[OPE-L:1330] Re: Gold & credit money

mktitoh@e.u-tokyo.ac.jp (mktitoh@e.u-tokyo.ac.jp)
Wed, 6 Mar 1996 02:54:48 -0800

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On Duncan's comments [1323] as follows with my thanks;
Will you please explain what you intended to express by the effect of
'lowering the reservation price for gold', and answer my further 4
questions below, Duncan?

'On Makoto's question of how changes in the production cost of gold lead
to changes in the gold price of commodities:

I think it is worth considering the role of speculation in this process.
Gold is a durable good, and speculators can and do form hoards of it on
the basis of their expectations as to the future course of gold prices of
commodities. An unexpected decline in production costs of gold would lead
speculators to lower their reservation price for gold, and thus
effectively to raise the gold price of stocks of other commodities. This
mechanism doesn't involve the mechanical reasoning of the Quantity of
Money Theory of Prices at all.'(Duncan).

1. How should we think of the weight of role of speculation in the whole
economy, or in relation with hoards? Hoards in Marx must have an objective
ground in the turn-over of capital as Costas emphasizes, and can not
totally be idenitified with speculative assets. Though the role of
speculation became much increased in the contemporary world since 1973, and
must change in the different phases of business cycles, I suspect if it
could be sufficiently big enough to expalin the shift of general prices
under the gold standard system.
2. So long as the gold producers can maintain at least for a while the old
purchasing power of gold with a higher rate of profit with improved method
of production, does Duncan not explain the shift of 'reservation price'
from what he assumes to be an end result, without explaining the logical
process of changes?
3. Can the speulators know the reduced costs of production for gold and
exactly predict the course of changes in prices? The methods of
production of many other commodities must also change in the course of
time. How perfect information and expectation for the future should we
assume to be in the market agents as for production processes of different
industires? In such a case as discovery of new fertile gold mines, the new
may come and spread more rapidly.
4. What happens when the speculators decide to reduce the level of hoards
of gold? If an incresed quantity of money is assumed to be thrown into
circulation as an increased effective demand so as to raise the price
level, is this process not similar to the Quantity Theory causation?

Thank you Jerry to let me notice of Duncan and Costas' comments on my note.

With best wishes,