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Author
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Topic: Gold Standard vs. Floating Currencies
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Stephen Gordon
rabble-rouser
Babbler # 4600
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posted 29 October 2007 02:39 PM
quote:
Originally posted by arborman:
I don't know anything about the merits of one currency model versus the other. I'm curious if anyone has opinions (preferably backed up by evidence) of the relative progressive or anti-progressive impact of adopting/abandoning a gold standard?
We've had quite a bit of experience with the gold standard; no-one seems to want to go back there. The Bretton Woods system of fixed exchange rates died when international capital markets got large enough to overwhelm central banks. These days, the only choices for countries such as Canada are the 'two corners': floating freely or a 'hard peg', which amounts to adopting another country's currency. As to whether or not which is more progressive, the only thing that matters is the effect on inflation. The costs of inflation are regressive: rich people have greater access to assets that shield them from the effects inflation. If you have a floating currency, you'd want a central bank committed to a low inflation policy. If you have a hard peg, you want to peg it to a country that has a low inflation policy.
From: . | Registered: Oct 2003
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Fidel
rabble-rouser
Babbler # 5594
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posted 29 October 2007 05:45 PM
Yes, and Stephen's favourite Canadian author had something to say about gold standard. In so many words, thank goodness we're not enslaved to the gold standard as workers were before WWI. Since that time, tens of thousands of Canadians were martyred by a terrible economic depression, no thanks to the former capitalist setup called "laissez-faire" And then tens of thousands more were martyred in WWII. Workers had no one advocating their economic interests. That was until the federal Liberals under Mackenzie King nationalised the Bank of Canada and brought significant amounts of money creation under control of the feds to pay for the war effort and important infrastructure and social spending that would become the norm from 1938 to 1974. And then a Canadian economist proposed floating our dollar against all other currencies. All western countries followed suit eventually. But now the feds are, once again, claiming they are impotent to act in the interests of workers and ordinary people. Economist Pierre Fortin says that international money markets are powerful, yes. But he argues that quote:
"...we can have the kind of employment-creating economic policies if we want - even if they are not exactly what the financial community wants - provided that we accept the consequences of a fluctuating dollar (that is, the rise or fall in our exchange rate) The problem, Fortin insists, is that members of the financial community don't want a lower dollar. After all, they've spent billions of dollars buying Canadian government bonds, which are denominated in Canadian dollars. If the dollar drops in value, those bomds are suddenly worth less, in terms of other currencies". . . "It's a question of the bond salesmen defending the interests of the those they've sold bonds to", says Fortin -- Linda McQuaig, The Cult of Impotence, p. 253
Of course, the Bay Street commentators will never point out this conflict of interest. [ 29 October 2007: Message edited by: Fidel ]
From: Viva La Revolución | Registered: Apr 2004
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DrConway
rabble-rouser
Babbler # 490
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posted 07 November 2007 11:45 AM
Actually, inflation's effects are not totally regressive, because it tends to erode the value of assets, which the rich draw upon to generate their incomes. This is why bonds tend to do poorly in inflationary environments, because the interest rate on them goes with the central bank's rate, which is usually pegged to be a bit higher than inflation (which then raises the question of whether central banks truly do "control" inflation, or just follow it along until something breaks.  ).It is fairer to say that the fall in the value of money affects people who can't find a mechanism of compensation for it. Re gold standard. The major issue with it has actually been raised by both economists of the left and the right. On the left it has been pointed out that the gold standard, in requiring that the currency maintain a fixed value relative to gold, tends to promote policies that depress wages and raise unemployment. A classic example of this is what happened when Britain tried going back on the gold standard at the pre-World War I level, and as part of the requirements, wanted the miners to accept lower wages. They, of course, did not want this, and went on strike. On the right, it has been pointed out that uncontrolled gold flows can play havoc with a government's requirement to maintain a fixed link to the currency's gold exchange value. Spain is the clearest example of this, where so much gold poured into that country that prices began to rise across the board. In microcosm, in the USA, centers of "gold rushes" almost always experienced inflationary bursts as people would pour in and the demand for food, etc would increase. So the gold standard is not necessarily the "best" inflation control mechanism either. Bretton Woods FTW.
From: You shall not side with the great against the powerless. | Registered: May 2001
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Red Partisan
rabble-rouser
Babbler # 13860
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posted 07 November 2007 01:26 PM
I was wondering about the gold standard myself.I guess there are some pretty smart people here who are thinking about Gresham's Law. Anyway, there is this absolutely awesome site about gold, and although it is bearish on US dollars, it is not particularly gold-buggish either. They did advise to buy at $390 an ounce (US), and they were right about that, for certain. The site is here: http://www.galmarley.com/ Here's a thought, if bad money drives good money out of circulation, doesn't that mean we are destined to use US dollars as a token currency in Canada?
From: Toronto | Registered: Feb 2007
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