By Philip Pilkington, a journalist and writer based in Dublin, Ireland
Watch out, I have a large, very large fur, with which I could cover you up entirely, and I have a mind to catch you in it as in a net.
– Leopold von Sacher-Masoch
Many aspects of contemporary economic theory certainly seem to have their origins in the mythic and the moral rather than in the realm of the rational. But while this seems to be an accurate description of the system as a whole, it does not seem quite able to account for certain aspects of this system which appear to be rather obsessive in the minds of its adherents.
These obsessions, or ‘fetishes’, can be explained in like terms, that is: compared to certain primitive rituals and superstitions. To do so we will first have to form a better understanding of the fetish itself; an Enlightenment concept that has a long and interesting history.
The specific fetishes we will explore will be the most important today: the government, inflation and gold. All these phenomena are interconnected in neoclassical economic theory (yes, even gold, or at least the ghost thereof), however, they tend to lead their own individual existence outside of the Grand Neoclassical System itself. In and of themselves they are, for economists and economic commentators, fetishes that can be worshipped in dark rooms away from the great hall. They are like fragments of the main theory that adherents smuggle out of the temple and obsess over in their own private shrines.
This may seem like an obscure practice but it is a very important one, especially in times when the Great System has been so thoroughly shaken. Today more so perhaps than ever, commentators seem willing to worship their favourite fetish – be it the intrusive presence of Big Government or the lack of gold in the bank vaults – rather than take stock of what has actually occurred.
Before we begin it should be noted that while it is usually commentators, the educated public and economic functionaries that engage in fetish worship, economists occasionally do so themselves and even when they do not it is always the economists themselves that choose what will become a fetish by underlying some aspect of the Great System or other.
Before we begin we must turn to the notion of the fetish itself in order to understand its meaning more clearly.
A Brief History of the Fetish
What is a fetish? Today people will probably equate a fetish with a form of sexual behaviour. They might also, if they have attended lectures on the social sciences, be familiar with Karl Marx’s ideas about ‘commodity fetishism’. Both of these ideas were products of the 19th century and they share a mutual, deeper source.
The term comes from the 18th century French writer Charles de Brosses. De Brosses picked it up from the Portugese who coined it to describe certain magical practices the observed in Western Africa among the natives. They noted that these natives often attributed magical properties to certain objects – such as feather necklaces or beads – and so began to refer to these objects as ‘fetishes’, derived from the Latin word facticius, which means ‘artificial’ or ‘man-made’.
It was from de Brosse that Marx too derived his idea of ‘commodity fetishism’. Marx saw certain contemporary practices as similar to primitive fetishes and considered them to be carry-overs from earlier forms of thought. So, for example, he thought that people’s worship of money – more specifically, what he called the ‘money form’ – was a modern manifestation of fetishism.
Then there were the 19th century ideas about sexual fetishism. These were introduced by the French psychologist and hypnotist Alfred Binet who also derived his ideas from de Brosse. Binet’s theories, which made an extraordinary and very modern contribution to the theory of human sexuality, are remarkable and largely forgotten today – much, I think, to the loss of those of us living in the 21st century.
Binet didn’t consider the fetish to be a monstrously perverse manifestation of freak sexuality – a view certainly held by most of his contemporaries. Instead he thought that fetishism lay at the heart of all sexuality. Binet claimed that we are all, to a greater or lesser degree, fetishists and that the weirder of these fetishes are of difference from ‘normal’ sexuality in degree rather than in kind.
All of these theories on fetishism should be viewed as interconnected and, in order for us to have an appreciable idea of what fetishism is, they should be allowed to coexist. They all highlight different shapes taken by what is correctly denoted as a singular phenomenon: fetishism.
Fetishism, to summarise rather crudely, is a way of viewing the world where certain specific ideas or objects become locked – usually unconsciously – into the mind, and become key reference points for everything from sexual attraction to religious rituals to means of payment.
The attachment to these ideas and objects then is almost wholly passionate. This accounts for why they are so often grounded in irrationalism. They are like the building blocks of the larger systems with which we organise our lives, but due to the reverence shown to these particular aspects of the larger intellectual systems they can often be broken off and leant an autonomy all of their own.
How then, do these fetishes apply to popular conceptions of free-market economics?
Economics as a Dissemination of Fetishes
From the very start economics students are raised prone to fetishism of the most extreme variety. Certain ideas in economics are stressed and their social consequences hinted at to be of immense importance. Inflation, as we will see, is taught to be particularly important in its implications and is, in the minds of many, detached from the theory being taught and given a sort of force in its own right. So too is government intervention. The Grand Neoclassical System caters to these fetishes as it is, to a large extent, built upon them and the moral systems from which they come.
What results is a sort of intellectual sound bite that can be thrown out almost at random in a discussion or an argument. If the interlocutor or opponent then tries to work around the fetish and construct a rational argument he or she is ignored, grossly misunderstood or accused of, in a sense, desecrating the fetish.
These fetishes seem to become even more important to the educated public as the pillars of mainstream economics crumble. Faced with the fact that the Grand Neoclassical System might be incoherent people retreat to their fetishes.
One comparison that many will be familiar with is the story about when the Hebrew people began to fear that Moses might not return from Mount Sinai and turned to the worship of a Golden Calf. This, as is commonly known, is referred to as ‘idol worship’ which means the worship of a false god. Given that the ‘true God’ is doubted because of difficult circumstances the ‘false god’ is erected.
This is, in a sense, similar to the argument here. However, fetishism should be seen as even more primitive than idolatry. While the community continues to organise around the Golden Calf, fetishism tends disperse the community into perverse sects. So, one sect might take the leg of the calf, while another might take its head as the object of worship – the Calf is no longer a god, false or otherwise, but is broken down into a series of objects that different people imbue with different magical properties. This is the true nature of fetishism. While many might point to neoclassicism as the worship of a false god, it was a god – that is, a central turning point around which the community could organise. Fetishism is something altogether different.
The problem with fetish worship then should be obvious. While neoclassicism may have serious shortcomings it gives people faith in their leaders and gives their leaders some sort of model to work off. The fetishes, however, are simply aspects of the theory – limbs of the calf – and make no sense whatsoever when they are worshipped alone. Incoherence and mass-confusion ensues. (This should not excuse neoclassicism, of course. If it were a coherent theory it would not be susceptible to such chaotic breakdowns.)
What really determines the nature of the particular fetish adopted seems to be wholly subjective, a personal attachment – always passionate and irrational – that is given to one or another of the fetishes. So, one commentator might be shrieking about the size of government while another might be trembling at the thought of inflation. The problems facing policymakers probably have nothing to do with either of these aspects of economic theory but since they are no longer tied to the greater system they gain an autonomy in their own right – as a sort of personal obsession; or fetish.
What we end up with is a tribe of economic commentators and functionaries divided; each picking up their favourite fetish – be it a fertility statue or inflation – and going off to their separate shrines to worship their particular fetish. And so the tribe becomes divided; completely unable to govern itself.
Fetish I: Government
Of all the economic fetishes in circulation today the fear of government seems the most important, the most passionate and, not surprisingly, often the most patently ridiculous. It takes its quote-unquote ‘rational’ weight from the idea that if free-markets were allowed to operate without government constraint something good will happen. These ideas are forced into students brains in undergraduate economics classes. The reality of the government’s role in the economy is altogether different, but before we sketch this out let us turn to one particularly absurd manifestation of this fetish today.
You’ve seen it before. The websites and the dinner-table conversations where the participants claim that the current financial crisis was due to too much government intervention. The first time I came across this fetish I was flabbergasted. My mouth dropped, my eyes opened wide, “Does this person read the newspaper?” I thought. Well, it turns out that, yes, they probably do read the newspaper as it is generally educated people who make this outlandish claim.
The trick is that these people ‘know’ something that the newspaper doesn’t. What is this arcane piece of knowledge? Specifically, that government regulation and intervention has wrecked the economy and that it was this corruption that led to all the ‘badness’ that came out in the crisis.
Press them on it and they cannot really explain further – or, if they can it is usually a haphazard freak-fest of deranged brain-wrongery so completely bizarre that it makes you question the validity of Man’s existence itself. It’s like arguing with a Truther or any hardcore conspiracy nut. They possess an obscure ability to bend the discussion to their will by throwing out strange, irrelevant and often made-up references that, even if you could keep up with, would prove impenetrable.
This is fetishism. It gains credence from the vague idea derived – and perhaps one of the few retained – from an undergraduate course in economics or business, that the free-market leads to ‘goodness’ and the government causes ‘badness’. The idea is split off from the theory of the markets itself and becomes an autonomous force: a fetish. This fetish, like a parasite, takes over the brain of the host and transfixes them in a repetitious ritual song wherein they spew out random ‘facts’ that revolve around the idea.
The economic reality of government is, of course, far more complex. The government plays an extremely important role in the economy, two aspects of which I will now highlight. Perhaps before I do this I should try to debunk straight out the idea that government intervention and regulation caused the financial crisis, but I’m not going to do this because anyone that believes this… well… they’d believe anything and I’d suggest that instead of trying to convince them otherwise you should come up with a scam to fleece them of everything they own.
Okay, so two of the most important roles that the government plays in the economy are geared to ensure that said economy does not slip into a Great Depression-style slump every time there is a relatively large financial crisis. There are many other important roles that the government plays in the economy, but I choose to highlight these particular ones as they show up an important aspect of the glaring moronism of the anti-government fetishists.
(Disclaimer: What follows does not count for Eurozone governments. The periphery of these are essentially self-destructive client states geared to take on unsustainable debt loads that are shunned by the bigger players in Europe who abuse the system to sell goods to these countries and then allow them to fall apart when things get bad).
Anyway, the first function the government serves in these instances is to step in and take on more debt to make up the gap in private sector spending that result from these crises. To put that more simply: when the private sector stops spending, the government does. This allows unemployment and output to remain at relatively tolerant levels; that is, until the anti-government and other fetishists step in and wreck this. Hyman Minsky called this, rather pertinently considering our present discussion, the ‘Big Government’ aspect of the government’s response to crises. In his book ‘Stabilizing an Unstable Economy’ he uses the example of the 1974-75 US financial crisis-cum-recession [p. 41]:
In 1975, because of Big Government and the large increase in government debt, the default risk of business and bank portfolios decreased. As business liquidated inventories, they decreased their indebtedness to banks and acquired government debt. Banks and other financial institutions acquired liquidity by buying government debt rather than by decreasing their assets and liabilities. The public, both households and business, not only acquired safe assets in the form of bank deposits and savings deposits, but were able to decrease their indebtedness relative to income. The existence of a large and increasing government debt thus acted as a significant stabilizer of portfolios during the threatening period of 1975. [You can see the large ’75 deficits here]
The other important action the government takes during these crises is to act as the ‘lender of last resort’. While this may be a somewhat irritating practice as it props up dodgy private institutions, there is no doubt that without government serving this function in some shape or form, the results would be a depression of the 1930s variety. So while people may rightly claim that governments should try to restrain institutions from availing of government bailouts, this is an integral function amidst today’s particular economic circumstances. To point this out is not to commend it.
Minsky once again summarised this nicely with reference to the 1974-75 US financial crisis-cum-recession [p. 43]:
Whereas Big Government stabilizes output, employment and profits by its deficits, then lender of last resort stabilizes asset values and financial markets; for example, the Federal Reserve buys, stands ready to buy, or accepts as collateral financial assets that are otherwise not marketable; it thereby substitutes, or stands ready to substitute, its own riskless liabilities for assets at risk in various portfolios. Whereas Big Government operates on aggregate demand, sectoral surpluses, and increments of government liabilities in portfolios, the lender of last resort works on the value of inherited structure of assets and the refinancing available for various portfolios.
Sound familiar? Yeah, it should. It’s pretty much what happened post-2008.
As an aside, Minsky points out that should financial instability continue to be allowed to metastasize unchecked these counterbalances may not be enough [p. 75]:
The lender of last resort interventions and the massive government deficits that have prevented the sky from falling are strong medicine. Strong medicine often has side effects. [W]e know that the system can evolve so that medicine that was effective in one regime or one set of structures may not be effective in another.
This is an important aside indeed and bears careful consideration. However, it should be clear that the economic fetish of government phobia pure and simple is a misplaced and crankish idea that doesn’t deserve to be taken into consideration in real economic debate. It is just a pity that this fetish affects government policy as strongly as it does but more on that later.
Fetish II: Inflation
Lenin once said that the surest way to destroy capitalism is to debauch the currency and since he uttered these words they have occupied, consciously and unconsciously, the minds of many.
Inflation is seen by those who place extraordinary value on their property as a sort of class war waged upon their bank accounts. Many people don’t fully understand the process of rising prices, but they bridge this gap in their knowledge with an intuitive sense that someone or other is stealing from them.
But is someone actually stealing from them when prices rise? Sometimes – but rarely. The idea is more so than anything else an emotional reaction. If the shopkeeper is charging a higher price it is often assumed that there is some crook in the shadows pulling the strings. Inflation – or, more specifically, a rise in a price – induces paranoia.
These days, having been indoctrinated by mainstream economists and the media, people learn to equate price rises with trade-unions and government expenditure. They also tend to equate sustained inflation with hyperinflation – calling to mind images of wheelbarrows of money being pushed around by Robert Mugabe. Now this is a fetish if we should ever see one. It even looks like a fantasy – with the evil African dictator wheeling away large stashes of cash, presumably used to finance his harem, his family members in overpaid civil servant positions or his crude torture chamber. It’s really too good.
Let’s start with hyperinflation. (For a more complete discussion of this try here and here – and a simpler outline here). Hyperinflation is a rare, if not nonexistent phenomenon in our present age in the advanced industrial world, and there is good reason for this.
In order for hyperinflation to take hold consumers need to have access to basically unlimited amounts of cash or credit. If the government cuts taxes or hires a few extra workers this won’t be even close to enough on the demand side. Consumers need direct access to a constant stream of credit or cash, otherwise when the price rises take off, they’ll be pulled down again because people won’t have the hard cash to keep up. It also helps if there’s been a significant blow to confidence in the currency among the domestic population – as say happened in Mexico during the Peso crisis.
Hyperinflation proper is also assisted in its rise by a significant fall in productive capacity. I don’t mean a simple loss of output due to, say, unemployment or a few disparate strikes; I mean a full-scale wiping out of productive capacity. Say, the recent land grabs in Zimbabwe or the French occupying the Ruhr Valley in Germany in 1923 and the resulting production disruptions. This increased – and constantly and perhaps infinitely growing – supply of money chasing fewer and fewer goods might trigger a hyperinflation. But it’s still a ‘might’, especially in advanced industrial countries where social bonds are strong and governments legitimate (well, fairly legitimate…).
Advanced industrial countries with reasonably (I say, ‘reasonably’) stable banking systems do not generally face this sort of crisis. Indeed, they have not faced them since the Weimar Germany episode – and that was a relatively advanced country that was crushed in a major war and subject to harsh reparation payments and domestic revolutionary pressures – it was also some 90 years ago in a very different era. I’m of the opinion that, discounting nuclear war, an alien invasion or the seizure of power in the advanced nations by hardline Maoists, hyperinflation will never occur in the West.
Hyperinflation just isn’t a concern these days. But it is a fetish, and a rather powerful one at that. It is imbued with a power to tear society asunder, causing famine and strife. A witch’s wand of an idea waved by the semi-educated and the uncurious. It might be scary, if it was actually a threat – but it’s not.
What about garden variety inflation then?
Well, first of all we should ask the question: what is inflation? This isn’t a stupid question. Many people today equate inflation with price rises. This isn’t strictly true. If I sell you cans of beer and the cost of hops goes up and I pass this cost onto you as a onetime increase this is not inflation, it is merely the market passing on costs. Inflation is a sustained rise in the general price of goods. Most goods must be rising in price over time for inflation to be said to exist.
So where does inflation come from? Professor John T. Harvey in an excellent summary gives four main sources:
(1) Market power: This is monopoly plain and simple. I stole all the fishes – you want a fish – since no one else competes with me in the fish market I increase the price of fish – the general price of fish rises and along with it any other products that are made using fish (fish paste, fish oil, baggy-trousers with fish in the pockets etc.). It should also be noted that trade unions, in certain circumstances, have monopoly control over wages and they can cause these to rise. This in turn causes prices to rise, which may result in further wage rises and so on. This called a ‘wage-price spiral’ – more on this below.
(2) Supply shock: A wiping out of a stock of a product that is then passed on in the form of price increases to other products. Peak oil folk, for example, claim that when oil starts running out the prices of everything is going to increase – because, haven’t you heard? everything is made of oil. If this happens apparently we’re all going to have to live in the wild and hunt animals naked and the like. This is a classic supply shock inflation.
(3) Asset market boom: Am I really going to explain this to the Naked Capitalism readers? Come on… Mr. Speculator meet Mrs. Commodity. Cost of Mrs. Commodity rises. Mr. Speculator stuffs his greasy pockets. Other prices rise because these products require Mrs. Commodity to be produced.
(4) Demand pull: A favourite among neoclassicals and fetishists. The idea is that people have too much spending power and there are too few goods in the economy; money spent being greater than goods on offer means higher prices. It is generally assumed that this ‘too much spending’ comes from the government pumping money into useless projects that benefit no one: stairways to nowhere, poor people that should be dead by now, that sort of thing.
So, where’s the fetish at? Well, it tends to be a mix of two of the theories a laid out above – torn out of their context, of course. Which two? Wage-price spirals and government spending, of course. Or to speak without the euphemisms: unions and welfare queens. Haven’t you heard? These groups are costing us money. And not just through taxes either, they cause inflation too.
The reality is quite different. Wage-price spirals were a major threat in the heyday of union activity – roughly from the late-1940s up to the late-1970s, when unions actually had significant power. Even then, however, they were rarely at the root of inflation. The inflation of the 1970s, for example, was caused by rising oil prices. This was due to Arab monopolists bringing the pain to the West due to the latter’s support for the Israelis in the Yom Kippur war of 1973 (See the ‘Market Power’ variety of inflation as listed above). When various prices started rising in the economy unions used their market power to increase wages and maintain living standards. This in turn caused more price rises and so on. But at base was the rise in the price of oil.
Anyway, these days the idea that wage-price spirals might cause sustained inflation is silly. The unions took a major bashing in the Reagan-Thatcher era and haven’t recovered since – nor will they, if I were to make a prediction.
As for government spending, I won’t go into it too much, but aggregate demand is in the gutter since the 2008 collapse and subsequent recession. Notice that people aren’t buying much stuff these days and loads of people have lost their jobs? Well that leads to less spending, so most economies could really use an injection of government spending right about now. A good rule of thumb is that governments should be spending roughly in proportion to the amount of people and resources unemployed. This will almost certainly NOT cause inflation. Anything beyond this might.
But when these are generally invoked they are not rational arguments and we should not take them to be. Once again they are lore hinted at by the neoclassicals who stress these aspects in lectures and in the media. People pick up on this because they justify the prejudices they harbour against certain groups: poor people, workers, ‘useless’ old people and, hell, there’s no point in hiding it, you people are aware of the undertones of the welfare queen narratives… blacks and Hispanics.
These ideas then become fetishised and worshipped for their own sake. They are fetishes actively geared toward stopping society from improving itself in key regards. In many ways they are conservative fetishes, the veneration of which allows people to justify low wages, unemployment and poverty. Other causes of inflation are conveniently ignored or left off the radar (ever notice that commodity speculation gets less media attention than it should even though it is readily remediable?). This is a fetish that serves to conserve a certain way of living and a certain approach to policymaking; nothing more, nothing less.
Fetish III: Gold
Gold is perhaps the ultimate economic fetish even though it is the least explicitly invoked in popular discourse. Gold signifies for many a sort of stability. This is often an indefinable stability but, like all fetishes, this is usually based on ‘feeling’ rather than reasoned thought. This sense of stability is without doubt the central purpose that the gold fetish serves, for economists and non-economists alike.
The world is an uncertain place. Money values fluctuate and the cost of goods rises (and sometimes, though more rarely, falls). Some commodities, however, give off an aura of consistency; these include artworks and antiques, collectables and certain ‘hard’ commodities.
For many – usually the upper-middle class – these act as a sort of stabilising mechanism for the way they organise their world. So they might own a classic convertible that they drive on the weekends or they may surround themselves with antique furniture which they pass down through the generations. They literally live among things, things that they view as having a relatively fixed value. Certainty in an uncertain world.
Gold is one of the same species. However, it has two features that distinguish it from the other commodities. First of all, and rather less importantly, gold is generally thought of as more ‘democratic’ and less ‘elitist’ than an artwork or a classic piece of mahogany furniture. Why? That’s a very complex issue and this isn’t the place to explore it, but without a doubt it has a lot to do with our second feature. And that is the fact that gold was once, for a rather brief historical period, the fulcrum around which the world monetary system organised itself.
The idea that the bank notes in your pocket might be exchangeable for a fixed amount of gold bullion no matter what else happens in the world economy is a seductive one. And it is out of this attractive notion that the contemporary fetish of gold is born. When in place the gold standard gives the user of legal tender a sense of security. Indeed, it often allows them to escape the anxiety of an ever changing world – even if this escape is an illusion and a lie.
So when economic instability occurs and a gold standard is not in place people turn to gold hoards. They did so during the present crisis and they also did so during the monetary crisis that took place in the late-70s and early-80s. Not only do their savings turn to gold but so to do their minds. People hark back to the days of the gold standard, thinking that a return to this nostalgic time will solve our present economic woes. Austrian theorists are invoked and the central bank is attacked with mercy. Economic ‘theories’ spring up on the internet that more so resemble conspiracy theories than they do actual economic theories.
In reality nothing could be further from the truth than that the gold standard was a panacea. The system, while being theoretically pristine, was in fact highly unstable. Let’s run through a quick bit of history to illustrate this. (For a more in depth take, visit here).
While gold was used as a means of exchange throughout history it only became the official monetary standard for the world in 1844 when the Bank of England passed the Bank Charter Act, allowing full convertibility of Bank of England notes into gold specie at a fixed exchange rate. You could now bring your British pounds to a bank and get the equivalent value in gold bullion. Other nations followed suit.
This system really only lasted until the First World War. After that it began to breakdown into complete incoherence, but more on that in a moment.
The period in which the gold standard operated was, by many standards, rather unique. The British Empire had reached its nadir as the world economic superpower and wars and international conflict had been sparse and inconsequential. This is what really accounts for the working of the gold standard in this period; that is, the importance of Britain as the central world economic hub and the relative stability of international relations. This explains why the gold standard became widely adopted after the Brits established the 1844 Bank Charter Act. It was a simple case of ‘follow the leader’. But once the leader went into decline, so too did the world political system and with it the contemporary monetary standard.
With the onset of World War I most governments dropped the gold standard. The gold standard imposed limitations on how much they could spend and this was no good for a power engaged in a massive war. When the war came to a close the gold standard, together with the monetary systems of most countries, was in tatters.
Some gold fetishists claim, of course, that this is where ‘it all went wrong’; but that is pallid nonsense. The world was evolving and changing and the fixed gold standard of 1844 was quickly becoming outdated. This was obvious even at the turn of the 19th century when the likes of William Jennings Bryan was making his famous ‘Cross of Gold’ speech – which can be heard here. The economic historian Karl Polanyi wrote in his famous book ‘The Great Transformation’ – which is an amazing history of the broader forces that led to the collapse of the gold standard proper – that [p. 21]:
The breakdown of the international gold standard was the invisible link between the disintegration of world economy that started at the turn of the century and the transformation of a whole civilisation in the thirties.
The gold standard had become a restriction on the progress of civilisation that was speeding up at the time and had to be done away with, as a snake sheds its old skin. Yes, there were cranks who disliked this new era – the Austrian Schoolers were some – but they were relics of a different era, nostalgic for the economic, social and political systems of their childhoods; much the same way that you hear the ‘Golden Age’ in the US discussed among older people today, often with a twinkle in the eye and a convenient forgetting of the social chaos that was bubbling under the surface.
After WWII a new system was set up. It was the gold standard once again, but in a different guise and under the auspices of very different economic policies. The central hub this time around was the US, but in a far more direct manner than Britain had been in the High Victorian era. The British, as has been said, initiated a gold standard and then were ‘followed’ by the rest of the world into doing the same. The 1946 Bretton Woods system was altogether different. Now it was the US dollar that was convertible into a fixed amount of gold, while the other currencies were to be convertible into the US dollar. It was a sort of gold standard, but at one step removed.
This quasi-gold standard – despised by the nostalgists – was in place to serve the same purpose as the original gold standard: that is, to stop the government quote-unquote ‘spending beyond its means’. It is, of course, somewhat ironic that this was the era of government spending proper, but that’s another day’s discussion.
Once again the new gold standard didn’t last long and succumbed to the pressures of history (as so often glistening economic theoretical constructs do). Nixon scrapped the gold standard in 1971 because various countries were devaluing in order to counteract high rates of unemployment, while the US was spending a small fortune in East Asia to fight the Commies.
You can see Nixon’s speech here; it’s a fascinating piece of history – an ostensible conservative giving up on his principles in the face of new realities. You can almost see his dismay and disorientation.
This date is now fetishised by the gold bugs; this, once again, is where it ‘all went wrong’. This is nonsense, of course. What had actually happened was once again the current of history had swept away an outdated monetary system that had ceased to function properly. The gold fetishists will claim that the instability that followed is proof that Nixon made the wrong move, a typical claim by the economic fetishist who wishes to bend history to fit his or her narrow conception of the world. Again this is complete nonsense; the instability caused the move away from gold, not vice versa.
Those who wish to return to the gold standard today are massively ignorant of the forces driving history. They are usually fetishists that want history itself to conform to their way of conceiving how society should be organised. They cannot and will not see that history is a dynamic flow of events and anything that gets in its way will be cast, to turn a famous phrase, into the dustbin. The idea that a new Bretton Woods system could be put in place is farcical in the extreme – the US is far from its post-war power and would not have the political clout to enact such a system. If it tried to do so alone is would be destroyed competitively by countries not adhering to the old ways. The idea that we could return to an 1844 Bank Charter system is likewise and perhaps even more so ridiculous. Can you imagine countries shipping gold bullion to one another in return for trade? Japan ships a freight of Nissans to Ireland; Ireland sends a freight of gold bullion back. Come on, the world has got a bit too complex for that.
So, do the mainstream economists play a part in disseminating the gold fetish? Yes, but not as directly as they spread those other perverse ideas that we have discussed. There is no point in going into technical details here (if you want them I’d suggest this), but the neoclassical system still assumes that we are on the Bretton Woods standard.
The neoclassicals assume this in the way they teach undergraduates how modern central banks fund government spending. This is what we see daily in the media about governments ‘running out of money’ and the like. This nonsense leads the educated public to treat the government in the same way it might treat a household and this sort of thinking feeds into the idea that there must be some ‘thing’ that is anchoring government spending. While educated people don’t tend to equate this ‘thing’ with gold, when they think about the system in any depth they become panicky that this imaginary ‘thing’ does not exist at all and that the truth is that we operate in a state-backed fiat currency regime where currencies have no intrinsic value. This, more often than not, leads to yet more gold fetishism.
These three fetishes – and they are not the only ones – run rife in public discourse. Most people do not spend their time studying how the economic system actually works. Most don’t even have time to fully come to grips with the easy mythologies adhered to by the neoclassicals. So they fill these intellectual gaps with fetishes.
These fetishes – and, as has been pointed out above, the academic economists hold a great deal of the responsibility for this – have an extremely important bearing on the way we run our societies. Nothing can end a discussion on public policy faster than invoking big government, inflation or that the government is running out of money.
In this these fetishes are greatly constraining our ability to properly govern our societies. This is especially so after the current financial crisis when people, distrusting the economists whose theories essentially led to the meltdown, return instead to their favourite fetish. Even people who should know better opt out for the simple solution. It’s very easy to call for a new gold standard or smaller government when, at some level, people must know that such a thing will never and can never be implemented. It’s not so easy to face reality as it is and formulate policy proposals that tread on too many myths to be popular.
We began with a quote from Leopold von Sacher-Masoch, the fetishist novelist of the 19th century after whom the sexual fetish of ‘masochism’ was named. It seems only fitting that we should end with a lyric from a song entitled after and based upon his most famous work. In The Velvet Underground’s avant-garde masterpiece ‘Venus in Furs’, Lou Reed sings a lyric that could so easily be applied to our economic fetishist:
Tongue of thongs, the belt that does await you
Strike, dear mistress, and cure his heart
For this is what the economic fetishes do for us today. They cure, not our societies, but our hearts. They are, more so than anything else a lure, a lulling to sleep – they are…
A thousand dreams that would awake me
Different colors made of tears