Posted tagged ‘Gold’

The Clear and Present Danger Chronicles: Goldbugs, GOPsters, The Ryan, and Oh Dear FSM Are They Really That Dumb?

August 25, 2012

I really have to get on with my day job, so I’m going to try to avoid the blogging itch as much as possible over the next while.  But I just can’t stop myself over the latest GOP flirtation with goldbuggery.

As you probably have heard, the Serious, Bold, Sober Party of Fiscal Discipline™ has at least in draft platform language asserted that it is the policy of the Republican party to explore the idea of restoring the US currency to the gold standard.

Y’all can stop laughing — or crying– now.

Paul Ryan, that intellectual powerhouse, the brilliant force that so-kicks-liberal-ass-in-the-gym-and-in-the-head-so-there is on board.  He might try to defend himself by saying that he supports basing US currency not on gold per se, but on a basket of commodities.

But as Yglesias points out, that’s a distinction without a difference. And it’s not even really true.  Dave Weigel notes that Ryan himself locates the root of his thoughts on currency to yet one more bit of Ayn Rand undigestible prose, the Francisco d’Anconia speech in which Rand’s “character”* declares

“It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor – your claim upon the energy of the men who produce.”

Yup.  Not just a gold standard, but, as Krugman marvels, a gold coinage.

Just to pause on the deep, limpid, unruffled well of stupid required to advocate a gold coinage in place of folding money as an instrument of daily exchange, consider this.  At this week’s prices the lightest US coin, the dime, would, if made of gold, be worth around $120.  A gold quarter would run over $300.  I know that no one — not even the most whacked out GOPsters I’ve been able to find — actually expects us to walk around with socks full of gold dust to trade, but given Ryan’s declared love of this particular passage of Randsanity, I think it worth noting that the reason folks outside the asylum don’t ever take Rand seriously is that the stuff is absurd on every level.  It’s turtles all the way down.**

As you can tell from the linkage above, the whole notion has come in for the a surfeit of ridicule, astonishment, and a general reminder from lots of folks about just how radical, reckless and plain dumb is the GOP, Ryan and Romney approach to the real world.  Ezra Klein’s take is a fine place to start.

So no need to repeat what others have said on this:  if you can’t figure out why the gold standard is such a crap idea, then I’m not going to make any more impact on you than any of the rest of experience.

Instead, I want to pose a choice.  If one were to think about national problems, who should one trust:  Paul Ryan or Benjamin Franklin?

Here’s Franklin, writing on the need for the Commonwealth of Pennsylvania to issue paper money to make up for a shortage of metal coinage.  First up is a passage from near the beginning of his landmark pamphlet from 1729, The Nature and Necessity of a Paper-Currency:

All those who are Possessors of large Sums of Money, and are disposed to purchase Land, which is attended with a great and sure Advantage in a growing Country as this is; I say, the Interest of all such Men will encline them to oppose a large Addition to our Money. Because their Wealth is now continually increasing by the large Interest they receive, which will enable them (if they can keep Land from rising) to purchase More some time hence than they can at present; and in the mean time all Trade being discouraged, not only those who borrow of them, but the Common People in general will be impoverished, and consequently obliged to sell More Land for less Money than they will do at present. And yet, after such Men are possessed of as much Land as they can purchase, it will then be their Interest to have Money made Plentiful, because that will immediately make Land rise in Value in their Hands. Now it ought not to be wonder’d at, if People from the Knowledge of a Man’s Interest do sometimes make a true Guess at his Designs; for, Interest, they say, will not Lie.

No flies on Ben.  Not to mention, the more things change…R-Money represents those with money, and everything he and his party advance should be viewed with that in mind.

And here’s Franklin’s conclusion:

Upon the Whole it may be observed, That it is the highest Interest of a Trading Country in general to make Money plentiful; and that it can be a Disadvantage to none that have honest Designs. It cannot hurt even the Usurers, tho’ it should sink what they receive as Interest; because they will be proportionably more secure in what they lend; or they will have an Opportunity of employing their Money to greater Advantage, to themselves as well as to the Country. Neither can it hurt those Merchants who have great Sums out-standing in Debts in the Country, and seem on that Account to have the most plausible Reason to fear it; towit, because a large Addition being made to our Currency, will increase the Demand of our Exporting Produce, and by that Means raise the Price of it, so that they will not be able to purchase so much Bread or Flower with £100 when they shall receive it after such an Addition, as they now can, and may if there is no Addition: I say it cannot hurt even such, because they will get in their Debts just in exact Proportion so much the easier and sooner as the Money becomes plentier; and therefore, considering the Interest and Trouble saved, they will not be Losers; because it only sinks in Value as a Currency, proportionally as it becomes more plenty. It cannot hurt the Interest of Great Britain, as has been shewn; and it will greatly advance the Interest of the Proprietor. It will be an Advantage to every industrious Tradesman, &c. because his Business will be carried on more freely, and Trade be universally enlivened by it. And as more Business in all Manufactures will be done, by so much as the Labour and Time spent in Exchange is saved, the Country in general will grow so much the richer.

Philadelphia, April 3. 1729.
Among his scary list of superlatives, I’d rank Franklin as the first and probably the most significant thinker on currency and finance British America produced (placing Hamilton in the federal era…).  He was also, unlike both Romney and Ryan, a working independent businessman, someone who grew rich off actually making things.  In his case that would have been the products of his printing shop, in which, inter alia, he turned out much of the paper currency issued by the mid-Atlantic colonies over a couple of decades.  He experienced what tight money means on Main Street, and he understood very clearly who gained and who lost under different currency regimes.  When money grows scarce, as he says clearly above, the few with hard cash get rich at the expense not just of the many, but of society as a whole.
As it was, so it will be.
Bonus smart guy on monetary policy!  Here’s Isaac Newton on the use of paper and the merely notional solidity of metal money:
“If interest be not yet low enough for the advantage of trade and designs of setting the poor on work…the only proper way to lower it is more paper credit till by trading and business we can get more money.”  Radically, he added that “Tis mere opinion that sets a value upon [metal] money,” adding “we value it because we can purchase all sorts of commodities and the same opinion sets a like value upon paper security.”¹
(Isaac Newton was not anti-commodity based money. He was in charge of the Mint as Britain moved from one metallic standard to another, swapping silver for gold.  He remains a man of his time, not Franklin’s or the present day.  Even so, he had a better grasp of the basics of monetary policy than almost all of his contemporaries — and too many of ours.)
So that’s it.  Your choice.  Bet on R-Money and Republican deep thinkers — or stand with Ben and my man Izzy — and, as Krugman reminds us, a couple of centuries at least of practical experience as well.
*I use scare quotes because it makes Cervantes and Defoe weep to think that centuries of the development of the idea of representing human experience in the novel have come to this hideous end.
**Yup.  I do know that what I’m talking about is not the infinite regress problem properly.  But I’m thinking this way:  part of the issue with GOP craziness as it mainstreams is the layered nature of the crazy.  You pull apart one absurdity only to discover the next, perhaps more fundamental one down.  So it is here.
¹Newton quote as reported in G. Findlay Shirras; J. H. Craig, “Sir Isaac Newton and the Currency,” The Economic Journal, Vol. 55, No. 218/219, pp. 230-231.  Self promotion alert: the passage above and Newton’s views on paper and credit are discussed in my book Newton and the Counterfeiter.  It’s stuff like this that is the leaping-off point for my next book project.
Images: Peter Paul Rubens, Ceres and Pan, 1615.
Quentin Massys, Unequal Marriagebetween 1525 and 1530.

 

Friday (Isaac) Newton blogging: Q: How did Newton get rich? (A: He mastered a mundane form of alchemy.)

February 1, 2008

Three hundred and eight years ago this Sunday, Feb. 3, Isaac Newton finally got his hands on the one sure way to multiply gold.

This time Newton had got his hands on the real thing — not the phantom he had pursued so deeply in his alchemical researches. It’s true that seven years before he had convinced himself that he had discovered the Philosopher’s stone. With it he believed, he had found the secret that allow the adept to begin with a stock of gold and then, as he wrote in his last alchemical manifesto, “you may multiply [it] to infinity.”

He believed — and held on to that faith for a few weeks, before recognizing his error, and then (perhaps coincidentally) falling into the deep depression that has led Newton historians to call 1693 his black year.

That experience more or less cured Newton of alchemy — not that he abandoned what he saw as its animating idea, but he did give up trying to turn its concepts into a practical experimental program. (He did in fact perform a few more laboratory experiments in the mid 1690s, but with nothing approaching the intensity of his pre 1693 research).

But the failure of his alchemical ambition did not end his deep involvement with the gold in it’s vulgar, day to day manifestation. In 1696, Newton left his academic job in Cambridge to begin life as an officer of the Royal Mint. And then, on February 3, 1700, he managed to make his way into the top job, taking the post of Master and Worker of the His Majesty’s Mint.

There he had formal responsibility for the production of all England’s coin. As of 1700, the official coinage was silver, with gold guineas and half guineas serving as convenient high denomination tokens that could be exchanged for “real” silver money. (How big a chunk of change was a guinea? About one week’s wages for a skilled London craftsman.)

Over the next decade and a half, Newton would preside over the death of the English silver currency; by the late teens, gold became the de-facto standard — a shift driven in part by a mis-pricing of the value of a golden guinea as measured in the value silver could command on an increasingly globalized market for precious metals. (The full legal switch to the gold standard came only in 1844, with the passage of the Bank Charter Act.)

The switch from silver to gold did not bother Newton. In fact, though he was as scrupulously honest as any man — more so than most in that patronage and corruption ridden age — he personally gained from any event that brought more metal into the Mint and spat more coins out. In his first post at the Mint, he received only a stipend — a generous one, to be sure: 500 pounds a year by 1699 — but not a foundational fortune, not an inheritance.

At the same time, it’s important to note that he worked for his money, more than any prior holders of his Mint offices for the previous century at least.He did the paperwork, made himself an expert assayer, kept exceptionally accurate accounts (shortly after coming to the Mint, he fought the Treasury over a discrepancy of two pence. Two pence! He was, in fact, one of England’s first real civil servants — along with his friend, the philosopher John Locke, who earned his keep at the same time as one of the founding eight commissioners of the Board of Trade.

This was, in other words, another side of the revolution in science — the very first steps (a lot of the one-forward, two-back variety) towards instituting an ideal of disinterested expertise in government.

That took a while — some might say that we are still waiting

Civil service — bureaucracy, if you will — was still in its infancy in England when Newton became Master of the Mint, however, and there were definitely some bugs left in the system. The job was one of the great surviving feudal privileges left for powerful patrons to deliver to loyal supporters. He got both a substantial stipend — and a percentage of every pound of silver or gold minted into coins. Now you were talking real money, an income that handily topped four figures in the busier years.

When Newton died in 1727, with almost three decades of his cut from the Mint’s prodution in hand, he left an estate — excluding the land inherited from his mother — worth 30,000 pounds. That’s between four and five million pounds in contemporary currency. Newton died rich…

…And thus was proved the proposition that the surest way to make a pile of money is to make it yourself.

Q.E.D. — with this qualification: don’t try this at home, kids.

(This last is a long distance tease for my book-in-progress — which will have a lot more to say about Newton and some of the more questionable ways English men and women tried to make money back in the day. My telling of that story is due out on Houghton’s Winter 08-9 list.)

Images: Sir Godfrey Kneller, “Isaac Newton,” 1702 and “Coining Press used by the Royal Mint,” 1818. Source: Wikipedia Commons.