[OPE-L:4667] Re: Re: Re: Re: Re: Re: Re:Fiat money andTransformation

From: Ajit Sinha (ajitsinha@lbsnaa.ernet.in)
Date: Mon Dec 11 2000 - 00:05:10 EST

"Duncan K. Foley" wrote:

> Ajit here makes a common slip in suggesting that the "value of
> money", which is the inverse of the "monetary expression of value"
> might be the ratio of the value of the GDP to the money supply. Since
> GDP is measured in $/yr and the money supply as a stock of $, this
> ratio has the dimensions 1/yr, and is not the "value of money" but
> the "income velocity of money", the number of times the money supply
> conceptually "turns over" to circulate the GDP. (Of course in reality
> there are many transactions involving money that don't generate GDP.)
> The "value of money" in the NI sense is the ratio of the labor time
> expended in a period to the value of the net product of the period
> (which is GDP less depreciation). It has the dimensions labor time/$.
> Duncan


Duncan, By money supply i meant MV of the QTM, but in any case the problem i was
referring to is not the same as the NI concept of the 'value of money'. Paul C. and
Allin C. seem to suggest that you can take value of fiat money at the beginning of
the transformation and hold that constant during and after transformation since it
is not a commodity and so it should not be affected by the transformation. I think
this argument will simply not work. Because, first of all, how are you going to
determine the 'value' of the fiat money? Before the transformation all you know is
that the exchange ratios of commodities are proportional to their labor-value
ratios. Now, one way of establishing the relationship between this and the fiat
money could be that first we take any commodity containing one unit of labor and
declare it the money commodity, and measure the GDP in terms of this commodity, and
then divide this GDP with total fiat money supply MV to get the 'value of money'
before transformation. The problem is that once the transformation is taken place
the value of the GDP in terms of the same money commodity will not remain the same,
thus dividing this GDP with the given MV will give us a different 'value of money'.
The argument that the 'value' of fiat money must remain the same before and after
the transformation implies the imposition of the arbitrary condition that total
value and total prices of production must remain equal. Thus the introduction of
fiat money does not gain us anything in the system. The problem that we must
confront is what is Marx's theory of prices? Without this the transformation
problem will remain a problem. Your approach does not have this  particular problem
because you are not concerned with a theory of prices, your concern is simply the
national income accounting concern of developing a relation between labor-time and
the given GDP in money terms. And to that extent, it is of course not a solution to
the transformation problem. Cheers, ajit sinha

> >But the logic seems to be incomplete. The question, first of all, is
> >how is the
> >value of fiat money determined? If you determine its value by taking the GDP
> >and dividing it with total money supply, the problem you will have is that you
> >cannot claim the the GDP measured by the prices assumed to be proportional to
> >value and the GDP measured by the prices of production have any reason to
> >remain the same. So, in effect, it amounts to the imposition of the same old
> >condition that total values equal total prices of production-- thus no more
> >mileage is gotten by this. Cheers, ajit sinha
> --
> Duncan K. Foley
> Leo Model Professor
> Department of Economics
> Graduate Faculty
> New School University
> 65 Fifth Avenue
> New York, NY 10003
> (212)-229-5906
> messages: (212)-229-5717
> fax: (212)-229-5724
> e-mail: foleyd@cepa.newschool.edu
> alternate: foleyd@newschool.edu
> webpage: http://cepa.newschool.edu/~foleyd

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