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 | Friday, October 24, 2008 at 18:29:43 mst
Comment ID: #1
Name: Michael Labeit
E-mail: logician169(at)yahoo.com
URL: http://unit-perspective.blogspot.com
Why is it that so many ex-Objectivists have gone off the deep end? You'd think that even though they no longer were Objectivists, they would nevertheless retain some attenuated connection with Objectivist convictions. How does one go from proposing an economy voluntarily wielding gold as an exchange media to becoming head douche in charge of the Fed? He must have started reading Keynes after he wrote "Gold and Economic Freedom." |
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| Friday, October 24, 2008 at 19:06:47 mst
Comment ID: #2
Name: Jeff Montgomery
E-mail: jamontgom(at)hotmail.com
URL: http://funwithgravity.blogspot.com/
I can't fathom it. Yes, it's difficult to think. No kidding. But once you've gotten a glimpse of what is possible and why, I can't see throwing it away for anything. I'm disgusted. |
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| Friday, October 24, 2008 at 19:29:03 mst
Comment ID: #3
Name: Jason Head
I would pay 100 Greenspan greenbacks to spit in his face. |
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| Friday, October 24, 2008 at 21:25:31 mst
Comment ID: #4
Name: IchorFigure
I'm even more glad now that I added a link to your blog in my online article comments. |
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| Friday, October 24, 2008 at 22:24:23 mst
Comment ID: #5
Name: Sajid
Is it just me or for some reason I actually don't find the case for adopting a gold standard convincing at all. I have read both, the Greenspan essay, and the Ayn Rand Lexicon entry and I don't follow the logic. Gold surely is a luxury good but historically, since there was really no concept of markets, it was the only way to trade something that everybody valued thus making it even more valuable. Today, however, most rich people do NOT store their assets in gold. They usually buy real estate, stocks, bonds or start up a business. As a luxury good gold is way outdated. No self-respecting billionaire thinks he is cool because he has a lot of gold. Luxury today means a fine wine, a big yacht, a Chanel suit, a big house (insert your personal favorite) and thank God. The problem with using gold as the only representative of currency is that it artificially overvalues gold. Consider the following two (extreme but still illustrative) scenarios:
1. Assume that gold is perfect precisely because it is scarce and that we will never mine any future gold. Then, say, I work really really and accumulate 20 % of all the gold available on earth. If my descendants do nothing but twiddle their thumbs, 200 years later they will still own one out of very 5 dollars on earth even though the global economy is doubling like every 50 years. And the prevention of this situation depends on the mining of new gold, not on how much a man has contributed to global growth. To me this is clearly absurd.
2. The other scenario is what if we have a gold standard and tomorrow I discover a gold mine that doubles the total amount of gold. Do I now own half the world's assets? NO! if more gold is discovered, the supply of gold increases and its demand and price should fall according to its own price elasticity curve. A modern currency should represent that drop. Also note that on a gold standard, my discovery of the new mine will mean that the total amount of money in the world has doubled (that is the way in which I will own half the total world's wealth). Since money only represents objects of value, this is just not a true statement. Total assets of value to human life has not doubled. Only the supply of gold.
I am no economist and thus I am not going to comment on whether the gold standard is the best standard we have today. However, even if it is the best, it has some HUGE flaws in my eyes and I certainly wouldn't accept it based on Greenspan's essay and ARI's Lexicon entry. I know global currencies are given their value on the price of a "basket of goods" within a country like bread, a big mac and stuff like that and then are averaged out. This seems more logical.
I must also point out that Ayn Rand's reason for propagating a gold standard still stands--"If there was no standard nothing would prevent the government from confiscating an indivdual's savings by printing more money" (quote not exact so neglect quotations. I think the meaning hasn't changed).
So maybe a currency should be pegged to a basket of basic goods. Maybe it should be pegged to more than one heavy metal, but that would be overvaluing metals once again. Or maybe there should be a free market for currency itself. Thus, we can have a gold dollar, silver dollar, a bronze dollar, a google stocks dollar etc. and they are all legal tender. But that is way too complicated. So should each hedge fund have its own dollar? Or in specific a hedge fund that grows as fast as the world's economy? The truth is I dont know and haven't really thought about it; it does not seem to be a simple problem. Any further thoughts would be much appreciated. |
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| Saturday, October 25, 2008 at 0:00:13 mst
Comment ID: #6
Name: Steve
E-mail: skaldor(at)gfschools.org
I watched the hearing live. Greenspan appeared weak and feeble. He had no grit. He seemed utterly emasculated, as though he were afraid of the denunciations of congressmen. It was pathetic, really.
Someone not familiar with Greenspan might have interpreted his comportment as incipient senility. But some time ago, Greenspan had forsaken principles for popularity. Therefore, when called before Congress to defend himself, he was without principles. And being without principles, the outrage from the public and the disrespect from the politicians has rendered him impotent. Such is the nature of pragmatism. |
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| Saturday, October 25, 2008 at 0:13:27 mst
Comment ID: #7
Name: Dan G.
Sajid,
I believe the value of gold as a standard is less based on its scarcity and more on the fact that it doesn't CHANGE. It doesn't rot, it doesn't rust, it doesn't die, it's not beholden to some jackass with a pen in some bureau, it simply persists in the same state. What good is a store of value that changes, in and of itself?
If you found a new gold deposit, the supply of "value storing material" or "natural persistent value ledger" would rise in accord with your removal of the ore and refinement of it. I don't see this as any different than if there was a particularly good harvest, fishing season, [insert increased commodity]... The amount of gold needed to represent the same previous value would decrease (I think most precious metal based systems use mass units, not some abstraction like "dollars"), but I'm not entirely sure. Also, I'm not sure of the effects of this natural inflation on the purchasing power or value stored in one's savings (i.e. one's pile of gold).
Your example about a "basket of goods" is premised on a fiat money system; someone pegging a value based on a formula or a wild ass guess to some worthless paper. Can't exactly store it away for a rainy day either.
Something else to consider. Just because gold is the standard, doesn't mean there aren't other stores of value or other vehicles of trading value. One could purchase a Big Mac with one's gold or with one's effort (i.e. goods for services) just as one example. The primary role for gold as a standard is for the long term storage of value(retirement); other metals (silver/copper) or vehicles (contracts) would likely be used for short term exchanges (i.e. buying dinner). |
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| Saturday, October 25, 2008 at 0:23:20 mst
Comment ID: #8
Name: Matt
E-mail: amicusaristoteles(at)yahoo.com
URL: http://sleepisthebrotherofdeath.blogspot.com
Oy. I desperately want to make a very long statement in response to Sajid's post, but I have only a few minutes before I have to be somewhere. I know someone else will I give a more fleshed out answer, but I just have to say this.
I so often see people argue against the gold standard with something along the lines of "There's not enough gold", or something similar. But the purpose of a commodity-based currency is not to mine (or somehow acquire) enough of the commodity to account for every other bit economic wealth in a nation. The purpose is to have a stable *medium of exchange*. I suggest you read Rand's "Egalitarianism and Inflation" and Richard Salsman's short book "Gold and Liberty" (if you can get your hands on it). |
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| Saturday, October 25, 2008 at 1:16:31 mst
Comment ID: #9
Name: Jason Head
Sajid,
There are many, many books written by economists of the Austrian-school about commodity money and also the case against central banks. _The Theory of Money and Credit_ by Ludwig von Mises is a good place to start. I believe mises.org has a free e-book version. |
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| Saturday, October 25, 2008 at 1:34:05 mst
Comment ID: #10
Name: Michael Labeit
E-mail: logician169(at)yahoo.com
URL: http://unit-perspective.blogspot.com
The case for gold is the case for gold as a medium of exchange, not as a financial asset one should invest in.
Gold ought to be the medium of exchange used in the marketplace because it happens to be the medium chosen by the market.
Gold was chosen by the market as an exchange medium because gold possesses all the necessary monetary qualities of money: scarcity, durability, divisibility, transportability, and is not easily counterfeited. Gold, thus, is super marketable.
Government fiat money possesses only durability, divisibility, and transportability. It is not scarce and is counterfeited by the Fed everyday. Gold is, by contrast, very scarce and expensive to counterfeit. In order to counterfeit gold coins, goverments must either mine for gold (very expensive) or seize the gold minting industry and periodically degrade the value of each gold coin by removing some of the gold and replacing it with a base alloy. This too carries costs, economic and political.
It is comparatively costless to inflate the momey supply by printing paper money substitutes. This is why bureaucrats prefer paper money substitutes over gold.
Under a free market, gold would be the primary exchange medium but silver would definitely retain a monetary purpose for small transactions. Even platinum could have a monetary purpose, perhaps to back platinum certificates used to finance multi-billion dollar transactions.
Objectivists use the term "gold standard" because it is (correctly) assumed that the primary medium of exchange on a free-market would be gold. But a genuine Objectivist couldn't care less what exchange media the market would choose, as long as the market does the choosing. |
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| Saturday, October 25, 2008 at 1:58:35 mst
Comment ID: #11
Name: Per-Olof Samuelsson
E-mail: per-olof.samuelsson(at)swipnet.se
URL: http://www.nattvakt.com
The comparison of Greenspan to Robert Stadler is really apt. |
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| Saturday, October 25, 2008 at 3:23:10 mst
Comment ID: #12
Name: Sajid
To Dan, Matt, Jason and Michael:
Thanks for your replies. They were indeed helpful. On thinking about it more I realized my absurd situations were the result of trying to have a gold standard compatible with central banking. I feel the gold standard can only work if there is more than one currency and different notes represent different types of metal or different materials or objects all together. If the government decrees that only gold will be a means of exchange and a universal currency represents only gold there will ALWAYS be a problem of money supply. Too little gold and saving is overvalued. Too much gold (as in rate of gold being discovered) and we have inflation and instability. There are only two ways to fix this. Have the government regulate the money supply (ala Alan Greenspan) or have many different types of interchangeable currencies all representing something different. The second case is much much more radical than a gold standard and if proposed of course i would need to see a more detailed case. However, I am guessing the stable solution would be a few hedge fund type corporations creating a currency based on a basket of goods. The gold standard is just not enough in todays economy as a medium of exchange. Its not enough just to be durable and divisible and irreproducible. That is just security. If there is only going to be one currency then that currency must represent the total wealth in the nation or the world at that time. So either let the feds regulate the money supply or reinvent the concept of a currency. Advocating a gold standard in its current form as I understand it is just not the way forward.
If this is all a bit confusing let me illustrate by yet another example. Consider the first scenario in the two examples in my post above. What if the market ran out of gold. That is what if 5 families each accumulated 20 percent of all the gold there is. Assume I am not a part of them but I own a lot of land and a couple of houses. Obviously I will find some other material to trade with that also represents a currency (probably some other metal) and life will move on. Pegging the national money supply to gold is a bit like playing monopoly and possibly having to stop the game in the middle because there isn't enough paper money so you can't have any more transactions. |
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| Saturday, October 25, 2008 at 3:36:09 mst
Comment ID: #13
Name: Paul Lin
E-mail: paul.lin(at)hushmail.com
Sajid,
I'm responding to your two scenario:
1.Under the gold standard, we simply use gold as monetary base(M0) and gold certificates as medium
of exchange. Gold certificates replaces M1.
2.If there is a gold mine discovered, we simply have more physical gold in the world. Banks can
absorb gold mined gradually by attracting gold miners to open gold accounts and pay them interests.
It is the gold miners' best interest to store gold in banks and use gold certificates instead because
it is lighter and they are paid interest.
If a gold mine that doubles the total amount of gold, the price of gold should not fall because
money is denominated in gold, ie one gram of gold is worth exactly one gram of gold. The total
amount of money does not always double because banks can absorb physical gold and raise reserve
requirement. For the short term, a newly discovered gold can be used as money, but eventually
it will end up inside banks.
The price of goods will increase temporarily, but it will fall as businesses increase production
because the interest rate will fall. |
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| Saturday, October 25, 2008 at 4:02:05 mst
Comment ID: #14
Name: Aaron Davies
E-mail: agd12(at)columbia.edu
I've vaguely wondered sometimes if Greenspan isn't really d'Anconia, deliberately wrecking the system so it can be rebuilt from scratch. (There'd be an amusing Mencken-ish ("Democracy is the theory that the common people know what they want and deserve to get it good and hard.") twist to it, helping also to disprove the idea that democracy is what makes America great--Greenspan spent almost his entire tenure giving us exactly what we asked for.) |
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| Saturday, October 25, 2008 at 5:34:46 mst
Comment ID: #15
Name: Paula Hall
E-mail: paula.hall(at)live.com
URL: http://www.msthink.com
Please don't say Greenspan and D'Anconia in the same sentence. ;-) |
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| Saturday, October 25, 2008 at 6:14:34 mst
Comment ID: #16
Name: SurahAhriman
E-mail: SurahAhriman(at)gmail.com
Paula Hall,
Which is exactly the attitude we should take, if and until he reveals His Plan All Along. He should have known, and expected, the price to be paid. :) |
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| Saturday, October 25, 2008 at 6:41:19 mst
Comment ID: #17
Name: Blue
Oh, great as that kind of "Aha! Fooled you! Now we fix things!" would be, sadly that isn't going to happen. Working to undermine the enemy isn't a new idea and often an interesting one when reveal time comes, but Greenspan has been denouncing capitalism as something he once believed in but saw "failed" (as if it was really being tried.) If he were to bring the system down denouncing capitalism as a failure like that before the collapse would be counterproductive to getting capitalism accepted as the solution to the old problems, and why and what made it right and the thing to put in place to fix things. It would just encourage running things into the ground to have people believe no amount of intervening or not intervening works and the world is just set against them, life sucks, et cetera, et cetera, malevolent universe, angst, maybe insert some bad poetry, determinism, some mystical punishment being asserted as in place. |
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| Saturday, October 25, 2008 at 6:43:37 mst
Comment ID: #18
Name: Steve
E-mail: skaldor(at)gfschools.org
Also, I forgot to say that Greenspan's pragmatism was explicit: When Waxman pressed him to admit that his ideology (capitalism) is wrong, he not only admitted it is "flawed," but also pleaded that he never used his ideology â€" he only followed orders! |
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| Saturday, October 25, 2008 at 6:59:39 mst
Comment ID: #19
Name: William H. Stoddard
E-mail: whswhs(at)mindspring.com
URL: http://whswhs.livejournal.com/
Paul: The gold standard is not a perfect guarantee against inflation and bubbles. Take a look at the historic case of Spain importing precious metals from Mexico and Peru in the sixteenth and seventeenth centuries. They suffered not just inflation, but a refocusing of their whole economy, away from production and toward consumption. Rather like what's been happening in the United States, now I think of it. Gold makes such things less likely, but contact between an area with more gold and one with less can lead to economic distortions as the gold supply shifts around.
The choice is between a currency base that sometimes fails under specific conditions, and one that regularly fails as a result of its own natural incentives for politicians. The fact that we can't achieve perfection is no reason not to choose better over worse. |
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| Saturday, October 25, 2008 at 13:15:25 mst
Comment ID: #20
Name: Dan G.
WHS said,
"The fact that we can't achieve perfection is no reason not to choose better over worse."
SPOT ON.
What's more, having all of one's value stored in one device would be still risky under a gold standard (just less so as there are fewer events that can inflate the currency). If one had contracts with, or ownership in, commodity generating enterprises, then the resulting shift to consumption that would happen under inflation would increase the values of those assets, while destabilizing that of the gold. There's no such thing as a storm proof house.
The gold mine example that is oft used is an attack against the claim that the gold standard is "inflation proof". If a gold standard advocate takes that position he sets himself for failure. The central reason, as I understand it, for using commodity vs. fiat is that it is "ledger theft-proof" or "printing press theft-proof", and that gold is the current best due to its physical/chemical properties. |
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| Saturday, October 25, 2008 at 13:49:36 mst
Comment ID: #21
Name: Richard Watts
E-mail: rw1963(at)earthlink.net
That bastard. Of all people, Greenspan knew better. This could not have been an error. |
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| Saturday, October 25, 2008 at 14:12:15 mst
Comment ID: #22
Name: New-Be
E-mail: SteelJaw22(at)yahoo.com
Should we be primarily arguing for a "gold standard" or should we be arguing for a fully free banking (and thus economic) system? It seems that many enemies of gold are Platonists that have some view of a risk-free banking system archtype and that a gold backed system could never equal that. The argument for gold should not be that it will result in a "riskless society" or "inflation-proof economy" but that it is the consequence of the full protection of individual rights. The resulting financial system, whatever it looks like, will be a system where rights are protected and men are left free. We need to reject the Platonic, "pure and perfect" arguments of the anti-capitalists and cut off that nonsense at its base. |
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| Saturday, October 25, 2008 at 23:56:14 mst
Comment ID: #23
Name: Rory Hodgson
E-mail: cowboybebop(at)ntlworld.com
William,
That incident is the one failing I can understand with Gold. It's that one point, due to a freak accident, that a market got screwed. However, it is a very, very rare incident (unlike the regular boom and busts of fiat) and cannot happen anymore (unless we somehow found ANOTHER civilisation, I dunno, hidden in the Antarctic, with tons of mined gold).
The thing about gold, as a commodity versus a fiat, is that once you start introducing it to the market, you start lowering the cost of it, making it less profitable to pursue. So, I could spend lots of money mining a new vein of gold - however, I won't keep going tirelessly until i own 50% of the worlds resources, because as I spend more on digging more gold, my profit margin is going to increase/decrease (whichever one means 'I end up nearly spending more than I make').
The Spanish couldn't really introduce it slowly, although I imagine if the Conquistadors had any sense, they would have recognised the result of their actions and would have slowly introduced the wealth (if I were them, I would have hired an accountant of some sort, to help me invest and such). The reality of the situation, as I understand it, is that the King, not the men themselves, got most of the gold, and invested it heavily in ship building and in their military in general. They went on a spending spree, which a rational, free individual would not do (assuming he understood the basics of supply and demand, which you can't fault the Spanish for not knowing).
Diana, what you said about snacking might work for me. Since I should really be eating 6 smaller meals throughout the day, rather than 3 large (or 2 large with a kind intermediary lunch as you do), I should really plan my diet around that. Thing is, I've done my shopping yesterday on the basis of 3-meals a day - not a lot of snacky food. But I'll see what I can do to turn it into the kind of stuff I can munch on without heating again. (btw, I saw a recipe for sticking almond butter in cucumber... it sounds great, I need to get some almond butter :D) |
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| Sunday, October 26, 2008 at 8:02:43 mst
Comment ID: #24
Name: Larry B
E-mail: objectivist.me(at)gmail.com
Just a note on Matt's recommendation of Richard Salsman's book, "Gold and Liberty" ... it is available from the publisher, American Institute for Economic Research, for $8 here:
http://www.aier.org/aier/otherpublications/PubsList.pdf
And, I would second the recommendation. |
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| Sunday, October 26, 2008 at 12:20:26 mst
Comment ID: #25
Name: Richard Watts
E-mail: rw1963(at)earthlink.net
"Why is it that so many ex-Objectivists have gone off the deep end? You'd think that even though they no longer were Objectivists, they would nevertheless retain some attenuated connection with Objectivist convictions."
I think it takes some real evasion to toss Objectivism aside, once one really understands the philosophy. I don't think there are any ex-Objectivists (who were actually Objectivists) who are in touch with reality. |
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| Tuesday, October 28, 2008 at 8:46:52 mst
Comment ID: #26
Name: James Hancock
Just a pet theory, but his actions since about 1998 seem to be more Francisco D'Arcona (sorry about the spelling) than anything.
I don't want to ascribe to the man what he isn't, but his actions don't appear inept, they appear as if he was trying to bait them, they took it, and now he's saying "I gave you what you asked for. I don't understand why it didn't work! Maybe you need to do it more!"
I think it's cynicism you're hearing, not incompetence.
I might be wrong. But I figure that until I actually speak to the guy, I'll try and avoid making the same mistake that Dagny made about Francisco initially. It seems more plausible that he just gave up and decided to let it collapse, and not only let, but help it with exactly what they wanted in the first place. Sooner or later he had to get tired of the fight so he went on strike. |
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