Ed,
. . . en suite . . . !
At 18:34 16/10/2011, you wrote:
Keith, the following is based on our last exchange.
Ed
Ed: The great social change that took place in the western world
during the 18th and 19th Centuries was due to tremendous
technological and social change and not due to the gold standard.
Keith: It certainly was! Without gold as the basic (most valuable)
currency (and copper and silver as subsidiaries), the industrial
revolution would never have got started. Large amounts of it had to
be available for investment before innovations could get off the
ground. This was available in London as a result of international
trade with other countries (where gold was already the universal
trading currency) and also a considerable flow of landowners' rents
and profits (copper and silver mostly) that was fed into London via
the countryside banks to exchange for gold (to pay for foreign
luxury goods or skilled artists or industrial development somewhere
else in the country, etc). The other great European seaports such as
Amsterdam, Hamburg and Stockholm didn't have countryside banks
behind them so this was the reason why the industrial revolution
took off in England many decades before elsewhere in Europe.
Ed: I'm not arguing that capital, and large amounts of financial
capital, weren't needed to promote industrial and social change, but
only that it needn't have been financial capital based on the gold standard.
(KH) At the time that the industrial revolution started to stir in
the 17th century there was only gold (plus silver and copper as small
fry). Strictly speaking in Europe there were two -- gold and cowrie
shells. At the time, West African traders used cowrie shells (of very
specific size and type) which were mined undersea, so some banks in
European seaports held these as a viable currency. (It was continuing
to be used for the African trade until well into the 18th century
until some clever-pants European fishermen dredged them up in their
millions, made a fortune in the next few days but then inflation
promptly destroyed the cowrie as a currency!). There were also
trading bills (usually 60-day or 90-day schedules), banknotes
(individual ones for each bank) and personal cheques which served as
convenient money in daily to-and-fro exchanges (and also as
collateral) but the marginal profits or interest payments ended up as
deposit balances in bank accounts which were backed up by gold in their vaults.
(EW) Much larger amounts of financial capital are needed to keep the
world going and changing now and to the best of my knowledge none of
this is backed by gold.
Gold is no longer legal tender at individual and corporate level but
it still remains a currency at national level and it could be so for
the rest of us if the price were high enough (computed as world daily
money supply divided by gold world tonnage). It comes out at about
$20,000/ounce. Of course it need never be used in normal daily
exchange, so long as it's known to be backing the currency in use.
Despite what governments say about gold (that it's a barbaric relic),
it's still valid for them. In the words of the latest central bank
agreement (2009) involving about 40 of the world's top central banks,
"gold remains an important element of global monetary reserves".
Typically, for convenience, a central bank will keep some of its
gold in several other central banks of countries with which it
trades. It's not normally used for ordinary trading purposes but it's
often lent or sold to the host country. Germany, for example, has
large tonnages in the New York Federal Bank. So does Iran (at least
it did a few years ago anyway even when there were no diplomatic
relationships between them)! "Honour among thieves and all that!"
Keith
Keith Hudson, Saltford, England http://allisstatus.wordpress.com/2011/10/
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