Units of work, the economy, the silver standard and a story from Grandpa.
I wrote that title and I can tell that I feel like rambling a little this morning
I have a license plate frame that says “WILL WORK FOR BANDWIDTH”. I used to say that the only reason that had a job was access to the Xerox machine. I then said that the only reason I had a job was access to high speed internet. Now, I have a job, but I am not sure why. I think it is because I have gotten used to the office chair and can relax. Also there is easy access to the Scarlet Deli around the corner where you can buy great pastrami sandwiches. Also the keyboard is at the exact right height and position for writing blog entries.
The link above explains an economic model where bandwidth represents a standard of exchange. Standards of exchange are economic fictions. William Jennings Bryant ran for president on the sole issue of switching from the gold standard to the silver standard. He felt that all the gold was controlled by J. P. Morgan and the eastern banks. Switching to silver, whose price would be harder to manipulate, would shift the balance of power to the west and the farmers. The robber barons, Fiske and Gould tried to corner the market and almost did until President Grant intervened on the “Black Friday”. That they could very nearly buy enough gold on margin to effect the price proves Bryant’s thesis. The truth is that the gold is not really very important as a medium of exchange or standard of value. Value remains the same even though the price floats. Changing to the silver standard might have stabilized prices for a while, but it would not have changed the relative value of farm work and the crops in the west compared to the manufacturing power of the east. Bryant’s claim that silver would bring wealth to the farmers was a total fiction.
My friends Jim and John are very excited by the presidential campaign of Ron Paul. Ron Paul is bubbling to the top of the squirrel nut stew because of his off the wall ideas about taxes and government. They reek of W.J. Bryant’s silver standard silliness. First, his policies stand exactly zero chance of ever being implemented, even if by some miracle he found himself to be president. Second, campaign pledges like eliminating taxes seems to be nothing more than saying what people want to hear. Stupid people look at their pay check and figure the money deducted should be theirs, falsely thinking that the money is going to unwed mothers in inner city ghettos. They don’t realize that the deductions are the price of living in a country that has a government providing essential services that they would have to pay for out of their own pockets. Stupid people… but I digress.
My dad explained money to me as: a dollar is the equivalent of an hour’s work. Back in the 1950s this was true. People were paid more because the value of their work was worth more. This is a very Marxist attitude and I think he got it from my grandfather, who was a communist. The idea that the true standard of exchange is labor has been debunked. The value of labor has steadily dropped until now only the very poor, or illegal immigrants, or slave labor in third world countries actually produce the manual labor that was so highly prized by Marx.
Value is a negotiated concept and is determined by demand and supply. Value is a very capitalistic notion. Connecting a standard measurement for value by tying it to anything concrete like gold, silver, labor or bandwidth is just stupid. People want a dollar bill to represent a stable value, but it isn’t going to happen. Economic policies in the united states actually work against this. The other side of value is risk. Since value is a negotiated idea, the act of negotiation infuses value with risk. Defining a currency standard like gold is an attempt to mitigate the risk and it can’t be done.
On CNBC this week all they are talking about is the collapse of the financial bubble do to high risk real estate loans. Real Estate has been an American standard of value with steady growth for a long time. The risk infused into the standard by speculation and bad loans has brought values back into line. For a long time Oil was considered the standard of value, but speculation, war, and greed has fixed that by increasing the risk in the value of oil. Even as the cost of oil goes up, the value of the dollars crashes, bring all things back into balance.
That’s enough for now. I have to work here from time to time.
Ok, one more personal anedote. This is a story from 1907 from my Grandfather Leroy Hunt (not the communist Peter Graham, who in 1907 was working as a surveyor for the Panama Canal).
Grandpa came to New York in his teens to make his fortune and soon found worked in the Knickerbocker Bank as a runner. This was before the Federal Reserve system and checks cleared by physically bringing the check to the bank where it was drawn and exchanging it for gold. My grandfather’s job was to bring the checks around to several banks and get the cash for the checks. As you can see, getting cash for a check involved the actual exchange of currency or gold coins. Banks would exchange paper, but many banks wound up with a net cash flow, which required that gold exchange hands.
In 1907 there was a run on the banks, know as the Banker’s Panic. Depositors took their cash out of the banks and checks could not clear because the banks did not have the gold to cash the checks. My grandfather had to wait on long lines with his pile of checks and hope that the banks would give him the gold because if his bank failed, he was out of a job.
Standing on line at one bank, he watched the runner in front of him getting paid for his checks. It was several hundred dollars and the bank paid the man in small change. He had to borrow a wheelbarrow to cart the coins back to his bank. Grandpa was very worried because he had $500 in checks.
Just then, J. P. Morgan’s great carriage drew up, and men in uniform came into the bank with sacks of gold. Morgan was trying to head off the panic by loaning the banks gold from his personal fortune, much the way that the Federal Reserve does now. When my grandfather came to the head of the line they added up the checks and paid him with five brand new hundred dollar gold pieces. He passed the man with the wheelbarrow on the way back to his bank.
Grandpa’s bank never did recover from the panic, though, and he lost his job. He went on to have many more adventures, which I will write about someday. Grandpa was a great story teller and I remember many of his tall tales.