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> I HAVE NOT ASSUMED ANYTHING ABOUT TECHNICAL CHANGE NOR ABOUT THE VALUE OF
> GOLD. WHAT I WOULD LIKE TO KNOW IS THE MECHANISM FOR BRINGING THE RATE OF
> PROFIT IN THE GOLD INDUSTRY BACK TO AVERAGE, IF IT IS ABOVE IT. FOR OTHER
> COMMODITIES WE USUALLY ASSUME THAT THIS HAPPENS THROUGH CAPITAL MOVEMENT,
> CHANGE IN SUPPLY, AND FALL IN PRICE. FOR GOLD THIS CANNOT HAPPEN. THE RATE
> OF PROFIT OF THE GOLD INDUSTRY COULD ONLY FALL IF OTHER PRICES WENT UP. HOW
> WOULD THAT HAPPEN WITHOUT THE QUANTITY THEORY?
Well, the mechanism in the case that there are excess profits in the
gold industry is the same as with the other industries. The acceleration
of capital accumulation in the gold industry will increase the supply
and the price of gold will fall until profits become normal. But here we
must be careful this process does not work smoothly because in the gold
industry we do not have discoveries of new (more productive) gold mines
or techniques for its extraction any time but after long periods
provided that the excess profits in gold have increased substantially.
Finally, gold is a special commodity perhaps the only one that is not
wasted. Whatever has been produced up until now has been either used or
stored somewhere. If the price is right then the supply easily can
increase. See what happened in the last months with the Central Banks in
There is a price of gold and it is quoted in dollars, pounds etc. There
is a market for gold and a price. Is there something that I miss?
The (direct) price of a commodity A equals to to the labor value of
commodity A divided by the value of gold and all that multiplied by the
exchange rate of currency (dollars) for gold. The direct price is
supposed to be the center of gravity of market prices.
Clearly, if there is a discovery of new gold mine or techniques in the
extraction of gold then the value of gold will decrease and that will
lead to the increase in the direct price and if we generalize to the
price level. Is this a QTM? the answer is no, this is the labor theory
of value (LTV) according to which the price level depends on three
(a) the value of commodities
(b) the value of commodity gold
(c) the exchange rate of currency for gold.
True if the supply of money increases (ceteris paribus)the price level
increases this is a result that both the QTM and the LTV agree, but for
different reasons. The difference between the two is that the QTM and
monetarism in general attributes everything to a single variable the
quantity of money.
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