Re: (OPE-L) recent references on 'problem' of money commodity?

From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Thu Nov 18 2004 - 02:05:56 EST

At 11:23 PM -0500 11/17/04, Allin Cottrell wrote:
>In response to my comment,
>>>That is the context of "special indexes" of the sort you have
>>>mentioned.  Some would claim that sensitive commodity prices serve
>>>as a leading indicator for the CPI (with a lot of error and noise,
>>>of course) -- and to that extent they can serve as a guideline for a
>>monetary policy that aims to maintain CPI inflation within a target band.
>Rakesh wrote:
>>The CPI is a joke, politically manipulable and meaningless in its
>>aggregate nature.
>I wouldn't say it's a joke.  It is manipulable to some degree, but
>meaningful in its aggregate nature.  For example for workers and
>capitalists negotiating wages the CPI, however imperfect, is much
>more relevant than the prices of just a few selected commodities --
>particularly those that enter nobody's consumption.

I think Reuven Brenner makes a good argument that Greenspan does not
(as you did suggest) inflation target (nor of course does he follow
wacky Friedman's wacky money creation rule). CPI is meaningless as
far as Greenspan is concerned.
Of course part of my point is that to the extent that money has only
been and can only be partially decommodified in a capitalist society
money creation cannot and has not been put at the service of full
employment and other social goals. Having once expressed extreme
antipathy to the Keynesian welfare state in the name of the gold
standard, Greenspan is the perfect man to control the money supply,
to sacrifice the global working class at the altar of gold or more
precisely Baker's commodity index.

The question of who is James A Baker III is very interesting.

>>Greenspan is using a basket of commodities in which gold features
>>prominently as an end in itself. He is trying to ensure that the
>>dollar depreciates vis a vis that basket in a very gradual and
>>controlled way.
>As a thought experiment, consider what would happen if a serious gap
>opened between the time path of the CPI and that of the gold-basket,
>that is, if stabilizing the price of the gold-basket meant
>destabilizing the CPI.  Do you think Greenspan would go for that?  I
>very much doubt it.

Again I think this is why other price sensitive commodities (perhaps
oil and grain) are in the basket--to prevent such a stark divergence
between the index and the general price level. The gold standard is
impractical; it's a reactionary utopia (Krugman once wrote a popular
column mocking the gold bugs). Baker's commodity index is a
modification (perhaps imposed on the US by foreign central banks in
possession of US govt paper), but perhaps this modification has led
to a dialectical change in the nature of money (Brenner thinks that
Greenspan abused the discretion it gave him, and he is being forced
to act more strictly in accordance with it). You may well in fact be
right that the Baker commodity index should not be understood in any
way as commodity money. I would not go that far.

But again I have been attempting to give what I consider to be the
only plausible affirmative answer to the question of whether there is
any way in which commodity money exists today.



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