Re: measurement of abstract labor

From: cmgermer@UFPR.BR
Date: Sat Jul 17 2004 - 11:55:20 EDT

thank you for your reply

>>2) in the two cases, I think, you build a regular dollar standard of
>>prices, which is a basket of commodities in the first case and a single
>>commodity in the second. In the first case, the definition would be 1
>>dollar=(x barrels of oil + y oz of gold + z bushels of grain)/1000 (which
>>is similar to the dollar standard defined in 1934: 1 dollar=1 oz
>> gold/35).
>>Your second case is a regular standard of prices based on gold. The
>> change
>>in the value of the money commodity (or of the basket) does not require
>>any change in the definition of the standard of prices, although the
>>prices of the ordinary commodities do change as a result, as you rightly
>>assume in your example.
>>However, as Fred remarked, the basket of commodities cannot be money
>>because it does not have a physical unit.
> This I don't understand. Say that Greenspan aims to ensure that x
> barrels of oil, y grams of gold and z bushels of grain sells for
> $1000 over the medium term. If that basket now comes to $1100, he
> sells bonds; if it comes to $900 he buys bonds. It's a modified gold
> standard in two ways: the commodity is composite, and Greenspan is
> allowed some flexibility. He may go on buying bonds to inflate the
> economy in a time of a crisis but will then will play catch up after
> the crisis is over.

It seems to me that the problem you raise does not referr to the nature of
money. What Greenspan is doing in your example, in my opinion, is to
elaborate a specific price index for his particular purpose of attempting
to regulate the supply of credit, instead of a composite-commodity money.
In terms of Marx’s theory I would say that, since the 1970s the dollar is
an ‘inconvertible paper money with compulsory circulation’ (CI, ch. 3,
section 2.c), which means that its issue exceeds the ability of the state
to pay. Thus, in the monetary tradition until the 1970s the situation can
be interpreted as there being both an official standard of prices (1 oz
gold=$42.22), and a depreciated paper standard (where 1 oz of gold
exchanges for a fluctuating amount of dollars, that has been ketp around
$300 approximately during the past 20 years or so). In terms of Marx’s
theory one can say, I think, that, other things being constant, the degree
of depreciation varies according to the degree by which paper money
exceeds the needs of the circulation. Thus, Greenspan’s method would
consist in using a specific price index in order to measure approximately
the degree of the excess paper money.

>>  Your example raises some questions:
>>wouldn’t the opposite happen if the value of the basket increased and the
>>value of gold decreased?
> Yes. The problem may be the instability in the value of a money
> commodity such as gold, given the role of accident in the
> determination of labor productivity. Seious inflation could result
> from the sudden discovery of rich mines which allow for the labor
> time per unit of gold to drop; serious deflation could result if
> extant mines suffer declining marginal returns and more unrewarded
> time is spent in discovery.
> The gold standard seems incapable of providing monetary stability
> required for long term contracts.
> The gold bugs are fetishists in that they think fixing the dollar as
> so many oz of gold provides stability. But fixing the dollar as so
> much of a thing does not fix  or guarantee its value. A stability of
> dollar in terms of a quantity of things does not make it a stable
> value!
> In my example I was focusing on an increase in the relative value of
> gold vis a vis other commodities because it seems that the gold
> standard had to be abandoned as a result of its deflationary
> consequences, no?
> At the same time it is hardly surprising that gold served as the
> universal equivalent for some time.

I agree with you in the importance of the stability of the value of money
as measure of value. This, I guess, has always been one of the
characteristics which the money commodity has been historically required
to have. But it is interesting to note that, contrary to your assumption,
as far as I know the greater stability of the value of gold, among other
relevant properties of it, as compared to all other commodities which have
functionned as money, including silver, has been one of the reasons for
gold having finally become the money of capitalism. But relative stability
is not fixity. I’m not sure that the gradual rise in the value of gold as
a result of de decline in the fertility of the active mines has been more
important than the deflationary episodes caused by the accumulation

On the other hand, the supposed forms of fiat money have not provided
price stability either. It seems to me that the inflationary crises caused
by the issue of inconvertible paper money of the state (or fiat paper
money) have been far more important than the gradual deflationary bias of
gold money. This may be taken as corresponding to Marx’s assertion that

“Various forms of money may correspond better to social production in
various stages; one form may remedy evils against which another is
powerless; but none of them, as long as they remain forms of money, and as
long as money remains an essential relation of production, is capable of
overcoming the contradictions inherent in the money relation, and can
instead only hope to reproduce these contradictions in one or another
form. One form of wage labour may correct the abuses of another, but no
form of wage labour can correct the abuse of wage labour itself.
(Grundrisse, p. )

Somewhere else Marx says that the contradictions derived from money at one
level are avoided only by projecting them to higher levels of the monetary
sphere, where they will cause larger scale contradictions.

Finally, what do you mean when you say that ‘the gold standard had to be
abandoned’? If you referr to the events following the end of the
convertibility of the dollar into gold by the USA in 1971, then, in my
opinion, the cause was clearly not the deflationary consequences of gold
money, but the usual cause in the monetary history: the USA state did not
have enough reserves of money (=gold) to honor its liabilities. It had
issued dollars much in excess of its ability to pay. The refusal to
convert the excess dollars in circulation was an illegal act based on the
military and economic power of the USA. The result was, as has been usual
in the monetary history as well, the depretiation of the paper dollar as
compared to the official gold dollar. And the USA did not refuse to
convert because of the unimportance of gold, but because it did not admit
its reserves to vanish.


>>  then the resultant product would be a regular commodity
>>and could become money, because in principle any commodity is entitled to
>>become money (however, some of them are more suitable to this end than
>>others, this being the reason for metals, and finally gold among them,
>>have become the preferable forms of money along history).
> Yes but why did the gold standard come to prove so destructive in the
> course of capitalist development? For critics to say that its
> abandonment has had negative consequences does not prove that the
> gold standard was not destructive or a "fetter".

I don’t claim that either money being a commodity, or gold being that
commodity, is good or bad. Money exists because the commodity producing
economy is an unplanned, hence a chaotic economy. Many of the
contradictions of the capitalist economy derive specifically from this
fact, and they are unavoidable, although they may be remedied to some
extent and at some levels. All I say is that in the framework of Marx’s
theory money has to be a commodity. My interpretation about Marx’s theory
may be wrong, or Marx’s theory of money itself may be wrong, but this has
to be consistently proven, which I think has not been made so far. I also
say that the prevalence of inconvertible paper money in the circulation
and its effects upon prices, as well as the complete withdrawal of gold
from the circulation and its replacement by different forms of credit
money, have a well defined place in Marx’s theory and don’t contradict it.
On the contrary, Marx’s theory explains them far better and in a more
integrated way then the other existing theories. I also call attention to
the fact that gold still performs relevant monetary functions and that the
situation today is consistent with well known previous situations in
monetary history. I’m aware that all of this is controversial and requires
a lot of research.


>>  But in this case
>>there is no reason for an artificial composite commodity instead of a
>>regular one to become money. The imagined composite commodity would be
>>something like the ellectrum, proposed by Marshall. This reminds me of my
>>answer to Howard, in which I may have made a mistake, saying that the
>>ellectrum was not viable for the same reason as the simultaneous
>> existence
>>of gold and silver as money in the same market space.
>>>>  I am. Some sum of money, say $1000, has to stay constant as a
>>>>  quantity not of one commodity but a basket of commodities--e.g. x
>>>>  barrels of oil, y oz of gold, and z bushels of grain. This is
>>>>  probably what Greenspan aims to do more than maintain price stability
>>>>  per se. And this is what Greenspan has to do if he wants the dollar
>>>>  to remain the closest appromixation to world money (and thus preserve
>>>>  the attendant privileges to the US financial sector and US govt).  So
>>>>  just as Greenspan seems to be running a modified gold standard, I
>>>>  subscribe to a modified Germer theory of commodity money. There can
>>>>  at best be a partial dissolution of the fetishistic commodity basis
>>>>  of money as long as capitalist relations of production prevail. To
>>>>  maintain the commodity basis of and the constant value of the dollar,
>>>>  Greenspan  has to sacrifice the economy at the altar not of gold but
>>>>  a basket of things.
>>>  Rakesh, how would you determine the MELT (the money new-value produced
>>> per
>>>  hour of socially necessary labor-time) in your suggested case that
>>> money
>>>  is a "basket" of commodities, rather than a single commodity?
>>>  "The quantity of labor-time required to produce a unit of a "basket"
>>> of
>>>  commodities" makes no sense, because a basket of commodities HAS NO
>>> UNIT,
>>>  in physical terms.
>>>  Fred,
>>>  This may be a serious problem but I don't see it yet. Please take this
>>> as
>>>  an
>>>  attempt to think aloud. I am not committed to these positions.
>>>   If $1000 is set equal to  x barrels of oil, y oz of gold, and z
>>> bushels
>>>  of
>>>  grain (and I am assuming that Greenspan aims to maintain the value of
>>>  dollar
>>>  as just that over the medium term) and the  socially necessary
>>> abstract
>>>  labor time required to produce that basket then decreases--say it took
>>>  1000
>>>  hours and now only takes 500 hours--then the MELT changes
>>> correspondingly,
>>>  no? Before $1000 represented 1000 hours; now it represents only 500
>>>  hours.The MELT (the money new-value produced per hour of socially
>>>  necessary
>>>  labor-time) has thus increased:  1 hour of labor now adds $2; before 1
>>>  hour
>>>  added only $1. $1000 only purchases half the labor time that it used
>>> to:
>>>  Foley's value of money has thus decreased.
>>>  Now say someone produced cuisinarts. It once took him 50 hours to
>>> produce
>>>  one; now it only takes 40 hours. The cuisinart would have inititally
>>> cost
>>>  $50 at the old MELT; now it will cost $80 at the new MELT. The
>>> cuisinart
>>>  is
>>>  now more expensive in money terms even though its production now takes
>>>  less
>>>  time in absolute terms. If the cuisinart now only took 15 hours to
>>>  produce,
>>>  its price would be $30 at the new MELT. Of course if it now took 25
>>> hours
>>>  to
>>>  produce, its money price would not have changed at the new MELT.
>>>  If Greenspan had to stick to a gold standard, how would things work
>>> out?
>>>  Say $1000 is set to w oz of gold. Where it once took 1000 hours to
>>> mine
>>  > that
>>>  amount of gold, it now takes 1500 hours in the mines that have not
>>> been
>>>  tapped out. The MELT (the money new-value produced per hour of
>>> socially
>>>  necessary labor-time) would now be 67 cents. $1000 would now purchase
>>> 1.5
>>>  x
>>>  the labor time that it purchased before. The MELT has decreased; the
>>> Foley
>>>  value of money increased.
>>>  The cusinart that now took 15 hours to produce would only sell for $10
>>> at
>>>  the new MELT. The money price would have just crashed; cuisinarts had
>>> been
>>>  selling at $50 given the old level of productivity at the previous
>>> MELT.
>>>  Under such a money standard debts contracted at an earlier time would
>>>  probably become intolerable.
>>>  For this reason, the gold standard is impractical.
>>>   I am just proposing a hypothesis of how Greenspan may be conducting
>>>  monetary policy with an eye to sensitive commodity prices.
>>>  I have not understood Allin's objections to the thesis that to measure
>>>  value
>>>  money has to be a commodity--they may of course be persuasive. Claus'
>>>  theoretical points seem persuasive to me at this point. So I am just
>>>  trying
>>>  to figure out the different ways in which money could still be
>>> understood
>>>  as
>>>   a commodity in a world of fiat, non covertible money
>>>  Yours, Rakesh

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