Re: RE: Re: RE: Re: Re: Gold

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

I wrote:
> <<I think one problem is that you seem to assume that capitalism is merely a
> bunch of mutually-beneficial exchanges between individuals. This misses the
> class and expansionary nature of capitalism.>>

David Shemano wrote:
> Where did this come from and what does this have to do with the topic at
> hand?

Sorry -- I didn't finish my thought. As far as I could tell, you seemed to
be saying that problems under capitalism arise from the government (or its
agencies, such as the Fed), as exogenous shocks. This might follow from the
assumption that "capitalism is merely a bunch of mutually-beneficial
exchanges between individuals." On the other hand, if one sees the "class
and expansionary nature of capitalism," it's clear that problems arise
endogenously, from the belly of the system itself. Indeed, the state's
policies largely reflect the class and expansionary nature of capitalism,
so that the state isn't exogenous to the system. Prior to my paragraph
above, I listed some reasons why I think capitalism's problems are
endogenous rather than being imposed by the cupidity or stupidity of the state.

in a second message, David reveals that, just like me, he hadn't finished
his thought and adds that: > This discussion originated in response as to
why oil prices gyrated so dramatically since 1971.  I suggested that it was
because Nixon severed the gold link in 1971.  That answer may be
empirically right or wrong, but the rightness or the wrongness is not
dependent on what I assume capitalism is or is not.<

The thread had developed beyond that origin. In any event, I wasn't talking
about the "rightness or wrongness" of capitalism. I was talking about
_positive economics_, the real-world origins of economic and ecological
crises and the like. (NB: I'm not pretending that this can be separated
from normative economics, but it's useful to make the distinction
provisionally.)

But let's think about Nixon. Though he clearly followed self-centered and
stupid policies (imposing Nixon shocks on the Japanese rather than
consulting them, for example), I think that the break with gold was
inevitable, assuming that the political balance of power couldn't have been
very different from what it was between 1968 and 1974. So though it's a
mistake to put too much emphasis on Nixon.

The fact is that the US had fought a long, expensive, and losing war
against Vietnam. This not only encouraged domestic inflation but pumped
dollars into international financial markets and drained gold reserves,
while allowing the rise of Western European and East Asian competitors. The
dollar/gold exchange rate was thus quite obsolete, while any devaluation
would disrupt normal international economic relations. The gold-based
Bretton Woods system did not deal well with "fundamental disequilibrium,"
where exchange rates were out of equilibrium. There were speculative
attacks on the US dollar. Something had to give, unless there was going to
be a new Bretton Woods-type conference to re-create a fixed exchange rate
system. But the competitive stresses among the major capitalist powers
prevented such a move. Nixon decided to "go it alone," abusing the power of
the hegemon over its allies.

The flexible exchange rate system does not automatically imply inflation.
(If it did, Milton Friedman wouldn't advocate floating exchange rate
systems and the abolition the gold standard.) With bankers and financiers
running the central banks, with the US acting as a global policeman to
weaken OPEC and similar organizations, inflation can be avoided. In fact,
it largely has been avoided. Of course, there are a bunch of (more
important) problems, such as the steadily rising gap between the wealth &
power of  the rich and that of the rest of us.

Jim Devine jdevine@xxxxxxx & http://bellarmine.lmu.edu/~JDevine
"There are few Einsteins today. Maybe they all flunk the Graduate Record
Exam or get poor grades." -- Temple Grandin, _Thinking in Pictures and
Other Reports From My Life with Autism_.