[OPE-L:7639] Re: Re: Gold in the Transformation Problem

From: Rakesh Bhandari (rakeshb@stanford.edu)
Date: Tue Sep 10 2002 - 11:25:31 EDT

Fred writes in 7636

>Gil, I think you are misunderstanding what I mean by scarce, and are also
>confusing differential rent and absolute rent.  By scarce, I do not mean
>diminishing marginal returns, which has to do with differential rent, not
>absolute rent.  Differential rent is historically contingent in the sense
>that only one kind of land or mine could be cultivated, or all the lands
>or mines could be of equal fertility.  In these cases, differential rent
>would disappear.
>However, this is not what I mean by scarce.  Instead, I mean that
>capitalists cannot increase production of a natural resource unless the
>owners of that natural resource - the landlords - allow it.  And in
>general, landlords will not allow an increase of produciton unless they
>receive a rent, even on the least productive land or mines.  This rent
>paid to landlords on the least productive land or mines is absolute
>rent.  It is not historically contingent.  Rather, it is inherent in the
>capitalist mode of production, or at least inherent in capitalist
>production with private ownership of natural resources.

Fred, this is extremely well put

Now you requote Gil and then briefly comment

>>  >2.  There always remains in existence a very large supply of gold in
>>  >circulation (approximately 20 times the quantity of current gold
>>  >production during the gold standard period), so that changes in current
>>  >gold production have only a very small effect of the rate of profit in
>>  >gold industry, and thus there does not seem to be any effective mechanism
>>  >through which the rate of profit in the gold industry could be equalized
>>  >to the average rate of profit.
>>  Again, this is an accurate claim about descriptive reality that has no
>>  necessary relevance for the abstract theoretical considerations raised by
>>  Marx's discussion in K.III Ch 9 or the prices of production
>>  framework.  Note that you could make the same sort of claim as above for
>>  *all* durable consumption goods:  the supply of goods in circulation
>>  exceeds, often greatly, the amount of current production (consider:  used
>>  musical instruments; cars; furniture; just about everything sold on
>>  It also would apply to any durable constant capital goods that enjoy a
>>  secondary market (pickup or delivery trucks, say) Therefore, if this
>>  as a legitimate argument against the inclusion of the money commodity in
>>  the relevant equation system, then it must also count as an argument
>>  against including *any* durable consumption or constant capital good in
>>  Marx's transformation analysis and/or the Sraffian price of production
>>  equations. 
>I will have to think about this some more.

Fred, I don't think Gil's criticism here is very strong.

i. he misinterprets the point by saying that the supply of many goods 
is greater than present output. that was never the point. gil's is 
just a debater's way of reinterpreting the question at hand.  the 
point is that the former swamps the latter in the case of gold as a 
result of its indestructability. most of the gold ever mined is still 
with us. at best, current production has only contributed 8% of the 
gold in circulation, as you suggested in your helpful note.

ii. used goods in secondary markets are in effect different goods 
than newly produced ones. that's not true with gold. an ounce of gold 
mined 2500 years ago is the same good as an ounce of gold extracted 
today; a used 1996 Chevy Truck is not the same commodity as a 2002 
Chevy truck.  Supply does not swamp current production in the case of 
so called consumer durables and constant capital goods because new 
production is usually of new goods (especially true in the case of 
capital goods in which new technology is embodied).  Did this 
difference between used gold and used consumer durables/constant 
capital goods not really occur to Gil? Or is he making a run of 
debater's points?

iii. Gil did not take the time to comment on the posts in which I 
tried to develop my argument.

For example, I wrote in 7542

There would be reason to believe that the purchasing power of gold 
would be determined by its value if through variation in output 
capitalists could regulate supply so as to ensure gold in fact 
exchanges at its value.

But there is no such mechanism to control the supply of gold which is 
hardly affected by the output decisions of capitalists.

As already mentioned, RICARDO realized this point and then forgot it.

"If the quantity of gold in the market for the purpose of commerce 
only were 10,000 ounces, and the consumption in our mfg 2000 oz 
annually, it might be riased one fourth or 25%  in its value in one 
year by withholding the annual supply; but if in consequence, of its 
being used as money, the quantity employed were 100,000 oz, it would 
not be raised one fourth in value in less than ten years." p. 193-4 
of Sraffa's ed.

I already elaborated on this point in OPE-L 7528.

  So if newly produced gold has purchasing power below its (say 
rising) value (as worse mines are brought into existence), a 
reduction in output would tend only to decrease marginally the supply 
of gold and thus not raise the exchange value of gold. Gold producers 
would in effect have to wait for the supply of gold to decrease 
naturally before the purchasing price of gold approached its new 
We are thus beyond the long term needed for capitalists to effect adjustments.

If newly produced gold has purchasing power greater than its value, 
an increase in output would hardly increase the supply of gold which 
may thus continue to have an exchange value greater than its value. 
This situation of demand-supply imbalance could persist until 
deflationary pressures brought on a general crisis and the 
circulation of commodities and therewith demand for gold dampened 

I do not read in Marx any argument that gold will actually tend to 
exchange at its value. There is of course an argument that it will 
not tend to exchange at its price of production on account of landed 
property. But there is no strong positive argument that it will tend 
even in the normal so called long term to exchange at its value.

An aspect of the peculiarity of gold is that its price will tend to 
be always in disequilibrium to its value and price of production.

This makes analysis very difficult.

And I wrote in 7528

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.

This archive was generated by hypermail 2.1.5 : Wed Sep 11 2002 - 00:00:01 EDT