The New Cross of Gold

Lord Keynes, as he rather splendidly calls himself, writes:

Some human beings are charismatic and spell-binding orators. William Jennings Bryan (1860–1925) was such a person. Bryan’s speech to the Democratic National Convention in 1896 was one remembered in history, for good reasons. Of course, human beings are human beings. I suspect that no human being can be right on every social, economic and cultural issue of his/her day. William Jennings Bryan was wrong on prohibition and in his opposition to Darwin’s theory of evolution, though not in his opposition to the vile Social Darwinism that was popular in his time.

He was also absolutely right in his denunciation of the gold standard. To this day, his speech opposing it remains one that will inspire all those fighting against wrong-headed, false, and pernicious economic doctrines. His metaphor of the “cross of gold” is a vivid one, which invokes images that will move anyone with a Christian cultural background. You do not need to believe in god (I personally don’t) to find the metaphor and speech poignant and powerful. The metaphor has also been used by Post Keynesians and progressive New Keynesians like Paul Krugman in denunciations of modern neoclassical economics. The crescendo of William Jennings Bryan’s speech can be heard in an audio recording he made later in 1921 that captures the mesmerising spirit of that speech [Lord Keynes has the YouTube link].

At the end of his address he proclaimed: “If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”

Now, while many of the “commercial interests” of the world may well line up behind the advocates of austerity these days, just replace the words “cross of gold” with “austerity” and you have a perfect denunciation of the madness that is gripping policy-makers all over the world today. If we want a good example of what extreme domestic wage and price deflation does to a country, then we need look no further than the brutal neoliberal austerity in Estonia and Latvia. In a somewhat less extreme form, it was been pursued in Ireland too, although Irish voters recently delivered their rather vehement rejection of the neoliberal assault on them.

That means nothing to Obama and the US Democrats, who announced a budget on February 14th, in which there are plans to cut $1.1 trillion in spending over 10 years, including heating subsidies for the poor. Do we need any further proof of the moral bankruptcy of the US Democratic party? But, then, they have always essentially been a party of business. What do they care if U-6 — the most reliable government measure of unemployment — stands at about 16%, and the Shadowstats.com estimate (perhaps more accurate) has hit a shocking 22%? After all, they have more important things like non-problem of the deficit (which, at any rate, would just fall naturally if the economy returned to full employment and progressive tax reforms were implemented in the next boom period). But let us move on.

In the UK, austerity is being pursued by the coalition government. And, while we expected this economic illiteracy from the Tories, the more insulting development, to many people, is the behaviour of the Liberal Democrats, who may well go down as the worst sell outs in British political history (though I personally doubt whether the Lib Dems were ever progressive on economics). It is of course a shame to see the political descendants of Lloyd George’s 1929 Liberal party morphed into a neoliberal party in bed with the Tories. Contrast today’s “liberals” with those of 1929 who, when the UK was experiencing high involuntary unemployment, took advice from John Maynard Keynes and announced their radical plan to use fiscal stimulus and employment programs to cure the economic malaise (see Bill Mitchell, “We can conquer unemployment,” Billy Blog, September 24th, 2010).

The Liberals’ stirring election manifesto in 1929 was called “We can Conquer Unemployment!,” and it proclaimed: “The word written to-day on the hearts of British people, and graven on their minds is Unemployment. For eight years, more than a million British workers, able and eager to work, have been denied the opportunity. At the end of 1928 the total reached a million and a half; a quarter of a million more than a year before. These workers with their dependants, represent four or five million souls. They are a very nation, denied the opportunity to earn their daily bread, condemned to hardship, to wearing anxiety and often to physical and mental demoralisation. What a tragedy of human suffering; what a waste of fine resources; what a bankruptcy of statesmanship!” Indeed. But one will look in vain for a major party like that in the UK today.

In Australia, the ruling Labour coalition government is pursing a fiscally conservative policy of levying special taxes to pay for the reconstruction after the disastrous floods and cyclone, while the clueless Liberal party wants to cut spending to pay for reconstruction. The only sensible policy is more fiscal stimulus in Australia (or just restore Australia’s former tap system of issuing bonds), which is needed anyhow given the country’s relatively high involuntary unemployment.

In fact, all these countries are badly in need of further stimulus and major reforms in economic policy. At this point, the banks may as well be nationalised and turned into public utilities. Financial regulation needs to be imposed on the financial sector, even investment banks to some extent. Commodity buffer stocks are also a must — the world requires an effective policy to stabilise the price of food and other basic commodities, before we have a repeat of the food riots and chaos that broke out in 2008.

The beginning of austerity should set off alarm bells. These developments signal a turn to deflationary, contractionary folly in the major Western countries. The task of progressives and left wing people everywhere is to oppose this, with uncompromising rejection.

We have seen what it did to Latvia: “Neoliberal austerity [sc. in Latvia] has created demographic losses exceeding Stalin’s deportations back in the 1940s … As government cutbacks in education, healthcare and other basic social infrastructure threaten to undercut long-term development, young people are emigrating to better their lives rather than suffer in an economy without jobs. More than 12% of the overall population (and a much larger percentage of its labour force) now works abroad. Children (what few of them there are as marriage and birth rates drop) have been left orphaned behind, prompting demographers to wonder how this small country can survive. So unless other debt-strapped European economies with populations far exceeding Latvia's 2.3 million people can find foreign labour markets to accept their workers unemployed under the new financial austerity, this exit option will not be available.” - Michael Hudson and Jeffrey Sommers, “Latvia provides no magic solution for indebted economies,” Guardian, 20 December 2010.

It is obvious that austerity Latvia-style has succeeded wonderfully, don’t you think? (see also Bill Mitchell, “When a country is wrecked by neo-liberalism,” Billy Blog, October 23rd, 2009). The problem, unfortunately, is that one’s measure of success has to be causing depression, mass unemployment, 12% of the whole population working abroad, a brain drain, falling birth rates, and mass poverty. I say in response: God damn that — and God damn neoliberalism.

The most extreme neoclassicals — and please don’t doubt that they exist — would impose this on us. They would demand much the same policies that were pursued by Weimar Germany from 1931 onwards. We must remember that it was not hyperinflation that turned Germany into the arms of a genuine lunatic: it was deflationary depression. And, while that historical episode might have been an extreme case, its lessons should not be forgotten. Neoclassical economics is all based on totally flawed, dangerous and incompetent macroeconomics, and moral bankruptcy. It’s policy prescription is domestic wage and price deflation and (in real terms) economic contraction. In a word: depression.

Welcome to the new cross of gold. Coming to an economy near you.