Re: [OPE-L] recent references on 'problem' of money commodity?

From: Michael Heinrich (m.heinrich@PROKLA.DE)
Date: Thu Dec 02 2004 - 08:34:48 EST

It is the first time, that I take part in the discussion, so at first I
have to apologize for my poor English and especially for the lack of
some special terms, but I hope I can make my point clear.

The controversy about selling a house or a boat against gold or not, is
a pretty thing. But by such examples we cannot decide, whether gold is
the money commodity  or not. That something serves in a special
situation as money or not, is not enough. Remember credit money: when a
paper on which is written, that I will pay 100 $ next month, is accepted
from a seller, then this paper serves as money, but it is not money. It
is a substitute of money, which serves as money.

We have to distinguish between
- serving as money (insofar it fullfills money functions as means of
circulation or store of value)
- and being money (what is not money is only a substitute for that, what
is really money)

To me, it seems similar with gold today. May be I will accept gold as
payment for my house. But this gold I will only accept as a substitute
for something else - paper money. And regarding all the difficulties
Jerry mentioned, I only would accept gold, if I the price of this gold
would be 5 or 10 percent higher than the price of the house in paper
money, so  I can cover all the additional costs.
If I would know a little about wheat trade, then perhaps I also would
accept an according amount of wheat as payment etc.

But when gold doesn't function as a means of circulation, can we
conclude, it is no longer the money commodity? Also in 19th century
England gold was not important as a means of circulation. But the
circulating notes were convertible and the issued amount depended on the
amount of gold, the Bank of England possessed. So, one can argue, gold
was the money commodity because it served as a kind of anchor for the
monetary system, although it played no role in everyday circulation.

But what is the situation today? Gold is no anchor, neither legally nor
as a matter of fact. The situation has changed fundamentally, what we
can test by a little thought experiment.

Imagine a good ghost visits the director of the Bank of England and
offers to him a considerable amount of money either in gold or in
foreign currency (the national paper currency is not attractive, the
bank can print it). What would the director choose?

In the 19th century probably he would choose the gold, it would
strengthen the ability of the bank (not only to print but) to issue
paper money. If the ghost would insist to deliver foreign currency, the
director would also accept this, but only for bringing this money to the
foreing country demanding gold. The foreign currency would only be a
substitute for gold.

At the end of the 20th century the director would prefer the foreign
currency. Nowadays he would accept gold only as a substitute for foreign
currency and when gold is delivered he would try to sell it.
(By the way, this already happens with the gold of central banks since
years. They sell it in small portions, so that the gold price doesn't
crash. And no central bank is interested to increase the amount of gold,
they store.)

If today gold should be the money commodity, the situation would be very
curious: no one really wants to have this money commodity, neither
private agents, nor banks, nor the central bank and when anyone gets it,
it functions as a substitute for paper money. When gold was the money
commodity, we had just the reversed situation.

If someone maintains, that gold is the money commodity, then he or she
has to show clearly, where gold has a basic importance for the money
system. Such a demonstration I cannot see: that central banks possess
gold, is a historic relic, they try to get rid of; that some people use
gold as a store of value may be true, others use diamonds or land, so what?.

The last argument in such discussions: In a crisis gold will come back,
then you will see, that gold is the money commodity.
May be that in a real deep crisis gold will again be used as money
commodity, but what would be proofed by this?
During the first years after World War II, the German "Reichsmark" was
devalued, cigarettes served as currency. But what was proofed by this?
That in Germany all the years before, the hidden but nevertheless real
money commodity was - Lucky Strike?

cmgermer@UFPR.BR schrieb:
> In a reply to Paul B, Jerry wrote:
> Some time ago (on November 19) you wrote:
> As a matter of fact Fred, I know of no one who would not be prepared to
> accept a certain quantity of gold for any of their property , ( should
> they wish to sell it, even if they later had to exchange it for paper for
> other reasons), that is to say that this commodity remains the money
> commodity, par excellence..  <<<
> Jerry:
> Interesting, since I know of no one  (save, possibly, Claus, Akira, or
> yourself) who would be prepared to accept a certain quantity of gold in
> exchange for their property.  I know that if I wanted to sell property
> like a house (which I don't own) or a boat (which I do) I wouldn't accept
> gold as payment.  To begin with, I would have no confidence that it was
> real or that it was 'pure'.  I certainly wouldn't want to pay the extra
> expense and put up with a delay to hire an appraiser. Also, I would feel
> very uncomfortable accepting gold from a security perspective (I'd much
> rather receive a bank check).  And then I'd have the  hassle and delay of
> selling the gold.  And -- given the frequent fluctuations  in the price of
> gold (yes, gold _does_ have a price) -- I would feel  uncomfortable
> holding on to the gold since I am not interested in gold  speculation. And
> -- more to the point -- I know of no one in my  community who would accept
> gold as payment for property of any  significant worth.  If someone went
> to my landlord's office and proposed to pay for real estate in gold, s/he
> would get laughed out of the office.
> Claus:
> You might be right in claiming that gold is no longer money today, but
> your arguments are unconvincing and don't support your claim. The essence
> of your argument is that gold is not money because it does not circulate
> as money. Well, such an argument is only acceptable in a quantity theory
> framework, because according to this theory money has only one function -
> that of means of circulation - and for this reason money cannot have value
> of its own. In the framework of Marx's theory your argument is
> unsustainable, because in this case the prevalence of the function of
> means of payment and the development of an integrated banking system imply
> that money does NOT need to circulate in person, without being displaced
> from its role as money.
> I think in normal conditions I would not accept (and I guess no one would)
> an uncertified piece of gold in the example you gave. I wouldn't because
> gold coins are not issued for the the usual functions of means of
> circulation and of payment. This doesn't prove your point either, because
> gold is issued in certified bars which perform very specific functions of
> money, allowed by the nature of the global monetary system (credit system
> in Marx's terms). Thus, the fact that you and I don't use gold bars in our
> activities does not prove that they don't perform functions of money.
> Comradely,
> Claus.

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