[OPE-L:7587] Re: gold money

From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Tue Sep 03 2002 - 08:16:03 EDT

On Wed, 21 Aug 2002, Rakesh Bhandari wrote:

> 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 
> equations.

Rakesh, I agree with you here - that "another reason why gold as the money
commodity should not be treated as any other commodity in a set of
transformation equations" is that gold money is not consumed each period,
but instead remains in circulation, constituting the lion's share of the
supply of gold money in subsequent periods.  This means that a change in
the current production of gold by capitalist firms has very little effect
on the total supply of gold in circulation, and thus very little effect,
if any, on the rate of profit on gold production.  This feature of gold as
the money commodity greatly complicates any possible tendency of the rate
of profit in the gold industry to move toward the average rate of profit.


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