[OPE-L:7616] RE: Itoh on gold money

From: Itoh Makoto (mktitoh@kokugakuin.ac.jp)
Date: Fri Sep 06 2002 - 09:37:30 EDT

Dear Fred;
Thanks for your reading our book and commenting on my post. The issues are not easy to solve instantly and we need to cooperate patiently within our limitted time. Let me try to answer or clarify the problems you raised by inseting may reply beginning with (Itoh) into your post.   

	-----Original Message----- 
	From: Fred B. Moseley [mailto:fmoseley@mtholyoke.edu] 
	Sent: 2002/09/06 (金) 5:07 
	To: ope-l@galaxy.csuchico.edu 
	Subject: [OPE-L:7608] Itoh on gold money

	On Sun, 1 Sep 2002, Itoh Makoto wrote:
	> As for the special nature and process of equlaization of profit rate
	> for the gold industry under the gold standard system, Makoto Itoh and
	> Costas Lapavitsas, Political Economy of Money and Finance (Macmillan and
	> St.Martin's, 1999)  tried to clarify the basic principle in relation
	> with the balancing process of demand and supply of gold through business
	> cycles in a section 6.3.2. It assumes that the gold industry is subject
	> to equalization of propfit rate though in a specicial way different from
	> other industries.
	Makoto, thanks for joining this interesting discussion on money and the
	transformation problem.
	I read this section of your book on the balancing of supply and demand
	over the business cycle, and I will comment on that in below  But first I
	would like to comment on your earlier Chapter 2 on "Value and Money in
	Marx's Political Economy".
	It seems to me that your discussion of the exchange-value of gold money
	(pp. 39-42) leaves out altogether the component of rent, including
	absolute rent on the least productive mines, which Michele and Rakesh and
	I have emphasized.

	(Itoh) There must be at least three different steps to be analyzed even within the basic theory. The first step is on the values of commodities including gold. The effect of equalization of profit rates among capitalists and the ground rent should still be abstracted. Otherwise you have to discuss the determination of exchnage values of agricultural products, etc. in relation with differential and absolute rent from the beginning of 'Capital'. The second step is on the theory of prices of production. Here, we still should abstract from the theory of rent  in clarifying the basic logic of determination of prices of production.      

	Your discussion seems to suggest that the
	exchange-value of gold money is determined by its "price of production",
	without taking into account absolute rent.  (I put "price of
	production" in quotes because, as you note, gold money does not really
	have a price of production; this is shorthand for the exchange-value of
	gold with other commodities, taking into account the equalization of the
	profit rate in the gold industry.) 

	(Itoh) It is because even after introduction of the differential and absolute ground rent at the third step of theoretical system, the basic first two steps can remain in their fundamental logic to clarify the working of laws of capitalist economy, and the theory of ground rent is dependent on them. As you put it, gold has not really price of production. However, its exchange value is inverse of prices of other commodities. Under the given standard of price, say an ounce of gold is 3 pounds 17 shilling 10.5 pence, the profit rate of gold producing capitalists with given technical conditions must fluctuate according to the changes of prices of other commodities. I don't see any reason why capitalists in other industries can not competitively invest or come into the gold industry, if its profit rate is constantly higher than the social average. The fact that gold producers are relatively small sized is also a good evidence for assuming such competitive pressure. Without such !
competitive pressure among producers, even the value itself can not work as the gravitational center of exchange values. Marx's theory of absolute rent does not refute the equalization of profit rates among capitalists including those who pay absolute rent in agriculture.
	And you don't mention that, if the least productive gold mines have a
	lower than average composition of capital, then, according to Marx's
	theory, the exchange-value of gold will be determined by its "value", not
	by its "price of production", because the monopoly power of the owners of
	the gold mines enables them to stop the redistribution of surplus-value
	from the gold industry to other industries. 

	(Itoh) There are two pints here to be clarified here beside already noted. First do you negate the theory of prices of production for the whole prodcts paying the absolute rent? If not, what is the basic difference in this point between the gold industry and agricutrue? In a sense, all the land owners can reject investment to gain the abosulte rent to the extent that the comepetive pressure from the additiona investment to the existing lease land allows it. Second, in this regard, as I argued in my boook, The Basic Theory of Capitalism (Macmillan, Barns and Noble, 1988, p.248),  Marx's theory itself to pose the value as the source and limit of ablolute rent is problematic. Do you think that absolute rent disppears or does not exist either when the organic composition of capital in agriculture bacomes higher than the social average or in case of the urban land for manufacturing industries with higher composition of capital than the social average?  The concept of monopoly re!
nt is in my understanding may not well applicable to those cases.
	Am I missing something in your discussion?  Thanks in advance for your
	clarification, as time permits.
	Now to the section of your book on the balancing of supply and demand over
	the business cycle, which I read with interest, but am not sure I
	understand completely.
	Your argument seems to be that, in the boom phase of the cycle, an
	increase of prices reduces the rate of profit in the gold industry (by
	increasing the price of inputs, I presume).  The reduction in the rate of
	profit in the gold industry in turn causes a reduction in the current
	production of gold, which tends to moderate the boom, both by reducing
	demand by the gold industry and by raising interest rates.
	The bust phase of the cycle results in the opposite dynamics.
	Is this roughly accurate?  Please correct, if necessary.
	(Itoh) The major causes of a rise of prices and a fll of prices of commodities are the whole dynamic mechanism of busuness cycles including the working of the credit system. The counter cyclical movement of gold must be a result rather than a main cause, but it still sreves as an additional accelerating factor.

	I have several questions:
	1.  Is there any empirical evidence of such counter-cyclical changes in
	the production of gold?

	(Itoh) It is highly plausible especially if we assume structured gold mines with differential rent, but I wish I could really find some or hear any advice on this point.  On the other hand, for an advanced countries without gold mines under the gold standard, like UK in the 19th century, gold is obtained through trade balance. Theoretically, it is iterpreted as if  a part of exporting industry is domestically producing gold. A rise of prices in a boom then reduces aquisition of gold or bring about drain of gold, and a depressed prices works in the opposit direction during the busineess cycles.
	2.  Would you also argue that such a reduction in the current production
	of gold also tends to reduce the prices of other commodities, and thereby
	offset the original decline in the rate of profit, moving the rate of
	profit in the gold industry back to the economy-wide average rate of
	If so, then how do you respond to Rakesh's argument that the current
	production of gold is only a small percentage of the total stock of gold
	money,  so that changes in the current production of gold have very little
	effect on overall supply of gold, and thus have very little effect on the
	exchange-value of gold in terms of the prices of other commodities.  (You
	also mention on p. 143 the "large existing stock of gold", which slows
	down the "mechanism that balances the supply and demand for gold.")
	But, if changes in the current production of gold do not have much effect
	on the prices of other commodities, and thus have little effect on the
	rate of profit in the gold industry, then what is the mechanism that tends
	to equalize the rate of profit in the gold industry to the social average?
	(Itoh) Therefore, it would take longer period of time often extending over several business cycles to form a long wave phenomena. We have to think the the mechanism also in relation with the social quantity of demand for new gold. What factors do then determine the demand for new gold? The balancing process is related to both stock and flow of gold in a social scale. The small proportion of new production added to the total stock may apply also some other cases like houses, and would not be a factor to negate the working of law of value to regulate thier exchange values with other commodities even if with a slower pace. 

	I hope that this post is of some interest to you and other friends. The issues become related really with a need to reconsider Marx's theory of ground rent too.

	With best wishes,




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