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

From: cmgermer@UFPR.BR
Date: Sat Dec 04 2004 - 15:24:40 EST

On Dec 2 Michael H wrote:

> 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)

I think this is an important point, which I have been making and which
corresponds to the view of Marxís theory, and Iím glad you agree with it.
It is important because it establishes that the fact that the money
commodity (gold) does not circulate doesnít mean that it is not THE money.

But then your decisive argument is that today, in contrast to the 19th
century, gold serves no longer as an anchor for the monetary system,
meaning essentially that credit money was convertible at that time but not
today. Thus, in the 19th century the central bank had to hold a definite
amount of the money commodity. Today credit money is not convertible but
the central bank goes on holding a large amount of gold. Instead of
attempting to explain this by analysing how it came to this and how the
system works, you jump to a thought experiment that may be plausible, but
that is not a scientific proof, since the central banker is not making a
scientific experiment and is not a judge of scientific matters.

After that, based on the implicit supposition that you have proved your
point, you reduce the gold held by central banks to ďa historic relicĒ.
However, your thought experiment doesnít prove this, although it is a kind
of common sense in the monetary literature of today. And I think your
reasoning is very arbitrary: The FACT that large amounts of gold are held
as reserves both by the central banks and by capitalists (in still larger
amounts) is as much a FACT as it is that the circulation functions of
money are performed only by credit money today. What a scientific
criterium is the one that allows you to accept one fact (the one that
supports your point of view) and reject the other (teh one that doesnít
support your point of view) as an irrational relic? You argue that
everybody will ACCEPT credit money instead of gold as means of circulation
and of payment, and you consider this to be a good argument, but when it
comes to the reserve function of gold by central banks and private
capitalists you donít interpret this as an ACCEPTANCE by them of gold as a
store of value. What is going on? Who forces central banks and private
capitalists to take and hold gold? If you suggest that they hold it
against their will, what allows you to say that credit money is not held
against the will of the people who accept it? Inconvertible paper money is
taken by people not because they like it, but because they have no other
alternative. Would you deny that the dollar has been crowned as the
international currency by an arbitrary act of the US? You are certainly
aware of the fact that Germany and France Ė the two other major capitalist
powers along with the US at that time - attempted to convert their dollar
holdings into gold in the late 60s, and that this has been one of the
reasons for the unilateral decision of the US to declare the
inconvertibility of the dollar.

You also say that central banks Ďtry to get rid ofí their gold holdings,
but the facts donít support your opinion. If you look at the figures of
the IMF you will see that the total gold reserves of central banks and
international monetary institutions have remained almost the same since
1982, I think. The only aspect in which the facts agree with your opinion
is that there has been an explicit intention to eliminate GOLDíS MONETARY
FUNCTIONS, but this is strictly true only for the US. However, this is not
the same as saying that the US intended to eliminate GOLD from THEIR
reserves, and they havenít. On the other hand, I donít think you will find
statements from the main central banks saying that they intend to
eliminate gold from their reserves or from the monetary functions it
performs. This doesnít agree with your thought experiment. On the
contrary, the gold agreement of 1999, which has been reaffirmed two months
ago, says that it is a compromise of these central banks to preserve the
monetary functions of gold. On the other hand, even if a decrease in the
gold reserves were to take place, this would not necessarily indicate a
decrease in the relevance of the monetary functions of gold. Finally, the
fact that some central banks reduce their holdings of gold doesnít have a
clear meaning except if you make explicit the relevance and the place of
each in the international system.

Thus, if you consider the reduction in the gold holdings of the central
banks a strong argument in favour of your point of view, I think you would
have to reconsider it.

Michael H.:
> 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?.

I agree that it is not easy to demonstrate, but I donít see a clear
demonstration that gold is no longer money either. And dismissing the
evidences which indicate that gold still serves in monetary funtions as
just irrational historic relics is not a proof. By the way, if you have
followed this thread you must have noticed that Iím not saying that Iím
able to prove that gold is still THE money in the sense of Marxís theory.
I agree that this has to be proved, but the opposite opinion has to be
proved as well, and so far hasnít been. On the other hand, what I have
been arguing is that there are strong evidences that gold still performs
important monetary functions, and that the characteristics of the monetary
system of today do not contradict Marxís theory of money.

Finally, your last paragraph below strikes me, because it contradicts your
opinion that gold could be considered money in the 19th century because
credit money was convertible etc. It raises the question of what is the
theory of money on which you base your opinions?

> 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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