[OPE-L:1371] Re: Gold & credit money

mktitoh@e.u-tokyo.ac.jp (mktitoh@e.u-tokyo.ac.jp)
Fri, 8 Mar 1996 01:50:24 -0800

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Duncan K Foley <dkf2@columbia.edu> wrote in [1332] on Wed, 6 Mar 1996 on my
note: With many thanks, let me furhter ask Duncan;

'A speculator forms an opinion about the price at which she is willing to
hold stocks of a durable asset (like gold), which I call her "reservation
price". If speculators as a group hold this opinion firmly, their
tendency to buy and sell the asset at this price regulates the market

As the standard of price, say a pound sterling is a quater ounce of gold,
would not change here, a lower 'reservation price' for gold should, as you
say later, always mean in this context a higher gold (or pound) prices of
commodities (the inverse of 'the price? of gold'). If you are one of
speculators having gold as an asset, do you purachase commodities dearer
than the prices offered in a market? Or can you expect to sell your
commodities dearer in order to get gold asset than others just by your
special character as one of speculators? Without somehow inducing a general
changes in opinion of sellers of commodities to raise their prices, the
exchange value of gold as money would not be altered, just by an opinion of

'I think speculation is always the immediate mechanism for the
establishment of prices of durable commodities. Even stocks of
circulating capital can be thought of as being held on speculation: why
don't manufacturers always lower the price of their output enough to get
rid of their inventories, for example, except that they are speculating
that they can sell them at a higher price if they wait? Speculative
markets were very important in the 19th century, and Engels and Marx
understood that.'(D)

It is interesting to think of such a motivation to hold certain inventories
with some length of period of circulation for general commodities, though I
think that expectation for not a particularly higher price but a constant
or not widely lowering price would often suffice to avoid sacrifice sale
with a heavy loss. Also I agree that Marx ans Engels reffered to
speculation quite often, although they seemed to be interested in its
destructive bubbling effect too. I am afraid, by the way, that Duncan
stresses just the smoothing effect of speculation, while speculation can
often work destructively. This part is not a question.(M)

'Well, I don't think the "gold producers" have ever been well-enough
organized to maintain profit margins in the face of technological change
(as opposed, for example, to diamond producers at certain periods, or
OPEC in the 1970s). If you look at the movement of gold prices of
commodities (which is the inverse of the price of gold) in the 19th
century, you see the strong smoothing effect of speculation in the face
of dramatic changes in gold production and the discovery of new lodes,

I did not think of the effect of monopolistic organization for gold
producers like the recent case of diamond producers. As I restated in the
first part of this note, the point is that gold producers or gold holders
are not in the position directly to determine prices of other commodities,
and would not buy commodities dearer by their own will and initiative. The
logical mechanism to enforce or to induce gerenal owners and producers of
commodities to raise the prices is still to be questioned. Even if the
prices of commodities rose relatively smoothly and rapidly in accord with
the new gold mines, the phenomemal causation may not be reduced just to
the role of speculation. The quantity theorists may also assert the same
phenomenon as theirs.(M)

With best wishes,


> Thank you Jerry to let me notice of Duncan and Costas' comments on my
> With best wishes,
> Makoto