Zoellick Gold Standard Response

The G20 must look beyond Bretton Woods II. The discussion of currency valuation as presented by Zoellick is flawed as a result of one very important omission, the accounting for value of GDP. Two points: 1) One of the objectives of Bretton Woods (1946) was to help stabilize fluctuating currencies after the war by using reserves and centralizing a common currency that will function as an international standard for what was at that time, the currencies of the major powers.  As a result of the 1948 Economic Cooperation Act (ECA), the U.S. co-opted that plan, and used European reconstruction as the leveraging power to assert the dollar as the currency standard.  The gold that was placed in US treasury by European powers before the war were held there as assets to help pay for reconstruction, in addition, the commodities and resources of the colonial territories were also treated as assets. 2) For many reasons too big to delve into here, the dollar having become the international trading currency though this opportunistic manipulation of European reconstruction and economic cooperation was immediately successful for the the U.S. in terms of  labor, trade and the production of good and services. US GDP was high during this period, as a result of the ECA, which later evolved into the Mutual Securities Act (MSA 1951).  This policy indirectly contributed to future revisions of the standard for the measurement of GDP, which was and is managed by the UN System of National Accounts (SNA).  Th SNA is the international system that determines the rules of accounting for GDP, summarizes and integrates the various accounting methods which at the end of the day, our currencies are measured against. What these two points infer is that the current system of measuring production, consumption, trade and employment as GDP in a cohesive standard that gives value to currency, needs to be revised so as to be fair and inclusive not just US or it’s cooperative interests, but absolutely needs to account for environmental and real human needs– and this include resource depletion and environmental degradation indices. Much to my dismay, although environmental revisions had been advocated for a decade earlier, they were voted down in 2008 while military systems were approved: SNA (2008) 6.232: Expenditures on military equipment, including large military weapons systems, are treated as fixed capital formation (GFCF). Military weapons systems were previously treated as “intermediate consumption.” Rather, they were accounted for not as “goods” or “services” but as having discretionary value since weapons can be stocked and inventoried as durable goods until they were consumed, which is, according to SNA, at the discretion of the employer. Since 2008, however, military weapons and systems are now treated as fixed assets. These now include not only the weapons in reserves, but also its production, use and maintenance of ammunition, battleships, tanks, aircraft, and defense systems (as well as R & D) as a whole. Although Zoellick argues for asserting the gold standard to currency valuation, as it was reported in the FT, I find it difficult to believe that he is actually arguing that our currencies should return to a pre-1933 von Mises-style of economic reform. As most of the commentary in that post would rightfully argue, it would be an international disaster, and only lead to greater disparity between developed and developing economies. If Zoellick were seriously arguing for this von Mises-style of economic reform, we should remind him that Hitler’s economic platform was based on von Mises, and antithetical to Marx, Friedrich List, and Keynes.]]>

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