Collective Conscious

A new gold rush might be on in the far right, accord­ing to Mother Jones. Gold is more than just a crazy com­mod­ity, how­ever. It’s a deeply sym­bolic ele­ment for the world finan­cial sys­tem, and dis­cus­sion about it has con­se­quences for the way we do busi­ness deeper than the color of our coins.

From William Jen­nings Bryan’s famous “Cross of Gold” speech onward, the gold stan­dard for money has become an enemy of the lib­eral left and a hero of the fis­cally con­ser­v­a­tive right, and both sides have good rea­sons. The Gold Stan­dard — or the sys­tem of fixed exchange rates that later came to replace it — rep­re­sents a delib­er­ate choice in world eco­nomic inte­gra­tion, rep­re­sented cleanly and effec­tively by Dani Rodrik’s “trilemma” theory.

Essen­tially, there are three options at hand. There is the one which we have cur­rently cho­sen, “Bret­ton Woods,” which fea­tures float­ing exchange rates and fiat cur­ren­cies, at the expense of highly vari­able inter­est rates and the atten­dant costs of cur­rency hedg­ing and spec­u­la­tion. There is the the “fed­er­a­tion” option, which can be seen in both the United States and the Euro­pean Union, where pro­gres­sively more sov­er­eignty is sur­ren­dered to the cen­tral gov­ern­ment in return for a strong and sta­ble cur­rency. And finally there is the “Gold Stan­dard” option, which makes inter­na­tional finan­cial flows effort­less, but dra­mat­i­cally ham­pers the abil­ity of gov­ern­ments to assist their cit­i­zens in times of trouble.

Which to choose? Of course, it’s a value judg­ment. Increas­ingly, how­ever, the idea of mon­e­tary union via fed­er­a­tion is prov­ing to be a more and more resilient idea, as the Euro­zone is prov­ing in its man­age­ment of the Greek cri­sis and the US has always stood a pre­mier exam­ple of. The ide­o­log­i­cal issue, though, harks back to a pre­vi­ous post, in which I dis­cuss the deep-​​rooted aver­sion of the States to such a union.

So if we’re to pur­sue a business-​​friendly alter­na­tive with­out for­feit­ing the power of the nation-​​state, where are we to head? The Gold Stan­dard, of course, and that’s exactly the path that the ide­o­log­i­cal right sug­gests. From the Amer­i­can point of view, this is the most preva­lent way to main­tain our sig­nif­i­cant finan­cial power on the world stage as well as our sov­er­eign mil­i­tary might. The pri­mary cost is to our work­ing cit­i­zens, who would be, as they were in the 19^th and early 20^th cen­tury, sub­ject to the unmit­i­gated cur­rents of global finance. That may sound like a raw deal for us, but busi­ness would indeed ben­e­fit: with­out the fear of cur­rency volatil­ity the most prof­itable invest­ments in for­eign mar­kets would sud­denly be even more appealing!

(photo: Steve Snod­grass)