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

From: Fred Moseley (fmoseley@MTHOLYOKE.EDU)
Date: Fri Nov 19 2004 - 09:24:24 EST

Hi Paul, thanks for your comments.  My belated responses below.

On Sun, 14 Nov 2004, Paul Bullock wrote:

> Dear Fred,
> Just a couple of related questions to your idea that gold has been
> de-monetised, since this seems to be your view.
> Why is it that gold is retained as part of the reserves of all central
> banks? Why is it that  eg the Swiss Franc is still backed 40% ( I believe)
> by gold, and it was 70% until very recently? Why do most central banks still
> periodically issue  gold coin , issued in various quantities, if only in
> thousands?   Since the 'price'  of gold has risen recently...( although gold
> can have
> no price if it is the money commodity and other commodities have their own
> values expressed in quantities of gold), what is the nature of this
> connection,
> between paper money and gold?

I don't see how gold can function today as the measure of value.
In order to function as the measure of value, gold has to be the GENERAL
EQUIVALENT, i.e. has to be DIRECTLY EXCHANGEABLE into all other
commodities.  As Marx put it, with respect to the simple equivalent form:

"We have seen that commodity A (the linen), by expressing its value in the
use-value of a commodity B of a different kind (the coat), impresses upon
the latter a form of value peculiar to it, namely that of the
WAY the linen in fact expresses its own existence as a value.  The
EQUIVALENT form of a commodity, accordingly, is the form in which it is
DIRECTLY EXCHANGEABLE with other commodities."  (C.I. 147; emphasis added)

The same point applies to gold as the general equivalent.  By making gold
directly exchangeable with all other commodities, gold becomes the measure
of value for all other commodities.  Gold cannot be the measure of value
unless it is directly exchangeable with all other commodities.  Gold today
is not directly exchangable with all other commodities.  Therefore, gold
cannot function as the measure of value today.  Instead pure credit money,
not backed by gold, is directly exchangeable with all other
commodities.  In this way, credit money, of necessity and by default,
becomes the general equivalent, and hence the measure of value of all
commodities, in a different quantitatively way than gold.

> Finally if money need not be a commodity 'at heart', then what is the way in
> which
> paper money is accepted a as valid expression of abstract, social labour.
> Who does the guessing?

I am not talking about anybody guessing anything.  Rather, I am talking
about the determination of the MELT, by an objective, but unconscious, law
(by the ratio of MV to L).

In a modern capitalist economy, in a given period, there exists a certain
quantity of L (or SNLT) that must be objectively expressed in some way,
and there is no other way except credit money.  At the same time, there
also exists a certain quantity of M (adjusted for V) that is available to
represent L.  Therefore, the quantity of M that represents one hour of L
is determined by the ratio of these two objective, aggregate quantities
(MV / L).  In this way, pure credit money performs the necessary function
of the measure of value: one hour of L is represented by a definite
quantity of pure credit money; i.e. by MV / L.

The crisis of the 1930s forced capitalists to accept credit money as the
general equivalent, directly exchangable into all other commodities,
without backing by gold.  Until the 1930s, capitalists required that the
general equivalent had to be a commodity, or at least convertible into a
commodity at legally defined rates.  However, in the Great Depression, it
became impossible to maintain the convertibility of paper money into
commodity money.  Convertibility required tight monetary policy, which was
making the depression worse.  In order to escape this "cross of gold",
governments ended convertibility, and made credit money, without gold
backing, the general equivalent.  Capitalists had no choice but to accept
credit money by itself as the general equivalent, and hence as the measure
of value.  There was no alternative at that point.

However, an interesting conclusion that I have reached recently (which I
discuss in the working paper that I have attached to previous messages) is
that, with respect to the determination of the MELT, it DOES NOT MAKE ANY
DIFFERENCE whether or not credit money still is tied to gold in some
way.  In both cases, the MELT is determined by the ratio MV / L.  I won't
go through the algebra here, but it is in my paper, and I would be happy
to discuss.

There may be some reasons for wanting to determine whether or not paper
money is still based on gold in some way (for example, related to the
function of money as store of value), but the determination of the MELT is
not one of them.   The determination of the MELT is the same in both
cases.  Hence the theory of value and surplus-value is the same in both

I look forward to further discussion.


This archive was generated by hypermail 2.1.5 : Mon Nov 22 2004 - 00:00:02 EST