Down the Yellow Brick Road, One Last Time

I've long been in private discussions over the relationship between 'free/fair' markets, the validity of gold as a potential currency, and the role of government intervention in markets, and so this post may appear slightly out of context, but it is a response to comments made by Chris Powell of the Gold Anti-Trust Action Committee (GATA). The article is available here: http://www.gata.org/node/5654

The folks at GATA are not necessarily conspiratorial kooks, as they have been pejoratively described. Rather, they are ultra-right wing 'free' marketeers leading an ignorant, misguided, and manipulated - though passionate - segment of the middle-class, nostalgic for the bygone days of pre-73'. Just like, and yet opposite, their counterparts in dominant orthodox economics departments worldwide, they lead those desperate to believe the utopian call for 'free markets' by creating a conspiracy out of what is an obvious and very well-known fact: central banks do intervene and is an explicit part of their mandate.

Where this becomes especially manipulative is when the Midas-wannabes at GATA allege that the actions of all the world's central banks are aimed at the "price suppression of gold". Either this is extreme ignorance demonstrating a thorough lack of understanding about the way global prices operate in a semi-floating exchange rate system, an inane ego-mania that is likely what warrants GATA being branded 'conspiracy theorists', or most likely, a rhetorical tactic to simplify a complex (though unfair) global economy for mass public consumption which masks the elite interests that it truly serves.

The main objective of central banks (dealing with fiat currency) worldwide is to maintain the stability of their currencies, and thus national economies, in the pursuit of various distributions and allocations of wealth in society. These objectives can vary drastically, but usually aim to dampen business cycles by bailing out uber-capitalist bankers, and inducing certain consumer behaviours (in investment for example) by setting interest rates and adjusting the money supply. We can, and should, dispute who is served most by this system (consider for example, that the vast majority of bankers have obtained a safety blanket in the current sub-prime debacle while unlucky home buyers declare bankruptcy by the thousands), but we should also note that the ability to adjust the money supply somewhat arbitrarily provides a modicum of support for workers and consumers who would otherwise be flattened in the event of an exogenous shock (say a shortage in staple foods, driving up prices).

The price of currencies and commodities in this mixed or 'managed float' exchange system are mostly set by independent and institutional investors, and supposedly reflect their confidence in those currencies (though much currency trading is predatory, irrational and of course, speculative). The extent to which these currencies are impacted by this trading depends on the relative interest they attract in currency markets, and the strength of its central bank carrying out its 'management' of the price. Gold is viewed - although highly problematically - as an alternate 'safe-haven' to the US dollar, which has long maintained its hegemony in global currency markets, and thus as confidence in the US dollar declines, the Federal Reserve sells gold to buoy the price of the USD, just as Asian central bankers manage their USD reserves to set the prices of their currencies. That currencies and commodities are all interconnected in global markets is hardly a conspiracy - though some may wish to frame it that way.

Our current mixed exchange system (with the exception of a few fully-fixed, 'dollarized' economies) is the historical antecedent of the Bretton Woods system, which is itself the antecedent of a full gold standard system, explains the lingering cultural obsession with gold (which is as arbitrary as any finite, durable, and portable commodity), along with the irrational and naive nostalgia of those imagining a corruption-free and opulent 1920s. That is indeed true conservatism. Ironically, those clamoring loudest for a return to the "realities" of the gold standard, are those who undoubtedly benefited the most from the Keynesianism of the 50's and 60's - the so-called 'Golden Age', imperfect though it was. Where gold advocates are so far gone, however, is when they presume gold to be a "real" standard of value, unlike "false" fiat, seeking to secure some sort of false legitimacy. This masks the real point at issue - they are dissatisfied with the arbitrary hegemony of the USD (or the Euro, or Yen, etc.), which obviously does not benefit them directly as it does primary shareholders in the fiat system, and want to replace it with the equally arbitrary hegemony of gold. Thus, those who advocate the dissolution of the central banking system may drape their call in the language of the radical democratization of economic control, but what they are really advocating is a much darker minority class revolution against the current elite, and most certainly against the masses. It is no surprise then that major notable supporters of the gold standard are Ayn Randian Objectivists, Austrian School Economists and hard-line monetarists like Milton Friedman, conservative populist Ron Paul, and yes, even Alan Greenspan (and we know where his interests lie).

And that is really what the reification of gold is really about - the return to the gold standard - even if it is idealized as being controlled decentrally via the world price, rather than by a government of body of governments. It is gold that is true, and nothing else; gold that deserves to be hegemonic, and consequently, those that control it. It is, in the end, a utopian call for "free" markets, so akin to neoliberals, and so fundamentally ironical that it borders on farce, that is most deadly to the multidude of disenfranchised who would be told to "sink or swim". This class project has already been carried out too many times, and the story is always the same.

Supporters of gold must either admit their complicity in this class project, and engage in clear debates that will ultimately expose their true intentions, or accept that the price of gold is by no means an improvement over our current broken system. What is needed is progressive and pointed criticism of the current economic order, and suggestions towards a better and alternative future, not reactionary criticism that will ultimately work to entrench the current order, or worse, successfully push it further right. It's time to end this 'yellow brick road' fantasy, so emblematic of yet another manipulative fallacy, and finally focus on meeting the needs of all, so we can collectively explore our creative ingenuity.