[OPE-L:1328] Re: Gold & credit money

mktitoh@e.u-tokyo.ac.jp (mktitoh@e.u-tokyo.ac.jp)
Tue, 5 Mar 1996 22:42:24 -0800

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A reply to Costas' comments [1313]:

'In the Bortkiewicz/Sweezy context, therefore, the transformation
process for the gold industry must be expressed as the production on
average of such extra (is this word <extra> necessary? - Makoto) output per
period as is directly equal (in mint
price terms) to the average profit. This output will not contain the
direct equivalent in value, ie, in your example x quarter ounces
times 1/2 hours). Thus, though the nominal price of gold remains 1 (pound
sterling, inmy example- Makoto),
that is in effect its production price. Would you agree?'

'One possibility might be that the higher profit rate has resulted
from technical change or from the discovery of more fertile mines.
The per unit value (this must mean the per unit substance of value, or
embodied labour-time - Makoto) of gold will probably fall, leading to
higher prices (why and how? This is the point to be logically explained-
Makoto) and lowering gold industry profitability. The process will be
slow and it will reflect the accounting property of gold.' (How does the
accounting property of gold explain the process or its slowness?- M.)

'Another possibility might be that the per unit value of gold has
remained the same (by assuming the same technological methods of
production and the same fertility of mines? - Makoto). The attraction of
capitals to the gold industry (due to a rise of profit through the
transformation procedure?, or why? especially if you agree that the
rate of profit is equalized through the transformation procedure-M.)
will result in higher output. In a Ricardian framework, the extra
output will enter circulation, leading to price rises, which lower
gold industry profitability. The main balancing mechanism in this
schema, however, is the export of gold to take advantage of its
unchanged value abroad. Prices thus fall and the profitability of the
gold industry bounces back. So long as the per unit value of gold
remains constant, capital will be moving into the gold industry, gold
will be exported, and there will be a permanent balance of trade
deficit. The answer must be, as you suggest, that less fertile,
marginal mines are opened, raising the per unit value of gold, and
reducing gold industry profitability, without any assumptions
about the composition of capital. The same process could also
contribute to the re-establishment of equilibrium in the first case.'

'In Marx's schema the main balancing mechanism is, it seems to me, the
hoarding of gold, rather than its export. So long as the per unit
value of gold remains the same, capital will be moving into the
gold industry (why again?- M.) and gold hoards will be expanding. Since
prices are not
rising, the profitability of the gold industry remains above
average. Equilibrium will be restored, as above, when less fertile
mines are opened. Is this a credible picture of capitalist gold
production and the role of golg as money? Most definitely not, and I
don't think that Marx would have claimed that. Long before the hoards
became enormous the capitalists would have lent the money. The
Marxian approach, therefore, leads us directly to credit and to re-
establishment of equilibrium through credit phenomena, as you imply
by mentioning the business cycle. That is why, I feel, it is superior
to the narrow (but analytically beautiful) Ricardian model.'

I am not sure why capital will be moving into the gold indusutry, while the
(labour) value of gold remains the same. If the rate of profit is higher
for the gold production due to the result of transformation of values into
prices of production (or due to whatever cause), can the general price
level remain unchanged with the
increased production of gold banks under certain conditions. In a
slump, however, the increased gold reserve and the lowered rate of interest
may not cause the actual increase in borrowing or effective demand so as to
raise the price level. This is, in my view, a reason why business cycles
are to be considered. But, I may misunderstand what you are thinking about.
Will you please explain the points where I questioned in ( ) and the issue

By the way, Costas, an e-mail is tried again to reach you directily by
<CL5@soas.ac.uk>. Please let me know if that reaches you.

All the best,