[OPE-L:2276] Re: New Solution

Duncan K Foley (dkf2@columbia.edu)
Sat, 18 May 1996 13:01:06 -0700

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On Fri, 17 May 1996, Chai-on Lee wrote:
(among other things)
> Duncan (1)
> -------------
> I have also suggested that the valuation of assets like
> debts takes place through financial market speculation, and that this
> same process is at the heart of changes in the value of national
> moneys. I don't agree that this implies the prices of other
> commodities don't depend on their labor content (and other cost
> factors), since they are produced at a profit, and competition will
> play a role in regulating their relative prices.
> Question (1): If the value of money is to be determined by financial
> market speculation, why not the valuation of ordinary commodities
> (eg. durable goods like gold) take place in a similar market speculation ?
> Most ordinary commodities are more or less durable assets, and can
> be the objects of market speculation.

I agree wholeheartedly with this, and in fact wrote a paper for the
Bergamo conference trying to work out the analytics of it.

There is, however, a question as to the substance of the speculation in
the two monetary systems. In a gold standard system speculators are
looking forward to the relative speed of technical change in gold
production relative to other commodities. In the state credit system they
are speculating on the future fiscal policy of the state.

>In the case of Keynes, he
> analysed the speculation behavior among the three alternative kinds of
> goods, ordinary commodity, financial asset and investment goods. And
> their regulating factors were each's own rate of interest and the money
> rate of interest. Each's own rate of interest referred to the expected rate
> of price change, storage cost, liquidity premium, etc. All those factors
> cannot be measured without a proper value account predetermined.
> Logical orderings are therefore being entangled. How could you explain
> the logical ordering in this case?

For produced assets with a use value (like gold) these factors are rooted
in the course of future technical change. But for derivative assets (like
the state debt) they are rooted in expectations about the future course of
politics and policy. I think Keynes writes rather eloquently about this

> Duncan (2)
> ----------
> It might help here to distinguish two aspects of the theory of money: 1) the function of money in a capitalist system which I think is to
> represent abstract labor time, and 2) the specific determinations of
> particular monetary systems (such as the gold standard or national
> state credit systems). In the first sense money might be a ommodity,
> such as gold, that has evolved to take over the function of
> representing abstract labor, or it might be an abstract unit of
> account, like the dollar, representing the credit of a particular nation
> state. In the state-credit money systems the determination of the
> price level (or the value of money) depends on more on issues of
> public finance, whereas in a gold standard system, the relative price
> of gold is governed by competition (of whatever form) like other
> commodities.
> Question (2): Would it be alright if I conceive the function of
> representing abstract labor as that of the measure of value? I
> would like to do so.

This would be exactly the way that I would propose to use the concept of
measure of value.

>"Representing abstract labor" implies, by the
> word itself, the abstract labor did exist before the money represent it.
> So, the existence of abstract labor should itself have nothing to do
> with money. It exists as a reality in the commodity production as the
> labor that produces commodities, which is the same as my point.

Here I part company with you, though the point is quite subtle and as far
as I can tell, the subject of considerable controversy. I think abstract
labor emerges dialectically with money, not "prior to" it. But some people
(such as David Gleicher) interpret "abstract labor" purely in the
production context as the "routinization" and "de-skilling" of labor,
which I don't agree with. Even craft labor comes to have an abstract
aspect when its products become commodities and are sold for money, in my

> The second aspect of monetary theory is, according to you, about
> the monetary system. The difference between paper money and
> gold money is not in their nature but in the mere system. This
> means, IMO, that, although its system has changed, its nature
> remains the same. Its valuation mechanism, its commodity
> character must have been the same, which is the same as my point.

Well, I would argue that the "nature" of the monetary system remains the
same insofar as it still functions to represent abstract labor, and that
the same general laws (speculative ones) govern the valuation mechanism,
but that the substance of the speculation is different in the two systems
(as discussed above).

> Duncan (3)
> ----------
> In both systems money represents a certain amount of social labor
> time, which is the important issue for the LTV. What differs, as you
> point out, is the mechanisms that govern the determination of the
> value of money.
> Question (3): As seen in my Question (2), the abstract labor did
> exist before the money represent it. It can be represented by any
> commodity in the process of exchange. This, therefore, cannot be
> an important aspect specifically of a monetary theory. Neither for the
> LTV since it is simply about the form of value, not about the
> abstract labor, nor about the substance of value.
> If, as you argued, the mechanisms that govern the determination of
> the value of money differ in two monetary systems, then the nature
> of money must have already changed. But, as I argued in my
> question (1), the changed mechanism of the determination of the
> value of money is still unfounded.

I think I've tried to clarify the exact sense in which I view the
"mechanisms" as similar and different. Does this version appeal to you?

> Duncan (4)
> ----------
> I'm not sure I oppose the commodity money conception at all, much less obstinately. It is surely the right way to approach the analysis of
> 19th century capitalism. Perhaps we need to agree more deeply on
> the process by which the gold standard of the 19th century evolved
> over history into the state-credit system of contemporary capitalism.
> Question (4): We have no reason to dispute the fact that the gold
> standard of the 19th century evolved over history into the state-credit
> system of contemporary capitalism. We all know well enough. But
> I argue the nature of money is still the same. But you argue the determination mechanism of the value of money, etc. have
> already changed. I ask what theoretical difficulties do you think are
> involved in my commodity money conception by the way?

At this point I'd like you to review briefly what you view as the
essential parts of your "commodity money conception", so that I could
answer more responsively.