Leitmotif

Reason as the Leading Motive

That Will Be 25 Blades

Posted by Jerry on August 6, 2007

Ah ha! Remember my travails in trying to find loose change one morning that ended up with me bitterly condeming an irrational restaurateur for his mysticism? Well, I think this article by the BBC might explain why Indians are so reluctant to part with their loose change.

Here’s an excerpt:

Millions of Indian coins are being smuggled into neighbouring Bangladesh and turned into razor blades. And that’s creating an acute shortage of coins in many parts of India, officials say.

The grocer confessed to melting down tens of thousands of Indian coins into razor blades which were then smuggled into Bangladesh, police said.

“Our one rupee coin is in fact worth 35 rupees, because we make five to seven blades out of them,” the grocer allegedly told the police.

John Drake at Try Reason, from whom I found the BBC article, highlights this Indian predicament as a logical consequence of an economy founded on arbitrary monetary values as opposed to being based on the gold standard. What it means for me is that I need to revisit Alan Greespan’s article on the gold standard in Capitalism: An Unknown Ideal.

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3 Responses to “That Will Be 25 Blades”

  1. Priyank said

    Nah, Gold Standard is outdated. Nobody (including US) uses it anymore. The world has shifted to fiat currency standards. Government monies are strongly supported, including the Indian one. Had it been not supported, we (India) would have had a free run of inflation. Our country has never experienced scary levels of inflation because RBI has been extremely pro-active. (It’s piling up dollars, that are lying idle, thats a different story though!)

    I think real value of coins exceeding their face value is a perennial problem, further fueled by the strengthening of Indian rupee. I don’t know how fast the government can react to this, its unfortunate, but its free market economics.

  2. Ergo said

    Priyank,

    I’m not an economist, and have no technical training in the field. But I suspect that “gold standard is outdated” and the “nobody uses it” is not an argument. I am well aware that the US does not use the gold standard anymore–which perhaps might be the reason behind a similar situation happening with US pennies as what’s happening to Indian rupee coins. The scary point you make is that precisely because the RBI (and other economies) is piling up on US dollars, we must be worried about the fact that the dollar is not backed by any objective, existing wealth.

    People with great expertise in the field like Alan Greenspan (ex-Federal Reserve Chairman) and Dr. George Reisman hold views to the contrary, and argue for a currency backed by any rare metal (gold, silver, platinum, diamonds, whatever).

    Dr. Reisman, who wrote Capitalism: A Treatise on Economics–a book which has been praised by the Nobel Laureate in Economics James Buchanan as a book “that takes its place alongside that of Adam Smith”–has a lengthy discussion on the gold standard. His book is available in browsable PDF format online for free. Among the things Reisman says is this:

    Under [a 100-percent-metallic-reserve system], all paper currency and checking deposits would be 100 percent backed by gold or silver. The advantage of such a system would be that not only would it be immune from inflation, but, unlike the fractional-reserve gold standard of the nineteenth century and the first decades of this century, it would also be immune from deflation. Because once gold or silver comes into existence, it stays in existence. It is not wiped out by the failure of any debtor. Under such a system, financial failures do not become cumulative self-reinforcing waves. Such a system would offer the maximum of monetary stability.

    Read (browse online or buy) his book to get the whole of his extensive defense of the gold standard.

  3. Priyank said

    hmm. I should.
    PS: Neither do I have any technical training in this 😉

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