[OPE-L:7650] RE: Re: Itoh on gold money

From: Itoh Makoto (mktitoh@kokugakuin.ac.jp)
Date: Thu Sep 12 2002 - 02:22:42 EDT

Dear Fred;

As I anticipated, we need cooperative patience. The nature of issue is not simple to understand. Let me try to answer to your post again by inseting my comments. I hope that they are useful further to go on together.


-----Original Message-----
From: Fred B. Moseley [mailto:fmoseley@mtholyoke.edu]

Makoto, thanks again for your reply.  I will respond to specific points
below.  But first a general point.

It seems to me that the fundamental error in your interpretation of money
and the transformation problem is that you assume that gold as the money
commodity HAS A PRICE OF PRODUCTION, which in general is not proportional
to the labor-time required to produce gold (following Bortkiewitz and
Sweezy in this respect).  I don't have a copy of your *Basic Theory* with
me, but for example your Table 2 on p. 75 of your *Value and Crisis* 
(and the discussion of the surrounding pages).  

But the concept of price of production is defined as an exchange-ratio
with the money commodity.  Therefore, the money commodity itself cannot
have a price of production, because the money commodity is not exchanged
with itself.  And it makes no sense at all to assume that the "price of
production" of the money commodity could be something other than 1, as in
your interpretation.  

I thought you agreed in an earlier post that the money commodity has no
price of production?

(Itoh) First, let us concentrate to the theory of prices of production, where the theory of rent is abstracted. Then, although the money commodty need not be sold unlike any other commodities, as you say, the capitalist producers to produce it (say gold) must participate in capitalist competiton to equalize the rate of profit. When thirty-fifth of an ounce is defined as a dollar (as a standard of prices), the labour-time embodied in it is determined by social relations of technical conditions of production, which are basically independ from market conditions of demand and supply. When you assert that the value of money commodity does not have a price, do you assume that the labour substance of value in thirty-fifth of an ounce of gold (a dollar) is always one hour (so that its value equal an unit of price, or Z=1 in the transformation procedure)? Or what theoretical relation do you assume between an unit of the money commidty called a dollar, and the labour-time embodied in !
it? I demanded frist to calarify the dimensions of substance of value(labour-time in hours) and prices of production (say, dollar) to Bortkiewicz and Sweezy type of theory, and asserted that the co-efficiet to connect the substance of value and name of an unit of money commodity can generally be not 1, but for example in my tables can be 0.5 (which means thirty-fifthe of an ounce of gold embodies two hours of labour-time). Though the money commdity (gold) does not have price or price of prudoction in an usual sense like other commodities, we have to explain in the basic theory how its substance of value is related to its unit as a standard of prices, called a dollar. Then next, we have to clarify how capitalist competition equalizes the profit rates across industries including the gold industry and how it results in social redistribution of surplus labour-time, as I attempted to show in my three tables theory.            

On Tue, 10 Sep 2002, Itoh Makoto wrote:

> 	(Itoh) I disagree. Firstly, Marx's theory of absolute rent itself
> in chap 45 of  the 3rd vol. of  Capital clearly states that it depends
> on the general condition of market how the market price of a land
> product comes closer to its value, and that landownership can not
> determines it. If you insist that the exchange-value of gold is
> determined by its value in accord with Marx's theory of absolute rent,
> then you have to explain how and why the general condition of market (or
> the balance between social demand and supply of gold) always sssures it,
> while all the other coomidities are subject to fluctuations of market
> prices. There cannot be a capitalist mechanism of competition and the
> function of landownership to assure such a difficult balancing.  

I agree that, in Marx's general theory of absolute rent, as applied to
agricultural and mineral commodities, the level of demand plays a role in
the determination of the prices of these commodities (how much the prices
of these commodities are above their values and how close to their

However, this is not true in the case of the money commodity.  As I have
discussed in (7588), the result of production in the gold industry is not
a commodity with a price, which still has to be converted into actual
money through exchange, as in all other industries.  For all other
commodities, we may theorize that the prices of these commodities is first
equal to their values and then are transformed into their prices of
production, as different magnitudes.  But this is not true for the money
commodity.  The result of production in the gold industry is already a
quantity of money.  This quantity of money does not have a price, and
certainly does not have a price that can change as a result of the
transformation of values into prices of production, as in your

(Itoh) If z is given as a coefficient to relate the labour-substance in an unit of gold to its name as the standard of prices (a dollar), all the relative coefficients to relate prices of production of commidities and their substance of values are theoretically determined in a simillar way as Bortikievicz and Sweezy type of theory of transformation procedure. If z changes, all the coefficients to determine prices of production on the basis of substance of values would proportionally change. In such social system of determination of prices of production, the profit rate for the capitalists in gold industries becomes equalized with other industiries. Otherwise, they will get out or receive more of investment pressure from other  capitalists. In this regard, the gold industry forms a part of theory of prices of production, even if it has not price in an usual sense. It produces the money commodity having an unit of prices in a socila system of prices of production. The exchange!
 value of gold is not fully explained without understanding such a system.  

Therefore, demand cannot play a role in the determination of the price of
gold, because gold does not have a price.  Demand might affect the
quantity of gold produced, but it cannot affect the nonexistent price of

This also explains why the market price of gold cannot fluctuate around
its center of gravity price, because gold, as the money commodity, has
neither a market price nor a center of gravity price.  

> At least my former qustion as for how to think the social demand for
> gold in relation to its supply remains in this context.     

Makoto, I answered this question in (7609), as follows:

> As I understand Marx's theory, the demand for gold is determined by the
> sum of the prices of commodities divided by the velocity of money
> (Volume 1, Chapter 3, Section 2.c), and this demand determines the
> quantity of gold in circulation in the long-run.  If more gold is
> produced as money than is demanded, then the excess supply will be
> hoarded.  So the demand for gold as money is not "without limit".  

Is this what you have in mind by the social demand and supply of gold?  Or
something different?

(Itoh) If the demand for gold including the demand for hoarding and for materials of manufacturing besides necessary quantity of means of circulation, can we assume that excess supply of gold beyond total demand for gold would inflate prices of other commodities so as to reduce the profit rate of gold industry by raising its costs instantly, and result in reduction of gold production, as you seem to suggest? If you would avoid the quantity theory of money under the gold standard system, how do you explain the balancing mechanism to adjust social demand for and supply of gold? The structure of differential rent may be also related to this issue. (Let me stop here today, as the absolute rent can not be discussed properly in my view without solving a little more of the problems above.)   

> 	>       (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.
> 	The theory of prices of production is not negated in the sense that
> 	capitalist farmers still receive the average rate of profit.  But the
> 	theory of prices of production is negated in the sense that the prices of
> 	agricultural goods do not equal to prices of production, but are instead
> 	equal to values (or monopoly prices), because the prices of agricultural
> 	goods must a component of absolute rent.  Because of their monopoly power
> 	over the land, landlords are able to block the redistribution of the extra
> 	surplus-value from agriculture to other industries, and thus block the
> 	transformation of values into prices of production.  Marx said this many
> 	times. 
> 	(Itoh) If we define absolute rent in relation with the
> monopolistic power of land owners to be able not to allow investment
> without paying rent, absolute rent can exist in any industries including
> urban manufacturing regardless of composition of capital, and it
> represent certain compromising redistribution of surplus-value from
> capitals to land owners. Monopoly rent then can be dfined as a sort of
> rent due to special natural condition for products which can enjoy
> exceptional monopoly prices in a market. Just as prices of production
> and differential rent represent redistribution of surplus-value through
> competition among capitals, the social source of absolute rent would not
> need to be limitted within each industry to pay it. A true problem here
> is how to understand the theoretical limit to the effect of land
> ownership to raise the market prices beyond the prices of production for
> the commodities produced by using land. Will you refer to my book on
> this point further if you are interested? 

I have a different understanding of Marx's concepts of absolute and
differential rent.  My understanding is the following (please see
especially C.III, pp. 892 and 898)

The monopoly ownership of land enables landlords to collect rent on the
least fertile land.  Marx distinguishes between two possible cases of this
rent on the least fertile land:

ABSOLUTE rent: comes from surplus-value produced WITHIN agriculture,
because the value of the agricultural commodity is greater than its price
of production, which itself is because the composition of capital on the
least fertile land is lower than average composition of capital.

MONOPOLY rent:  comes from surplus-value produced OUTSIDE agriculture,
because the price of production of the agricultural commodity is greater
than its value, which itself is because the composition of capital on the
least fertile land is higher than average composition of capital.

Marx argued that Ricardo thought that the only possible source of rent on
the least fertile land was monopoly rent, in which case the price of the
agricultural commodity was greater than its value.  But Marx argued that
this is not true.  One does not have to resort to monopoly rent (i.e. rent
produced outside agriculture) to explain rent on the least fertile
land.  Such rent could also come from within agriculture, and thus be
absolute rent, not monopoly rent (which Marx generally thought was the
case at the time).  

Marx's explanation of absolute rent obviously depends on the crucial
difference between the value and the price of production of
commodities.  Marx argued that Ricardo did not understand the possibility
of absolute rent because he did not understand this crucial difference
between the value and the price of production of commodities, but instead
tended to identify the two, or to treat them as identical.  (see
especially TSV.II, pp. 129-33)


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