From: Allin Cottrell (email@example.com)
Date: Mon Jul 19 2004 - 19:33:07 EDT
On Mon, 19 Jul 2004, Rakesh Bhandari wrote: > A=B > B=C > Therefore, A=C > xdollar equals y of a composite commodity that requires z labor hours > to produce; hence x dollars is equivalent to z labor hours. From this > equivalence one can calculate the MELT and the "value of money". Why would one use such a roundabout and error-prone means of calculating the MELT? The obvious approach is Foley's: take the ratio of the money-value of net output to the aggregate labour time embodied in that net output. This is both easier -- given the available official statistics -- and more accurate. Your proposal contains an arbitrary and potentially fluctuating element, namely, the relationship between the price-to-value ratio for a "small" composite commodity such as the one Greenspan allegedly uses, and the price-to-value ratio for social output as a whole. >> The dollar has for several decades been the "nearest substitute for >> world money", and the "attendant privileges" have been evident, >> despite the fact that it has depreciated more or less monotonically >> against most baskets of commodities (and a fortiori against labour >> time, since the labour time required to produce most commodities has >> also been falling more or less monotonically). > > Yet because the dollar is maintained as equivalent to a certain > quantity of a composite commodity that itself has value it can then > measure the value of other commodities. Otherwise, one would not know > how many slips of worthless paper to demand for alienating this or > that. I think you are alluding to the "signal extraction" problem discussed by Milton Friedman and the new classical macroeconomists: if the aggregate price level is unstable, how can agents distinguish between absolute and relative price changes? They can do so only in a probabilistic manner, and the efficiency of microeconomic calculation is impaired. This problem exists at a theoretical level, but as a practical matter it does not seem to be a big deal so long as inflation is "moderate" (say, no higher than double-digits). It takes a severe hyperinflation before the monetary role of fiat currency is seriously compromised. Do you think that capitalists calculate how much they ought to be paying for a commodity by first figuring its labour content then converting that using a MELT? That does not seem plausible to me, except perhaps for services where the labour content is relatively transparent. Allin.
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