[OPE-L:2304] Re: New Solution

Chai-on Lee (conlee@chonnam.chonnam.ac.kr)
Tue, 21 May 1996 07:23:33 -0700

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Dear Prof. Duncan Foley,

Thank you very much for your reply.
But I have some more questions.

Duncan (1)
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.

Question (1)
Yet, your distinction between the two monetary systems in the
substance of speculation is not so determinate as you suggest.
"The relative speed of technical change in gold production relative to
other commodities" is immediately related to Keynes's "expected rate
of price change". In considering the gold speculation, interest rate
is also an important element to be considered as an opportunity cost
of gold hoard. And "the future fiscal policy of the state" is also
related to the level of expected rate of interest. Basically, therefore,
the two are identical. Speculators must consider the expected rates
of price change about not only gold but also other ordinary
commodities as well as investment good's rate of returns. What is at
issue here is not the absolute levels of price but the rates of price
In the consideration of the fisical policies of the state, too, what is at
issue is not the value of money but the rate of interest, not the
expected rate of value change of money but the expected rate of interest
rate change.
To be short, the speculation cannot play a role in the determination
of the value of monetary unit but that of the rate of money interest.

Duncan (2)
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 point.

Question (2)
Because the produced asset (like corn) is simply an alternative object in
speculation to the derivative assets, we have to compare its future rate of

price change with the latter's rate of yield. If the former is higher than
latter, we should hoard the corn, and if not, we should do the financial
asset. "The course of future technical change in the production of raw
materials" is still vital for the speculation of derivative assets inasmuch

as the raw materials are still a good object for speculation, even
today. Even in the gold standard system, on the contrary, "the future
course of politics and policy" was also an important element to be
taken into account in the speculation of gold, financial asset, etc.
Just as its name, the derivative asset suggests, the yield rate can
only be discussed after the categories such as value, surplus-value,
profit, interest, etc. are clarified. Those are derived from the
categories of general profit rate, capitalization, etc.
To discuss such a concept before anything else as if being the
most abstract is simply distorting the logical orderings that should
follow from the most abstract to the most concrete.

Duncan (3)
>"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 opinion.

Question (3)
I, of course, do not agree with Gleicher, and neither with Rubin. If
abstract labor did not exist prior to the exchange with money, i.e. if the
substance of value is formed in exchange, how can you tell the
magnitude of value can be determined independently of the process of
exchange? Independently of the supply and demand relationship?
My interpretation of "abstract labor", although it is different from
is purely in a production context.
Marx's original meaning of the abstract labor was in the indifference
towards any kind of concrete labor. The abstract labor as a living labor
must have an ability to produce any kind of product. Or else, the amount
of value cannot be proportional to the amount of expended labor. Is such a
labor existent in the reality?
To which my answer is yes: not in a literal sense but in an actual sense.

Barbarians who are fit by nature to work for any kind of job might appear
to have such a character. Since there was no commodity roduction for
them, however, a competition among them with no commodity production
enlarged their natural inequalities and differences, and suppressed
the aforesaid indifferential character. In a commodity production, on the

contrary, individual workers are born far from being of the abstract labor

character. But, because a collective labourer produces a commodity in
the capitalist production, the labor that produces a commodity is
capable of having it (not individually but collectively). Because
commodity production is of an imitative labor, education, training, etc.
can produce such a capability. Thus, I argue, a labor that produces a
commodity, [which is not individual worker's labor but a collective labor,

and that an imitative labor] can count as the abstract labor with an
indifference to any kind of concrete labor. In the competition with
commodity production produces more powerful tendency towards the
abstract labor compared to its counter tendency. In this sense, a
dialectical unity between theoretical activity and practical activity is
incorporated into the category of the abstract labor. I have discussed in

detail why such an abstract labor character is tendentially being formed
and reinforced by the commodity production itself in Section 5 of my 1993
CJE paper and my 1990 PhD thesis, which analysis was greeted with an
applause by Chris Arthur.

Duncan (4)
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).
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?

Question (4)
The functions like the measure of value and the means of circulation,
etc. can be substituted by any kind of money substitute. This is said by
Marx in the first section of Chap 3 Capital vol 1. So, those roles are not

essential. What is never to be substituted is the role as the means of
debt-payment, which is the most essential.
Your conception of credit money did not take this role into account. A
debt cannot be repaid forever by another credit only.
Moreover, your speculative laws, IMO, cannot govern the valuation
mechanism, but the determination of interest rate. Which relates
not to the absolute level of prices but the rate of price changes.
Your "substance of speculation" cannot be different but be identical
in the two systems (as argued above).

Duncan (5)
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.

Question (5);
My commodity money conception is not incompatible with that of credit
money since, even in the gold money system, the credit money was still
required. The only difference between the credit money conception and
mine is in two points. The first is in the determination of the value of
money. The second is in the role of debt-payment (in this role, the
credit money can never replace the commodity money completely).

As for the first, the credit money conception has no theory of the value of

money as I argued above. IMO, paper money is still a product of
labor because, to get it, we have to pay a certain amount of labor or
labor-product just as we do so in order to dig out gold from the gold
mine. Those who can obtain the paper money without paying any labor
are only of two kinds. Either they are non-producers (being excluded
from the economy of commodity exchange) or they are in the process of
primitive accumulation. I am still working on this in a paper.
Duncan was right when he said the sum of paper money and the
government bond was the total amount of the state debt provided that the
paper money can only be issued against the backing of the state debt
(not against the gold reserve or foreign currencies). Actually the sum of

the bond in the hands of the public and the central bank is tantamount to
the total amount of the state debt. If money is issued only against the
bond, then the amount of bond in the hands of central bank is identical to

the amount of paper money in the hands of the public.
Then, what determines the value of money? I simply say that the
prevalent price level would determine the amount of necessary labor
to be expended for us to acquire a unit of paper money. Present price
level determines the value of money not in a circular manner but in the
way of an embodied labor theory.


I would appreciate any criticism on the above.