Gold Crisis 1968
By GCRU Gold News on Sunday, March 8 2015, 23:26 - Permalink
Credit in it's capacity as a social form of wealth crowds money out and usurps it's place. It is the faith in social character of production which gives to the money-form of products the aspect of something disappearing and ideal. But as soon as credit is shaken - and this phase always appears of necessity in the cycles of modern industry - all the real wealth is to be actually and suddenly transformed into money, into gold & silver, a crazy demand, which, however, necessarily grows out of the system itself. And all the gold and silver, which is supposed to satisfy these enormous demands, amounts to a few millions in he cellars of the Bank. - Karl Marx
What Determines the Value of Gold? Since gold, to serve as money or the universal equivalent, needs itself to be a commodity, the value of gold is necessarily determined in the same way as the value of every commodity, that is, by the average socially necessary labour for its production, in this case, for its extraction. Hence arises the peculiar dilemma of the present phase, when the attempt has been made by government action to hold down the price of gold for thirty-four years, since Roosevelt raised it in 1934, to a fixed permanent figure in terms of dollars, without regard to changes in value, at the same time as the modern official post-Keynesian economic policy of the same governments during these years has been to promote permanent gradual inflation as the supposed magic panacea for prosperity. Thus the price of all other commodities has in general trebled during this period; but the price of gold has been artificially pegged down to the some level. Then, as the disproportion has grown every year more glaring, the clamour has become ever more shrill about 'shortage of liquidity' and a demand for an alternative to gold. 'On a purely economic assessment,' admitted the Financial Times on March 16, ‘the most sensible step which can be taken now is a sharp increase in the price of gold’. But this, the editorial continued, 'would benefit the major producers - Russia and South Africa - which the US is particularly anxious to prevent'. In practice, however, this dilemma cuts them both ways. If they increase the price, as they may possibly have to do, initially, as is widely suggested, under the cover of the 'two-tier system', it would inevitably strengthen the main socialist power, as well as the main gold-producing representative of the 'free world', South Africa. On the other hand, if they try to keep it pegged down, the price would eventually fall below value, so that it would become unprofitable in the capitalist world to mine it, and the Soviet Union would become the sole gold producer in the world. This is only one of the characteristic dilemmas which are battering at the unhappy heads of the central bankers meeting at this moment of writing in Washington.
Marx on Paper Money
Although Marx wrote before 1914 and the general crisis of capitalism had banished gold from domestic circulation in Britain, and eventually in all the developed capitalist countries, and confine gold to the settlement of international transactions, theoretical backing of currency or the illegal hoarding by desperate citizens struggling to escape from continuous robbery through irredeemable continuously depreciating paper as the only permitted form of cash, Marx dealt also with this question of `inconvertible paper money issued by the State and having compulsory circulation' (Capital, Vol.l,p.102). He showed that while 'it has its immediate origin in the metallic currency', the `law peculiar to the circulation of paper-money can spring up only from the proportion in which that paper-money represents gold', i.e. `the issue of paper-money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols'. To the extent that it exceeds this limit, the paper-money merely depreciates in value: `if the quantity of paper-money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name not of a of an ounce, but of of an ounce of gold.' But - and this is the decisive point - this issue of irredeemable paper-money by a State, which can thus multiply the quantity issued at its whim, but only thereby depreciate its value, can only be effective over the area where the legal authority of that given State runs:
This compulsory action of the State can take effect only within that inner sphere of circulation which is co-terminus with the territories of the community.
Beyond those boundaries only gold value rules; the varying rates of exchange between the different paper currencies are calculated in fact on the basis of their relationship to gold, even though the gold never figures in the particular transaction.