The most successful economic periods in human history have come under the post-1933 regime. Gold has certain natural limits, which is precisely the problem, because its natural limits don't jibe with the economy's natural limits. In its case, the market isn't responding to the natural flow of supply and demand with regard to money but rather to the natural flow of some God-awful hunk of metal. The natural limit of the economy is our knowledge and abilities.
The are obvious natural limits in the area of resources, as many have noted, and it's often difficult to imagine how we could hope to change behavior so as to adapt to that reality, but it can, does and will happen (with, of course, varying degrees of pain and strength of results over time).
Our period under the gold standard was also a period in which speculation caused even greater damage than the relatively tame stuff we're dealing with now. (There's nothing about commodities that lends them greater resilience against speculation. All goods, services and assets are subject to speculation.) That's why the Bank of England dropped it. The Fed did not until FDR took office, and, by then, 25% of the country was out of work, with a significant chunk in danger of, literally, starving to death. National income fell by a third. (The result was, of course, still ruinous in Britain, which dropped the standard in '31.) We've never experienced a period like that under the current regime. Could it happen? Yes, but it's far less likely to be the result of our monetary policy today than it was then. (Our fiscal policy and our wasteful behavior are another story.)
I hate the idea of bailing out Wall Street as much as anyone. It can -- depending on other factors, of course -- eat away my already-sad purchasing power on everyday goods and services, while propping up goods like housing (sale, not rent, in this case) to the point that I can't afford them. That said, the current system at least offers us the opportunity to fight the market's ups and downs, in an effort to make aggregate supply and demand balance.
Now can the system be improved upon? Of course. We need to, as Jerome and others have pointed out on many, many occasions, take asset inflation into account, and build in the expectation that the central banks will act to fight it just as they will act to fight inflation in any other area.
It, indeed, was once the case that you could hear talk of monetary policy anywhere, just as you can hear talk of the housing market anywhere today. (You could hear anybody talking about the stock market in the late 1920s, too, and look at how well that worked out.) That doesn't imply that the Average Joe has a solid grasp of the issue, as our friends in the housing market now realize two years too late. I suppose I could talk about Einstein or Twain until I'm blue in the face, but that doesn't imply that I understand relativity or literature.
My grandfather used to talk about it quite a bit, but, while he was a brilliant investor (especially for an $8/hr airline mechanic), he didn't have a clue as to how monetary policy should operate. (And, as a child of the Depression from rural Georgia who wound up retiring fairly well off after learning to invest, he, of all working-class people, should've been able to connect the dots.) If you talk to the Average Joe about Monetarism, Keynesianism and Austrianism, and what the three have to say on monetary policy, he's going to stare at you as though you're from Mars, having no clue what roles the three have played over the last century. (Actually, he'll probably ask, "What were those first two?" thinking the third has something to do with the way Austria operates.)
The roles have been critical to our circumstances at different times, and the differences in their respective results have been almost unspeakably massive. WHEEEEEEEEEEEEEEEEEEEEE!
I don't want money literally linked to anything. But when the gold bugs come out of the woodwork, and trust me on this, it is damn difficult to discuss monetary policy without running into them, I like to point out that it makes MUCH more sense to tie monetary value to energy than to gold.
But yes, I agree with you. "Remember the I35W bridge--who needs terrorists when there are Republicans"
Price dollars in oil, not oil in dollars
an International Energy Clearing Union and a "Value Unit" based upon a "dollar's worth" of energy - in its various manifestations - at the launch date. From which point an "EnergyDollar" would part company from the $.
But the bulk of value in circulation in modern economies - in excess of 70% in the UK - is based upon property - and particularly land - rental values.
Over two thirds of our money in circulation is property-backed but deficit-based credit created by banks etc as mortgages.
I have another instalment of guerilla warfare going on with HiD over on
So they all knew it was a bubble, now?
It's not easy to explain a complete new land/property-based monetary system in this medium, but I'm quite happy to explain and refine these ideas with anyone. You can't change the system by yourself, but it is pretty clear to me (if to no-one else ;-) )that it is in the pooling and sharing of risk and reward in simple - and optimal - new ways that the solution lies.
John Law it was who first outlined, in 1705, a proposal for a land-backed money. I believe that this is possible quite straightforwardly using networked "Community Land Partnerships" to create "Pools" of Land and Property rentals.
During the next two or three months - particularly if I get a week somewhere nice and quiet with my laptop - I intend to set out an outline of how we could create what is a domestically fungible pool of "Land Rental Units" using "Community Land Partnerships".
The final principal form of "Money's Worth" is our time or "Labour".
When a counterparty (whether a bank or anyone else) accepts my credit it is (in the absence of security) essentially backed by my time.
Here I think "Time Dollars" play a role.
These would essentially have a value related to the value of the average human being's time to the community.
This would be related to a rate that every citizen doing work for the Community is entitled to: eg at $10/ hour a "Time Dollar" is worth six minutes of our time.
That does not stop me giving you 500 "Time Dollars" for an hour's worth of your time, if you are (say) a dentist.
All of these forms of Value: Land Rental Units (eg acre/days); Energy (Kilowatt/ Hours) and Labour (Individual/ Hours) have a value in exchange.
Now if we exchange all of these more or less fungible units within a barter network or clearing system, then the minute we allow credit then the result is a monetary system, requiring an abstract "Value Unit" as a measure, and a guarantee, which would come from a mutual "Guarantee society" backed by a "default fund".
money is work. Some have to sweat in the fields to make the money. Others have a spark of brilliance that makes 100000X the value of digging a ditch. Others just get lucky and get born on top of a pool of oil with enough kin with guns to keep control.
What kind of monetary system do you advocate?
money = capital as long as the money has value to the group using it. A building or piece of land can be just as worthless in the short run if their is no one interested in using them. For example, you couldn't give away much of Eastern Germany for a while. Or housing in places like Detroit where population is dropping.
the one we have works fine
Well, I guess we will have to agree to disagree on that.
I must take issue with the idea that the Great Depression was caused by the undersupply of currency resulting from the gold standard. Remember that overproduction led to full warehouses prior to the Depression.
An oversupply in which the market was allowed to take leave of any notion that it was bound by either natural or human constraints.
And so we had the Dustbowl, and Hoovervilles in Central Park. Labor, Land, and money are fictitous commodities, they cannot be reduced to serve the needs of the market alone.
Why can't a self-regulating market economy ever be realized in practice? Pure market liberalism requires that people, nature, and finance capital be turned into pure commodities: labor, land, and money. Polanyi's definition of a commodity, though, is anything that is produced explicitly for sale on the market. But land, labor, and money do not fit this definition, as none of them are really produced for the market. Money is a token of purchasing power that exists because of state action. Land is nature, subdivided; it is not produced by people at all. Labor is, in actuality, human activity that is ultimately undertaken for reasons other than pure material gain. Much of economic theory is thus based on a fiction. In contrast to the ideas of the classical economists, land, labor, and money cannot and will not act as real commodities do and thus their allocation can never really be organized purely through the self-regulating market. Part of Polanyi's argument here is a practical one that relates back to the idea of embedding that we have already discussed. As unrestrained markets impose increasingly severe costs on people and nature - social dislocation, community decline, greater economic insecurity, ecological degradation - society takes steps to protect itself. This is the second aspect of Polanyi's "double movement" - the first movement is toward market liberalism, the second is the socially protective counter-movement. Workers demand that labor markets be increasingly organized by trade unions, and the state to step in to regulate minimum wages, maximum working hours, and to provide disability and unemployment benefits. Business wants the money supply and the banking system to be regulated by a central bank. Farmers agitate for land use regulations and farm price supports to protect themselves from the ravages of the market. There are a number of interesting conclusions here. The state is never truly separate from the economy; it must step into these key markets for the "fictitious" commodities in order to promote economic and social stability. Also, the counter-movement for social protection is not the outcome of a simple class struggle between labor and capital; all segments of society participate in it. Finally, and again, contrary to contemporary libertarian thought, this social protection is typically introduced piece-by-piece, and pragmatically, rather than though some grand socialist plan. It is the market liberals, not their political opponents, who are the true utopian planners. Perhaps even more importantly, Polanyi is also making a moral argument here: Human life (labor) and nature (the environment) have a sacrosanct dimension, an intrinsic worth that is not simply reducible to a market price, and thus can never be fully reconciled with complete subordination to the market.
Part of Polanyi's argument here is a practical one that relates back to the idea of embedding that we have already discussed. As unrestrained markets impose increasingly severe costs on people and nature - social dislocation, community decline, greater economic insecurity, ecological degradation - society takes steps to protect itself. This is the second aspect of Polanyi's "double movement" - the first movement is toward market liberalism, the second is the socially protective counter-movement. Workers demand that labor markets be increasingly organized by trade unions, and the state to step in to regulate minimum wages, maximum working hours, and to provide disability and unemployment benefits. Business wants the money supply and the banking system to be regulated by a central bank. Farmers agitate for land use regulations and farm price supports to protect themselves from the ravages of the market.
There are a number of interesting conclusions here. The state is never truly separate from the economy; it must step into these key markets for the "fictitious" commodities in order to promote economic and social stability. Also, the counter-movement for social protection is not the outcome of a simple class struggle between labor and capital; all segments of society participate in it. Finally, and again, contrary to contemporary libertarian thought, this social protection is typically introduced piece-by-piece, and pragmatically, rather than though some grand socialist plan. It is the market liberals, not their political opponents, who are the true utopian planners.
Perhaps even more importantly, Polanyi is also making a moral argument here: Human life (labor) and nature (the environment) have a sacrosanct dimension, an intrinsic worth that is not simply reducible to a market price, and thus can never be fully reconciled with complete subordination to the market.
I must take issue with the idea that the Great Depression was caused by the undersupply of currency resulting from the gold standard.
It is on this point that we will have to agree to disagree. I think the link between the reimposition of the Gold Standard in 1924 and the Great Depression is both obvious, and beyond reasonable debate. (My grandfather would go to his grave cursing Winston Churchill for his role in that decision.)
I guess we will have to agree on something else ;-) "Remember the I35W bridge--who needs terrorists when there are Republicans"
