Sorry all about that very long winded post!
I don’t think that for one person to get rich another must be made poorer. But I do think that’s implied in arguments for the gold standard. If money is a finite commodity, the only way for one person to get it is to capture it from someone else. If money is an infinitely elastic thing–like our paper money–then the supply of it theoretically increases to match, not exceed, the labor output of American workers.
There’s the famous argument in Aristotle that goes “all exchanges must be exchanges of equal value.” No rational person would knowingly trade an object of greater value for an object of lesser value. Doing so would be an act of charity, not an exchange in the economic sense. Two people meet, they bargain until both feel a point of equal value has been reached. I have a jug of wine, you have some olives: we bargain until we both think the amount of olives equals the amount of wine. At that point we make the trade. So, Aristotle asks, what is profit? How can trades of equal value result in profit? It sounds like a stupid question: “what is profit?” Economists just say “income less expenses.” But what is profit, exactly? Students usually want to say it’s subjective: one guy values the wine more because he’s an alcoholic. But it’s not subjective that Bill Gates is richer than me–it’s objectively true. If I only buy computers when I think they are equal to the money they cost, what is profit?
The Aristotle bit makes sense if you think of exchange as barter. But money, because it introduces the symbolic into the exchange, makes it harder. What is the money symbolizing? If a bank makes me a five year loan of $1000, and I buy a jug of wine with it, the money symbolizes not real, already-done labor, but potential labor–labor I have not done yet. The bank issued money it did not actually have, in the hopes that I would work and produce value that would exceed the value of the money loaned. It’s crazy if you think about it. We have kind of a “don’t ask, don’t tell” policy with money.
Under a gold standard, there’s a limit on how much money the world can contain. If gold is scarce in my neighborhood, borrowing costs are high and payback is really tough. If money is plentiful, borrowing costs are low and payback is easier. If the money supply is elastic, it can shrink or grow in response to changes in material conditions. A gold standard is an inelastic money supply.
The TARP money that the Bush and Obama admin’s pumped out was designed to address the fact that money had suddenly vanished–when asset prices dropped, billions of dollars just vanished, poof. This should have caused deflation and sky high interest rates. But the Fed did what by some accounts it was designed to do–it lowered interest rates way down and pumped money into the economy to maintain equilibrium.
Gold standard advocates suggest that if you had a gold standard, the money could not vanish–it would be real value, not paper value, and you would not have speculative excesses. But the problem, as before, is lending. Even under a gold standard credit is the economy’s fuel. Banks would still be lending more out than they have in reserve: they would still be creating money. So money can’t be simply the barter of wages, because often what’s being exchanged is not labor already done, a day’s pay: what’s being exchanged is next month’s pay.
Another long winded post! Sorry.
