[OPE-L:7528] gold money

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Thu Aug 22 2002 - 00:00:49 EDT

Dear Fred and Michele,

There is another peculiarity to gold which I tried to suggest in one 
of my posts.

Simply put, unlike Ricardo's shoes, hats, corn and cloth, gold is not 
consumed from year to year and thus need not be reproduced from year 
to year. The annual  output of gold is not consumed such that it has 
to be anually reproduced. It's not just that gold is not freely 
reproducible, as Michele rightly points out; it is also that it need 
not be  reproduced.

Let us say there are 10,000 units of gold in circulation or hoards, 
and 1,000 are worn out each year, with current production just 
sufficient to replace the units which are pulverized and go out of 
existence annually.

But if gold producers now halve their annual output, they do not 
halve the gold in existence. That is, reducing the output by one half 
does not decrease the supply of gold by half. In fact, a 50% 
reduction in output would reduce the supply of gold by only 5%. 
Ricardo misses this in his treatment of gold, for example; he insists 
that gold is like and not like any other commodity.

So let us say that (non money) commodity producers are not willing to 
exhange commodities at prices of production equal to the value of 
gold which  has been increasing over time.

  Could gold producers reduce supply until newly produced gold 
commanded commodities the price of production of which is equal to 
the value of this new gold from the less productive mines which had 
to be brought into existence to produce new gold?

Well, it would be difficult to bring about such a reduction in the 
supply of gold. It would take for example five years of no production 
at all to halve the supply of gold in an effort to double its 
purchasing power.

If prices of production only assert themselves over the long term, 
then the interval needed needed for a sufficient contraction of 
supply of gold to raise its purchasing power to its new value could 
be very, very long. This is just another reason why gold should not 
be treated as any other commodity in a set of transformation 

Conversely, if there is a strong upward shift in the demand for 
gold--say to build the reserves of the central bank of an emergent 
industrial power (e.g., the US and Germany in the late 19th c.) or as 
a hedge against inflationary policy--a 50% increase in the output of 
gold would only increase the supply of gold 1.05x. Hardly enough to 
prevent a strong increase in the purchasing power of gold and thus 
prevent an effective above-the-average-rate-of-profit in gold 
production even after absolute rent had been paid.

Here the purchasing power of gold would not only be unhinged from its 
price of production but also its value.

I just see no reason to assume that the purchasing power of gold 
would ever be determined by either its value or price of production.

However Marx does assume for purely methodological reasons that the 
value of the money commodity is fixed and the monetary expression of 
labor time is invariant throughout the three volumes of Capital.

I would like to say to Gary that at this point my intention here is 
to argue that Bortkiewicz and Sweezy mishandled the gold commodity, 
not that the study of the relations between technical conditions, 
prices and distribution by means of simultaneous equations and the 
standard commodity as numeraire is misleading.

All the best, Rakesh

This archive was generated by hypermail 2b30 : Sat Aug 24 2002 - 00:00:03 EDT