencies but until I can lay my hands on digitised versions, the following is the better known (but in my view inferior) summary of the arguments against gold backing:

   "The Gold 'Standard' Snare".

   By FREDERICK SODDY, M.A. (Oxon.), LL.D., F.R.S.

   Reprinted from "Garvin's Gazette," July, 1935.

   THE banking profession are continuing their propaganda in favour of putting this country ultimately back on the gold "standard." It is important for the business community not to allow their natural belief in the honesty of gold money to blind them to the insidious dangers, not in gold, but in gold money, coupled with the existing minting system, miscalled banking. However, it is noticeable that even bankers now have been forced to learn something by the bitter experience of others. The gold "standard" is no longer advocated as it used to be as a beautiful even-working automatic mechanism which regulates the quantity of money in existence, and with which essentially dishonest politicians and monetary reformers cannot tamper. It is now being frankly advocated for the opposite reason, that it is so kittle that alone and in only one place in the whole world are there men with the integrity, experience and benevolence to operate it without wrecking the countries that adopt it, and that is in the City of London! All the trouble is that the Americans, who cannot be expected for a few hundred years to have the qualities necessary for such a delicate task, have got the gold and seem in no hurry to give it up. In this way, London hopes to regain its financial dictatorship.

   The world at large, on the other hand, and the business world in particular, is looking for a system of distributing all that it can produce at a constant price-level, which does not require a special breed of financial supermen. In technology this would be regarded by the financial administration as a fatal defect, and every effort of the executive would at once be directed to inventing a simpler and less delicate process so as to enable it to dispense with the services of geniuses who are difficult to live with. Many a man in this field and under this regime has started life with a princely wage by virtue of being able to do something so difficult that no one else could do it, and ended in the workhouse. It is preserved in the monetary system solely because it reduces to abject impotence the ostensible political rulers elected by the votes of the majority and allows the real government to be democratic in form and plutocratic in reality. At least it is inconceivable that the existing system could survive the active opposition of the industrial world.  It is as difficult to believe that industrialists at large, in order to preserve the doubtful privilege of occasionally being able to finance their production out of the general purse, by the issue of new money as bank credit, would give up the much more solid advantage of being able to sell their products when they had produced them. Even if they were, it is difficult to understand how they expect the wise men of Threadneedle Street to be able to control the gold "standard" without the gold, and whose only hope, as it is always their last resort, is to enter into a conspiracy with the kindred spirits overseas "for the better control of the populace" in both countries.

   For, as recent experience has made abundantly clear, the internal banker has been reduced by his own system to exactly the same subordination to the international banker, as the industrialist has been to the home banker. A system such as the gold "standard" could now only conceivably work without causing perpetual international strife by an international authority controlling all the gold and its sources of supply. Even so, its object would not be to maintain a constant price-level, that is, to correct the tendency for it to fall through goods becoming more abundant and to prevent it being raised through monetary inflation. For, if we are going to trust the banking profession to achieve these objects for us, we might just as well trust them entirely and cut gold out of the picture altogether. Its real object would be a step towards world government, just as in the national sphere, which, while preserving the existing political forms of democratic government in the several States, would unite them into a world plutocracy for the preservation of the hard-working borrower, and the benefit of the investor.

   Time was no doubt when there was some ground for regarding gold money as more worthy of confidence than any intrinsically worthless substitute, such as national paper notes or the bankers' "I Promise to Pay" (so long as you do not ask for more than I've got!). A man with a gold coin had something to show for his earnings, which even the worst financial panic or bank failure, could not render worthless. He could sell it to a jeweller for its gold, even though it were demonetized as a coin. The old gold "standard" kept the value of money fixed with reference to something intrinsically valuable. Our unscientific ancestors probably never even thought of gold becoming technologically a redundant metal. But the world grows older so that now a gold standard would work just the opposite way to what it first did. It would stabilize the price of gold. Whereas one of the minor problems, with which currency reformers would be immediately faced if they were given their way, would be to find some use for all the gold now buried in bank vaults if the metal were demonetized. The best plan, undoubtedly, would be to use it, as we could well afford to use it, instead of lead for the roofing of some of our more beautiful historic national buildings, a purpose for which it is ideally suited. Let us then so proclaim symbolically to all the world, the amazing truth, that humanity has left behind for ever the dark ages of scarcity, and, thanks to science, has entered into a renaissance of abundance. But this is the very last thing those who create our money for their own aggrandisement wish to be known. For one thing, it would tend to lower the rate of interest on debts and ultimately abolish it. But nobody can now pretend that, were not gold money, or used as "backing" for its issue, there would be any demand for it at its present price at all commensurate with the hoards that have been accumulated.

   There was a time, when gold really was money, that it did "automatically" regulate the value of money relatively to itself, and being by the nature of things less subject to sudden variations in quantity than wheat or wool or other commodities consumed in living, it was to this extent more stable as a money standard. But that was when there was a free market for gold and before the incarceration of practically the whole of it in bank vaults. In those days, the economist after prolonged study could estimate the changes in the value of money from one age to another, and chance it did enormously, affected as it is by each discovery of new gold mines and each technical improvement in the methods by which it is extracted.

   But nowadays no economist, however learned, could say what weight of gold will exchange for a pig, a ton of coal, or any other commodity consumed in the maintenance rather than used in the adornment of the person. The experts at the National Physical Laboratory, for the same reason, would find it impossible to say how much of any commodity would weigh as much as their standard weights of platinum if the calibrating arrangements of their balance were not under their own control, but magnetically controlled from a distance by someone according as he was at the moment interested in buying or selling it. In other words the function of a gold "standard" to-day would not be to keep the value of money in fixed relation to gold as a commodity for which there was a free market that had not been cornered, but rather to alter the value of money in accordance with the decisions of those operating the system, by shifting gold from one country to another, and within each alternately letting money out and keeping it tight. It is in the highest degree hypocritical to pretend that this would be done only by people of the highest integrity and public benevolence in the interests of "national" needs and necessities. For there are always two "national" interests diametrically opposed, those of the rentier and of the producer and earner. Pretensions to be able to operate such a system commercially "in the interests of all parties alike" are economically ridiculous.

   This underlying conflict of interest between rentier and earner, or investor and producer, has been brought to a head, and calls for immediate scientific settlement, because our growing power and dominion over Nature has enabled us, at any time we wish, to abolish poverty, and if the world is not blown up before, ultimately the necessity of borrowing money to carry on productive enterprise. The industrialist has to choose between his function in supplying the needs of the community in the most efficient, abundant and least onerous way possible, and his function as the taskmaster rather than the commissioned officer of labour. He has to choose between his allegiance to the existing money system, the functioning of which depends upon profitable and abundant money-lending, and a scientific system which will hold the balance true between the opposing economic interests referred to.

   A scientific money system is possible just because the scientist, unlike the banker, does not attempt the impossible. But gold has no more essentially to do with such a system than it has with any sort of gold "standard" it is now possible for the bankers to reimpose. The system as everyone capable of forming an opinion now realizes—and probably there has never before been such unanimity on a point of monetary "science"—will be controlled by somebody and the only point of interest is as to who controls it and for what ends. It can be controlled by investors in the interests of investors, in which case money will be kept tight, to raise its value and the real rate of interest. It can be controlled by earners, in which case money will be let loose to lower its value and the real rate of interest. It can be controlled by the money-lending profession "in the interests of all parties like." Or it can be statistically controlled by a scientific bureau the counterpart of the N.P.L. for weights and measures, concerned only to keep the letter of the bond, as regards money and all other debts, inviolate.

   The latter would cut the Gordian knot at once by not attempting the impossible feat banking sets itself to perform, to get something for nothing by the issue of new money without debasement of its value in wealth. This is only possible by the public in general being willing to go without more wealth than they are entitled to possess by the amount the money issuer gets for nothing by the issue. That is the same thing, if the money is not to be debased in value, as saying that the public must be able to afford to keep on hand permanently more ready money than before. This it can only do if it has itself increased, whether as regards numbers or average prosperity.

   The old gold standard did not do this, but periodically reversed the injustices. It did not stop the banker increasing the quantity of money in existence by issuing money as bank-credit without anyone giving it up. But after prices had risen by inflation it brought them down again by deflation, so that the economic life of the nation was a succession of booms and slumps. The utmost that can be hoped for by leaving the banker in charge of the control is that through the bitter experience of others he may be able, after we are all dead, to devise a system whereby the incidence of the levy or tax on wealth, which his issues collect, is more equitably borne, without producing consequences which in the end can hardly fail to be destructive of the very life of the community.

   Likewise in the international sphere, the scientific system would not attempt impossibilities, to try to peg the foreign exchanges, which are not under national control, at the same time as stabilizing the internal price-level. It is the latter which is essential for national economic well-being and it is essential that it be protected from interference, as in the past, through the physically impossible efforts of the international banker to make money as such cross frontiers, and "find its own level." Money is debt not wealth, and the only way international debts can be settled is by wealth, that is goods and services. A man investing abroad gives up to the foreigner his claim to goods and services in his own country not in the borrower's country, and the repayment of interest and principle is the converse. The debtor gives up a claim on his own country's goods and services to the creditor in another country. Each is a debt in goods and services existing abroad. Some of the worst evils we have suffered from in the past were only made possible through the impossible gold "standard." It left creditors free to extend loans abroad to countries which found it cheaper to take the loan, not in goods but in gold, to buy their requirements in a third country.  This drained the gold out of the creditor country and induced instant economic paralysis owing to the sudden disappearance of a fifty-fold greater quantity of money through the home bankers being forced arbitrarily to recall their "loans." So with repayment of principal and interest it enabled countries to refuse payment in goods and to make impossible demands to be repaid in gold. But so long as payments are in the form of goods from the lending country, and repayment in the form of goods from the borrowing country, not in money at all, foreign investment is physically possible and mutually beneficial and there is no necessity for interference with it.

   All international commerce must be such as could really be done with very little trouble without involving money at all, money being merely the unit of reckoning relative value, to enable incommensurables such as, for example, shipping services and pig-iron to be equated. The foreign exchanges must be merely a convenience for the bartering of different kinds of money between individuals, not a class weapon to level the standards of living in civilized countries to those of the less civilized. As the earning and producing interests within a nation consolidate their position by rising prosperity, and the cultivation of better and more sympathetic relations between "masters" and "men," so inevitably the rentier and investing interests are driven to international co-operation and attempt by means of the gold "standard," or other international monetary devices, to bring in external competition against the home producer from less and less advanced races. The remedy for this is not the reimposition of the gold standard, but to free the foreign exchanges so that they find their natural level, at the same time protecting them from manipulation by speculators in foreign currencies. As regard genuine international trade, this ensures that the imports of a country must equate in total value to its exports, the rate of exchange adjusting itself always to conform to this. It is the nation's natural protection against exposure to competition from less advanced communities. Whereas all the artificial panaceas of the politician, tariff barriers, bounties, quotas, and the whole armoury of fiscal restrictions and impediments merely strangle international co-operation. But to protect the foreign exchanges from quite unnecessary disturbance through foreign investment operations, to the detriment of such international exchange of products, they should be put under the general supervision of the authority charged with the statistical control of the monetary system. Let us have no more supermen attempting the physically impossible to their own advancement and everyone else's hurt.

   Nothing can bring home to thoughtful people how near to a mad-house civilization has become under the rule of the banker than a calm consideration of the normal and natural way in which the gold "standard" worked in the past. By foreign investment operations, accidental or designed, the gold "reserve" was drained out of each country in turn. If the gold had been merely a commodity like any other metal it would matter not at all, as it is useless for any vital process alike in peace and war. If the whole world stock now reburied in bank-vaults, were dumped into the Atlantic no one need be any the wiser. All the technological process on which men rely for their subsistence would go on as before. But no! Those engaged in such indispensable activities are told some City cock-and-bull yarn about "over-production," " over-speculation," "over-confidence," or their carrying too much top-hamper in some way or other, and requested to return the money the banks have so obligingly created for them to borrow, so that it can be decreated into the nothingness from whence it came. The livelihoods of the people count not a whit in the face of this imperative and instant necessity. The economic life of the nation is arrested, and put into cold storage, until by bankruptcies, loss of subsistence and general insecurity of livelihood, the standards of the civilized nation are reduced sufficiently to conform with that of the hordes of less civilized peoples reputed to be able to live on a handful of rice a day. Those who think that, though this may have happened through ignorance in the past, it could never happen again, little know the magnitude of the forces in this transitional epoch of civilization at work to perpetuate the traditional state of scarcity and poverty or the lengths they are prepared to go to attain their ends.


   GIBBS AND SAMFORTH LTD., PRINTERS, ST. ALBANS.



   *   *   *   *

[Christopher Marlowe]

1935.  We've learned so much since then.

[CrackSmokeRepublican]

Indeed, there is actually a vein of rich analysis on the question of a "Gold Standard"... this one I found one day by accident...that  "woke me up" in many ways...and I was a total "Gold-Bug" until rather recently...

"Redemption money and interest-bearing bonds are the curse of civilization. We are paying tribute to the Rothchilds of England, who are but the agent of the Jews." --Mary Elizabeth Lease, a Populist speaker, as reported by The New York Times on August 11, 1896.

"While the jocose and rather heavy-handed anti-Semitism that can be found in Henry Adams letters of the 1890's shows that this prejudice existed outside Populist literature, it was chiefly Populist writers who expressed that identification of the Jew with the usurer and the `international gold ring' which was the central theme of American anti-Semitism of the age. The omnipresent symbol of Shylock can hardly be taken in itself as evidence of anti-Semitism but the frequent references to the House of Rothschild make it clear that for many silverites the Jew was an organic part of the conspiracy theory of history."

 --Richard Hofstadter, from the article "The Folklore of Populism" in Antisemitism in the United States (p.61).

"There is no doubt that in their intense hatred for the 'money power,' some Populists accepted anti-Semitic stereotypes and identified Jews with the evils of society. [...] There is doubt, however, that the Populists did this any more frequently than other groups in society." --Louise A. Mayo, from The Ambivalent Image: Nineteenth-Century America's Perception of the Jew. (p.131).

"Despite the suggestions of some writers, this reasoning need not be taken to indicate that these advocates of silver were any more tainted with anti-Semitism than any other group in American society. During the 1890's the entire Western world accepted certain stereotypes of the Jew, which were in no way peculiar to the Populists, Bryanites, or any other advocates of free silver." --J. Rogers Hollingsworth, from The Whirligig of Politics (p.97).

SOURCES

Dinnerstein, Leonard. Antisemitism in America. New York: Oxford University Press, 1994.

Hofstadter, Richard. "The Folklore of Populism." In Antisemitism in the United States, ed. by Leonard Dinnerstein. New York: Holt, Rinehart, and Winston, 1971.

Mayo, Louise A. The Ambivalent Image: Nineteenth-Century America's Perception of the Jew. London: Associated University Press, 1988.

http://projects.vassar.edu/1896/antisemitism.html

[Helphand]

More grist for the anti-metal mill (some might say the problem is we HAVEN'T learned since 1935 ):

The Protocols, page 214 of Victor Marsden 1934 edition:

"You are aware that the gold standard has been the ruin
of the States which adopted it, for it has not been able to
satisfy the demands for money, the more so that we have
removed gold from circulation as far as possible.


Archibald Maule Ramsay: The Nameless War (1952):

"The real objective of the "Glorious Revolution" was achieved a
few years later in 1694, when the Royal consent was given for the setting
up of the "Bank of England" and the institution of the National Debt.
This charter handed over to an anonymous committee the Royal
prerogative of minting money; converted the basis of wealth to gold; and
enabled the international money lenders to secure their loans on the taxes
of the country, instead of the doubtful undertaking of some ruler or
potentate which was all the security they could previously obtain.

From that time economic machinery was set in motion which
ultimately reduced all wealth to the fictitious terms of gold which the
Jews control; and drained away the life blood of the land, the real wealth
which was the birthright of the British peoples.
...

Gold was soon to become the basis of loans, ten times the size of
the amount deposited. In other words, 100 pounds in gold would be legal
security for 1,000 pounds of loan; at 3% therefore 100 pounds in gold
could earn 30 pounds interest annually with no more trouble to the lender
than the keeping of a few ledger entries.

The owner of 100 pounds of land, however, still must work every
hour of daylight in order to make perhaps 4%. The end of the process
must only be a matter of time. The moneylenders must become
millionaires; those who own and work the land, the Englishman and the
Scotsman, must be ruined.

Germany and Italy... were in the
process of placing Europe upon a system independent of gold and usury,
which, if permitted to develop, would break the Jewish power for ever."