The Left are becoming desperate in their attempts to scaremonger and scapegoat the Big Crunch.
Gordon Brown’s stewardship of the Treasury over the past decade is now under scrutiny. He followed Alan Greenspan, worshipper at the feet of Ayn Rand, a free marketeer whose extreme and influential libertarianism let markets rip, kept interest rates too low and failed to regulate the banks’ wild lending. Britain, says the OECD, is in a worse position to weather the storm than most due to its dependence on an uncontrolled property boom. Many – including this paper – warned often of the madness of letting prices rise by £50 a day with a mortgage-based debt bonanza. Slashing capital gains tax, on the advice of private equity leaders who had Brown’s ear, set off a huge expansion in borrowing to snap up public companies. The buy-to-let market was allowed full rein, too, inflaming house prices. The Treasury heeded no warnings about the culture of 125% mortgages.
We must hang objectivists, ban ‘We The Living’ and jail all libertarians. Immediately. Or perhaps Polly Toynbee is wrong.
Rand must be laughing in her grave.
Good lord, Polly Toynbee and Ayn Rand together? I never saw that coming.
We have had decades of communists explaining away the manifest failures of all communist economies by saying that “they were not communist enough”.
We free-marketeers must not fall into the same trap when responding to what appear to be structural flaws in the corporate world.
Failed banking and finance businesses, and the market corrections that usually ensue, often provide the excuse for even greater meddling and regulation, so this is the time for all good people to bury their doctrinal differences over arcane minutiae of libertarian lore, and man the barricades in defence of capitalism in its hour of vulnerability.
Capitalism works just fine for the people who count.
It just doesn’t work for irrational, unproductive losers.
Although, oddly, they failed to warn of the madness of creating 50 public sector jobs a day. Funny, that…
“Capitalism works just fine for the people who count.
It just doesn’t work for irrational, unproductive losers.”
In a properly capitalist system, most people would count eventually, since rationality and productivity would be necessary for survival. Chicken and egg, really…
Toynbee has probably never heard of Rand before, nor realised that the lady was a champion of gold-based currency, as Greenspan was before he “went native”. Nor does Toynbee seem to take on board the whole regulatory morass of Basel II (bank capital rules); Sarbanes-Oxley (accounting standards), the numerous lawsuits and actions of Spitzer, the SEC, etc, etc. The idea that modern capital markets operate under laissez faire is a joke. In fact, the problem is that bankers today enjoy, or have enjoyed, an asymmetric set of rewards: bonuses in good times, state bailouts in the bad times. This does not remotely resemble the sort of “Darwinian” process that is necessary for a market to be healthy.
Even so, one can expect a lot of commentary to the effect that all this stuff proves, somehow, that we need yet more regulations, more capital controls, more controls on capital flows, etc. The trouble is that a lot of modern financial markets are baffling enough even to relatively smart people; with the Guardianistas, it all looks like a mixture of conjuring tricks and fraud.
we have to keep pointing out that the root of the problem is a monetary system that has little connection to underlying demand for savings and borrowing. Paul Marks keeps banging on about this and he is right to do so.
A lot of people think of capitalism as lots of young men shouting into screens in massive City and Wall Street offices; we tend to forget that much of this so-called market is in fact the creature of government-created money and a huge vehicle for financial moral hazard.
Let’s not forget that it was the Observer econ. editor, William Hutton, who recently said we need to copy the US and set up Federal housing agencies to back private mortgages.
These people are idiots. Unfortunately, in the current hysterical atmosphere, they will get an audience.
Greenspan was a devotee of Rand? Was that before or after she threw a dinner plate at him?
We’ve had Cabinet secretaries before who were not US citizens by birth. There’s precedent for this: Paul Marks for SecTreas!
Thats more her line, isnt it?
What makes me snigger is the fact that the Labour Party line is just to blame the US for it all. Its not rubbish handling of government finances; its just Wall Street’s fault. How can they expect people to take responsability for themselves when they government can’t even do it.
Yeah Polly, and Dubya is an ultra-capitalist.
The tragedy for Ms Toynbee is that she’s thick.
The tragedy for the rest of us is that she doesn’t know it.
Well, you can’t have everything. Here we have Polly T defining “libertarianism” as “underpriced loans”. But at least she is acknowledging that underpriced loans are a problem. Usually, idiots like her think that underpriced loans are the solution.
“let markets rip, kept interest rates too low”
A shame Polly doesn’t understand that markets do not “keep” any price too high or too low, and that it is that state that has kept interest rates too low.
“we have to keep pointing out that the root of the problem is a monetary system that has little connection to underlying demand for savings and borrowing”
Amen. We need to abolish the Bank of England.
Back in 1987, Murray Rothbard wrote that Greenspan only believed in laissez-faire on the ‘on the high philosophical level’ and was in practice a ‘pragmatic’ conservative Keynesian. I suspect that Toynbee and co really know this, but it serves the purposes of the ruling class (that Toynbee et al belong to) to perpetuate the myth that Greenspan’s rogueries were down to free market beliefs that he had no intention of ever putting into practice. It helps divert attention from the evils of fractional reserve central banking and profligate governments.
Inflaming house prices – h-m-m-m – obviously the work of that underground group Arsonists R Us.
“a free marketeer whose extreme and influential libertarianism let markets rip, kept interest rates too low”
So hang on, free markets caused government central banks? What?
Most objectivists think Greenspan sold his soul to the devil. This is what the old Greenspan had to say about this sort of thing:
http://www.usagold.com/gildedopinion/greenspan.html
Ah, M has beaten me to it. These people aren’t stupid; they’re bad. They know damn fine that we don’t have Rand-esque laissez-faire capitalism, but they know a propaganda opportunity when they see it. If they can convince people that this is a failure of capitalism, they turn their minds against it for a generation. That has always been the left’s genius: convincing people it has the answers, despite all the evidence to the contrary.
Brown’s stewardship as chancellor was always under scrutiny from the Guardian. They told us he was prudent, doing the right things and that Brown was a generally wonderful person who would make a fine PM. They never bothered to explain why spending billions of public money to no noticeable effect and hiring nearly a million extra public sector workers to do non-jobs were good ideas – things such as these are self-evidently good to the economically naive socialist mind and required no explanation.
Polly lolly. Always sounds good in the left sided view.
One thing I have never understood is the liking most libertatians have for a gold-based currency; what is so libertarian about a state-enforced price for gold?
“Was that before or after she threw a dinner plate at him?”
Wow, is that really a fact or is ‘dinner plate’ some sort of insider’s euphemism?
Polly is deaf to sense like most politicians.
Firstly, a system crashing proves that capitalism works. How else do you get rid of the deadwood? Nature does it with a forest fire – a crash is the financial way.
Secondly, a free market would allow us to do whatever we wanted to make money – assuming we could find the customers – and the finance industry is not a free market, There are plenty of barriers to entry and plenty of barriers to free trade – set up mainly by the government and the big players of the industry to keep the upstarts out!
It is the regulations which ultimately caused this crash to be as bad as it is – regulations which forced banks to offer preferential loans to key workers and to the uncreditworthy minorities so favoured by Polly. A natural correction would have happened years ago and wouldn’t have done a fraction of the damage!
It was the government which depleted the disposable income of millions through taxes, and spent the money on creating even more costs for those taxes!
Finally, the whole financial system is run on a prayer as we have nothing of solid value backing up the paper money that we are all chasing. At least with a gold based system, there was some stability – when there were no politicians involved.
Polly and the whole of the left needs to learn that they are wrong in every aspect of their beliefs – although, like all beliefs, there may be something good in the small print, but I have yet to find it!!
Excuse me? The central banks effectively kept interest rates too low by issuing too much money. Ayn Rand opposed central banks, and favoured gold as money, as did Greenspan when he did “worship at the feet of Ayn Rand,” and as he did not when Gordon Brown was copying him.
FOul wrote:
‘Finally, the whole financial system is run on a prayer as we have nothing of solid value backing up the paper money that we are all chasing. At least with a gold based system, there was some stability – when there were no politicians involved.’
But gold has no ‘solid value’ either – it’s purely relative to its percieved scarcity. And a gold-backed system is nothing more than the state saying what gold is worth. The interval between them saying what it is worth and fiddling with what it is worth to support their own ends could be measured with an egg-timer.
I too have never understood this libertarian bent for the ‘gold standard’ or a gold-backed currency. Gold is a commodity like any other, and subject to the same market forces and manipulations. It has no magical property of stability that washes onto a currency based on it.
llater,
llamas
llamas,
Under a gold standard, the government doesn’t say how much gold is worth. It says how much gold a dollar is, i.e. a dollar is equal to 1/100th of an ounce of gold. Then, yes, gold fluctuates as a commodity with it’s price, and the associated value of a dollar, then being relative to other commodities.
Libertarians aren’t fixated on gold per se. But, historically gold has been a monetary system that has been stable and most of the ‘manipulations’ that have affected it haven’t been ‘market forces’ but government force and intervention.
You could have a raisin based currency if you wanted. The problems would be that:
(i) It has a low value/volume ratio so you would need a lot of storage room
(ii) It’s easy both to make and counterfeit raisins (if you do funny things to sultanas)
(iii) raisins go off
(iv) the price of raisins is subject to fluctuate fairly highly because of supply and demand.
(v) raisins are used for lots of things other than currency, like cakes.
None of this is true about gold, so it makes a good currency. If you want to insist on a standard it’s the best choice to pick, unless you don’t have enough then you have to use (some) silver.
The reason to insist on a standard at all is because it stops some of the funny games government geniuses like to play with money. The problem is if you have a relatively civilized government it’s not so important and if you don’t, well good luck getting one.
It’s true that if alchemy was possible (which for all anyone knew in the 10th century it was) then the global economy would have to have developed based on something else, but so what? Economies aren’t a set of equations, they’re people buying and selling things that exist.
Llamas, the point is not about making a fetish of gold, but anchoring money to the real stock of goods and services, in some way. Now, I haven’t time to go into the complex arguments, but basically, Rand opposed what we call fiat money – money being what a government says it is – both because it could be used to destroy capital values via inflation, and second, because fiat money was part and parcel of Big Government, as she saw it.
Gabriel is right. Any commodity or basket of commodities could serve as a currency base, but the advantage of gold, of course, it is that it is universally recognised around the world as an asset, is relatively scarce, is a fungible asset, can be shipped around fairly easily, can be subdivided into standardised weights and sizes.
Johnathan: “we have to keep pointing out that the root of the problem is a monetary system that has little connection to underlying demand for savings and borrowing.”
No. That’s superficial. “The root of the problem” is not economic or political, but ethical: it’s in the central fallacy of our times, which is that “we’re all in this together”. It’s in the idea that your life and every manifestation of it, including your productivity, is available to the disposal of others.
Start working this stuff from the bottom, up, or you have no rational hope.
“You could have a raisin based currency if you wanted.”
That’s exactly right. And it would work, too.
Dig up Hayek on “The Denationalization of Money” and read it carefully.
SKPetersen wrote:
‘Under a gold standard, the government doesn’t say how much gold is worth. It says how much gold a dollar is, i.e. a dollar is equal to 1/100th of an ounce of gold. Then, yes, gold fluctuates as a commodity with it’s price, and the associated value of a dollar, then being relative to other commodities.
Libertarians aren’t fixated on gold per se. But, historically gold has been a monetary system that has been stable and most of the ‘manipulations’ that have affected it haven’t been ‘market forces’ but government force and intervention.’
My points in a nutshell.
When the government sets the value of its currency vs a unit of gold – IOW, they set the value of gold – the relationship goes both ways.
Gold has no intrinsic value, apart from its useful industrial properties. You cannot ‘set’ a currency value against it because its supply is variable and depends entirely upon the monetary profit to be made from extracting it. Since the vast majority of readily-available gold is in the hands of states already, they effectively control its value – it is worth, what they say it is worth. It is, essentially, a fiat commodity.
Gold is no more stable a medium of exchange than any other, and its use as a currency (basis) can be just as destabilizing and inflationary as any other. Google ‘Mansa Musa’ for an example.
Most of the fixation upon gold as a currency standard is historical and dates back to the days when it really was fantastically scarce and the supply was extremely limited. But in the last century alone, more than 3x the total weight of gold has been extracted than in all of antiquity prior to that, and now the rate of extraction tracks the market price – not the other way about. And to set a ‘gold standard’ places the economy of a nation at the mercy of outsiders, who can manipulate your economy by the ways that they deal in gold.
Hayek has already been mentioned, and Milton Friedman’s thinking shoul;d be mentioned also.
llater,
llamas
Nothing has intrinsic value. Gold has value because people value it.
The government doesn’t set the price of gold, it merely says how much gold they’ll give you if you try to redeem your bank notes.* So the price of gold is variable and the currency is pegged to it not the other way round. If a dollar is redeemable for a lump of gold and a lump of gold will buy you 4 raisins, then the dollar buys you 4 raisins. If the market brings about that a lump of gold now buys you 6 raisins a dollar buys you six raisins.
There is, true, much more gold around than previously, but there are alot more people too. Again, gold is not a mystical commodity, it just best fits certain criteria that make it useful as a currency.
*ideally this would simply be them stating how much gold they have divided by how many notes were in circulation.
What does this mean, that gold prices fluctuate no less than oil prices? That would be a pretty radical claim.
Gabriel wrote:
‘What does this mean, that gold prices fluctuate no less than oil prices? That would be a pretty radical claim.’
Here you go.
Gold prices (inflation adjusted) for the last 30 years:
http://goldprice.org/inflation-adjusted-gold-price.html
Oil prices (inflation adjusted) for the last 60 years
http://www.wtrg.com/oil_graphs/oilprice1947.gif
Gold prices have lfuctuated as much or more than oil prices over comparable periods.
Not so radical a claim after all, is it?
Anything else?
llater,
llamas
“We must hang objectivists, ban ‘We The Living’ and jail all libertarians. Immediately.”
Philip: first, the liberals, then the lawyers. Librarians and the Randies will just have to wait their turn.
At least they’ll be spared the scourging, eye-gouging and tongue-removal…
Llamas, no one said that using gold as the foundation for currency is perfect. Nothing is. The only point is that it is necessary to remove control over the currency from politicians, and the means of doing that is to peg the currency to something outside of their control. Historically, gold (and sometimes silver) has filled that role, and it has done a good job. The only instances of inflation in gold-based systems are when large new supplies were unexpectedly found.
If you don’t like gold, fine; propose something else. But it has to be something not subject to the whim of a rapacious government and venal politicians.
Who does the pegging?
Answer – politicians. And they will peg, unpeg, repeg, whatver it akes to get the result they want.
The history of this is too long to recount. My own personal area of interest is the English currency debasements of the 14th and 15th centuries, where Henry VIII and Edward VI debased the currency to the point where it took several generations to repair the damage. This is the source of Gresham’s Law, that bad money displaces good money, and just one more example of how state-controlled ‘pegging’ of money to a commodity standard will inevitably end up with debasement, inflation and displacement of the commodity.
I have a better idea – let the market ‘peg’ the value of money. Let exchange rates and commodity prices float freely, and actively prevent states from meddling with them. That’s the best recipe for currency stability yet invented – assuming that you have basic political stability, the rule of law and well-understood principles of property and personal freedom. The urge to ‘peg’ currency to anything, whether it be gold, silver or raisins, is merely the first manisfestation of the urge for the state to control the value of money – and that always ends badly.
llater,
llamas
Sounds reasonable on the surface, llamas, but that’s essentially the system we have today, and look how it’s working out. If all currencies are “pegged” to nothing but each other, yes, the market will sort out relative values among them, but overall they will all inflate more or less together. The receding tide will lower all the boats, yachts and dinghies alike.
Remember what currency is (or is supposed to be, anyway): a storehouse of value, and an infinitely subdividable medium of exchange. Tying the currency to something tangible is the best method human beings have yet come up with for maintaining that value. I agree that we have to keep politicians’ hands off the “peg”, or they will inevitably cause mischief. I also agree that it’s probably impossible to do that with absolute certainty. So what? All that you’re saying is that no human system is perfect; your argument is against the (admittedly imperfect) best we can achieve in favor of an unattainable utopia. The perfect is always the enemy of the better. I’ll take the “better” and be satisfied.
The only solution is breaking the government monopoly on the currency.
The currency then wasn’t “pegged” to anything, it was gold and silver. The debasements were disgraceful and destructive, but let’s be clear about what we’re dealing with
The debased currency was devalued after Somerset fell, causing a lot more temporary pain, but sound money was well established by Elizabeths’ reign. Subseqeuntly, she followed Gresham’s advice. The period of funny money wasn’t the”14th and 15th centuries” it was a two decade period (in the 16th). Henry tried something dumb so he could take Boulogne and it blew up in his face. That’s it really.
This is nothing, literally NOTHING compared to what 20th century governments have done with currencies.
(The bigger inflationary problems of the era were to do with the imprtation of gold then silver from the Americas and this represents a rather better example of the problems of a metallic currency, though it’s hard to see -short of space exploration- what a comtemporary equivalent would look like).
Anyway, llamas any non-state currency would have to be commodity based too (“the Liberty dollar” accepted in parts of New Hampshire is silver I believe). It is only government power that makes a non-commodity based currency workable even in the short term. In the absence of government power, what on earth would entice me to accept a piece of paper for goods short of the knowledge that I have the guranteed right to trade it in for something valuble?
Legally speaking, no such monopoly exists in the U.S. and I think the situation in Europe is complicated.
“Legally speaking, no such monopoly exists in the U.S. and I think the situation in Europe is complicated.”
I don’t think that’s correct. I can’t speak to Europe, but I know that in the US it is illegal to issue gold-backed bonds (that is, bonds which are payable in a specific amount of gold). If you can’t do that I don’t know how it would be possible to have private currencies (which were common in the 18th century); no one would accept them without something tangible backing them.
From a strict legal POV Gabriel may be correct – it is certainly murky at best. However, practically speaking, as long as you are forced to accept the USD, and as long as it is the only currency in which you can pay your taxes, it is a de-facto monopoly.
Laird: silver.
The Liberty Dollar
I believe in parts of MittelEuropa there are equivalents of this. I don’t really know.
Anyway, the point is that the situation isn’t perfect and there are various abominable restrictions, but if you believe in sound money there is something you can do other than bleat.
Like what?
Like buy Liberty Dollars or equivalents. Or, if we happen to be very rich, mint them.
And where would I use them?
OK fine, in Israel there’s nothing you can do but bleat. But isn’t that always the way? 🙂
Yes:-)
Seriously though, I am talking about the US, and would like to know what did you have in mind.
In the U.S. anywhere where there’s a high conentration of Libertarians or Paleos or where a low concentration of them have spent some time spreading the news.
http://www.libertydollar.org/ld/spend-liberty-dollars/success-stories.htm
Like anything else, the more people spend and accept it, the more the word will spread.
I liked that – thanks.