All that Glitters is Sometimes Gold
“It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
— Henry Ford
That is why the historical move as practiced in the past will be the viable return to gold. It has been tried, it has been tested, it leads to economic growth and expansion because it is stable money and brings along low taxes. But we will also have been so badly bitten by fiat currencies, that CCs and new money will be the answer whether anyone likes it or not. If you do some research you will find that even Marx advocated a gold backed currency.
We will finally come to see the need to move beyond the blinkered cost-benefit analysis of neo-classical economics to a new kind of economics. Part of that involves going back to basic human values, of older ways of life, of ancient spiritual teachings and practices, and an ecological approach to economics. Part of this process involves going back to mutual trust and reciprocity between people and to the system of barter represented by CCs. Part of this also involves going back to what has worked for millennia, the gold standard.
A new gold standard does not mean 100% reserves of gold backing a currency hiding in a vault somewhere. The new gold standard would be something as advocated by Nathan Lewis in his outstanding Gold: the Once and Future Money. Basically, how it works is that all the currency in a nation will be backed by a value of gold per ounce. What Lewis suggests for the US is a range of USD 360-380 per ounce of gold (lots of USD will have to be recalled and done away it).
The issue of convertibility comes in when the government authorizes banks to give back gold certificates (representing the gold) to those who want to cash the USD for gold. The use of gold certificates is how gold is bought and sold today, nobody goes around lugging nuggets and bars anymore (as some critics think). The banks will hold enough gold as reserves to provide for conversion if required, but this will not happen often as long as the money supply stays disciplined to the value of gold at the fixed exchange rate.
This is where the value of convertibility comes in. Convertibility ensures that the Fed/Treasury maintains and adjusts the base money supply to allow for the demand and supply of USD based on people’s use of Money aligned with the backing in gold. This calls for financial discipline and an end to fiat money 100%. If the supply of money exceeds the gold backing, and that leads to people trading in cash for gold, the Treasury sells gold to banks and takes in cash. If and when the opposite occurs, the Treasury buys gold back and provides cash accordingly. This is a self regulating mechanism akin to what Adam Smith envisioned. The interest mongering monetarists will no longer be the uber bureaucrats controlling fluctuating rate mechanisms and swinging currency values.
The range of movement for gold prices will be minimal. One reason is because only 2% of gold is mined worldwide every year and there is only limited use for it. Apart from dental work, limited industrial use and jewelry, gold is a singularly useless metal. Apart that is from being used as an ultimate Monetary measurement – its sole purpose of existence. And anyone deluded enough to try to hoard gold is going to find that he is going to need cash sometime and will have to, well, trade the gold in back for gold backed currency. With the rise of CCs and new monies, there is hardly going to be a scarcity of national currency. This will also spell the death of the money markets as we know it. In itself, when the gold standard is in play, the gold does nothing for hoarders because the national currency is now as good as gold.
The system would work the same on the international level and unlike what Nixon feared was happening, countries that move back to gold and trade with the US are not going to start throwing USD back and say “Send me the bullion, dude!” They will have the same process in exchange for gold certificates as individual users of currency. What matters is that as long as the US money base is not inflated (as per fiat currencies), the strict discipline and convertibility of USD to gold means they do not need gold to be shipped to them. When they know they can convert USD to gold and trust has been sealed on this, they simply exchange the gold certificates again to buy back the very stable and clearly guaranteed USD. Also, in all this exchange the gold does not physically ship away; what happens is as was done in the post Bretton Woods period, the gold is shifted to an account of the country in the secure vaults of a bank.
So now we have a stable money system backed by gold. There is a fixed exchange rate that ensures this. Gone are the days of currency speculation and falling USDs. But wait, shout the final coterie of monetarists out there, how are we going to create money now that the Fed has been reinvented, and since fiat money and its printing presses cannot just operate to satisfy the political whims of those in charge: how are we going to create jobs, they scream.
Well, by being actually productive for a change and not via the so-called productivity of the wild speculative frenzy of money markets. Interest free banks will operate (some research will show that they exist) and the pyramid scheme of double-accounting-money- expansion will be replaced by the rise of social businesses and CCs. We do not need so much money to make things work. National currencies backed by gold will serve the purpose of official government transactions and trade, while the new system of money will complement this and start a new productive and healthy drive to creating genuine wealth.
A Marxist way to be Capitalist?
Then comes stage two of the Three Step Move. In order to lessen the burden and need for national currencies, the social business model will start to play a prominent part around the world. This idea is an extension of what was put forward and practiced by Dr Muhd. Yunus who won the Nobel Peace prize for his idea of the Grameen Bank which gave microcredit to the world’s poor. In his latest book, Creating a World Without Poverty: Social Business and the Future of Capitalism, Yunus explains that a social business is an enterprise quite different from a cooperative or a charity. It is essentially a business set up to provide necessities for the poor like drinking water, food or healthcare.
In Yunus’s own words on social businesses from the book:
So companies or people put in capital to set up the business and provide low cost products for the poor. Once the money invested is earned by the initial investors, all other money that comes in goes towards financing the business itself. Hence, this becomes an exemplar of a self sustaining enterprise. This is a non-profit, non-loss business which does not answer to shareholders in providing them great returns on equity, just the basic sum they put in for that equity. The example looked at in detail in the book is how French corporate giant Danone provides daily yogurt cups which cost 6 euro cents (9 cents US) for the Bangladeshis.
Check this out for more:
http://www.danonecommunities.com/?page_id=145
This will ensure that the poor and even those belonging to low income groups and not necessarily classified as the poor, can also have similar set ups working in their favour all over the world. This concept is spreading throughout many developing countries even as of now. So in the long term, the need for national currencies when such businesses are up and running will be for a limited period. Money given as aid and charity will be lessened as more of such social businesses take centre stage. And these businesses can also eventually, operate under the auspices of CCs and the new money, which leads to even less of a demand and strain in siphoning off national currencies to meet the needs of commerce, etc. The days of scarcity of national currencies will slowly become a thing of the past, and so will all the negative competition that this process engenders.
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A new ecology II 