[OPE-L:1295] Re: Gold and credit-money weaknesses

Duncan K Foley (dkf2@columbia.edu)
Mon, 4 Mar 1996 06:58:51 -0800

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A few responses to Jerry's interesting speculations:

On Sun, 3 Mar 1996 glevy@acnet.pratt.edu wrote:

> WARNING: Speculative thoughts follow. The author takes no responsibility
> for any of the following ideas should any become reality.
> ===========================================================================
> There was a fictional work by Ian Fleming called "Goldfinger." It
> concerned an evil agent of SPECTRE who wanted to monopolize the world's
> gold reserves by nuking Fort Knox (of course 007 prevented this from
> happening). It sounds far-fetched, to be sure. However, gold takes a
> material form and the supply of that material can be eliminated or
> curtailed by various means. Had there been a real Goldfinger and had he
> been successful, don't you think it would have caused something more than
> a "blip"?

I don't know for sure what would happen if the gold in Fort Knox were
suddenly destroyed, but I would guess it wouldn't have much of an impact
on the economy. The Savings and Loan bailout put a large liability on the
Federal balance sheet without much disruption of credit or production.
After all, the gold in Fort Knox doesn't actually play any role in
production, accumulation, or even circulation.

> > > 2) If there are new methods of production that greatly increase the
> > > productivity of labor in gold production, a similar result might occur.
> > Presumably this is exactly what happened after the Spanish discovery of
> > South American gold and silver in the 16th century, leading to the "Great
> > Inflation" which many historians have linked to the initial growth of
> > world capitalism.
> Wasn't this associated more with the plunder and genocide accompanying
> the original accumulation of capital rather than being an expression of
> new methods of gold production? Of course, technological developments in
> shipping and navigation were required for this process of "discovery" to
> commence.

I guess I would view the plunder and genocide as part of the method of
gold production. (Actually, the gold and silver were mined under
contracts, rather like early U.S. coal mines, where the actual miners
were in law independent contractors.)

> Suppose a hundred billion dollars worth of counterfeit notes was
> available. What would the consequences be? If the notes were in the hands
> of working-class families, would one not expect a rather large shopping
> spree? Would businesses continue to accept government or bank notes not
> knowing if they were real or counterfeit? Might they not demand payment
> with some other material, like gold or silver? Would workers not demand
> some other form of payment instead of $ wages if this were to happen?
> At a minimum, wouldn't such a prospect lead to a huge inflationary
> spiral and, possibly, a redistribution of income?

As with most monetary questions, we probably need a bit more information
to answer, in particular some account of how the counterfeit got into
circulation. If it were spent on goods and services, would the effect be
any different from a similar increase in Federal outlays for goods and
services? Of course, there would be a redistribution of real income to
the counterfeiters, but that doesn't necessarily have any aggregate

I'm sure we all wish Anwar good luck in his investment program.