chaion lee (conlee@chonnam.chonnam.ac.kr)
Wed, 22 May 1996 19:52:04 -0700

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Dear professor Duncan Foley,

May I presume that other statement of mine to which you did not
mentioned in the responce were accepted to you?
I would only reply to the last post of yours.

Duncan (1):
This seems to me to confuse matters in some ways. If you are
thinking about holding gold as an asset, it is true that the rate of
change of gold prices relative to commodities is one of the things
that will influence your decision. But you must also consider the fact
that newly produced gold will come on the market, which puts a limit
on how much the gold price of commodities can change. Thus you
are wind up considering the future path of technical change in the
gold industry and in other commodity production. The relative costs,
not just their rate of change, plays an important role.

Chai-on (1):
Speculation on gold is to hold the gold as an asset. This is by
definition. Yes, newly produced gold comes on the market and puts
a limit on the price of gold that fluctuates with the current
speculation. The current production condition of gold must
determine the current price of gold. Its future condition of
production might impact on its market price. But, if the latter
is higher than its current production cost, then the production
of gold will increase to satisfy its increased demand. If it is
to the contrary, its current supply must shrink.
Let assume there are three kinds of commodities, A, B and C and
two kinds of speculative object, Bond and Machine.
Considering the future path of technical change in the industries of
A, B, C and Machine, each industry's expected rate of price change
will become a%, b%, c% and m%. To maximize the speculation gain,
we should compare the four parameters including each's different
storage cost, we have to select the commodity that has the highest
positive price change (exactly speaking, the highest own rate of
yield). Your phrase, 'The relative costs, not just their rate of
change, plays an important role' is misleading. The relative
production costs is rather to be interpreted as meaning as the
relatively high rate of price change in comparing a%, b%, c% and m%...

Duncan (2)
The market determines the rate of interest, and if it believes
that the debt of the state will depreciate in value, it will
require an interest premium to offset that loss. I don't
understand how the "expected rate of interest rate change"
comes into it.

Chai-on (2):
Yes, the market determines the rate of interest. In the market,
however, one of the agents that appear as the suppliers and the
demanders of loanable capitals is the speculator. They choose
an object that provides the highest rate of yield among those
such as gold, bond, private loan, investment goods, food,
material goods, living-house, land, etc. This is why Keynes
analysed the speculation as the element that determines the rate
of interest, which I think unsuccessful, though.

Duncan (3)
>From a Marxian point of view the rate of money interest is
basically determined by bargains between financial capitalists
and industrial capitalists over the division of surplus value.
It seems to me that either in a gold standard system or in a
state credit system speculation plays a critical role in
determining money prices.

Chai-on (3);
In the eye of the speculators, IMO, the level of money prices is
immaterial. The expected rate of price change is the most crucial.
In the stock market, for instance, the absolute level of the stock
prices is only important in considering how many units I can buy.
But, if credit is available, the stock price itself is no more
an important issue. The most important is the rate of price change,
which tells the rate of yield.
Money price has therefore little to do with the speculation.
Market prices that fluctuate deviating from values may of course
have something to do with it, however.

Duncan (4):
Since the commodity is the unity of exchange and production,
I'm not sure I understand what you mean by "independently" in this

Chai-on (4):
It is true that the commodity is in the unity of exchange and
production. Social relation that the commodity value reflects is
also in the unity of exchange and production. The state is therefore
outside those social relations that are reflected in the commodity
values. This implies that, although the state issues money with no
labor cost, this does not say that the money is issued with no cost
within the commodity world.

Anyhow, because the commodity is in the unity of exchange and
production, it must be wrong to argue the substance of value is not
existent prior to the exchange. The commodity exists latently prior
to the exchange, its value, too does prior to the exchange. Then,
the substance of value, too must have existed before value exists
latenly. This is by definition since if GOD created the world,
the god must have existed before the creation of the world.
Likewise, the abstract labor, the creator of the value, must have
existed before the value exists even latently. What is at issue is
simply this, how can we say such an abstract labor is a real existence,
which I showed in the previous post.

Duncan (5):
I think I can clarify my idea on this point. Under the gold standard
the state stabilizes the value of its debt by making a very strongly
credible promise to maintain convertibility of its debt (the dollar,
or pound) into gold at a fixed rate. Occasionally (especially in
wartime) governments suspended this promise, but always with the
expectation that it would be renewed in the future. This system puts
a very strong structure on speculation in the value of the government
debt. If speculators mostly believe the promise, the main thing they
will speculate on is the relative valuation of gold in relation to

Chai-on (5):
According to Marx, the above procedure was discribed as one of the
primitive accumulation processes. Even today, USA accumulated capital
in the primitive way not only from the US citizen but also from the
rest of the world. We accepted US dollar as the international currency
not because of the promise the US government made but because of the
power of the US capitals, the US technologies, that have been wanted by

Duncan (6):
Under current political circumstances, no states promise to return to
convertibility. In effect the value of their debt depends on the
market's valuation of it in speculative terms, and they never have to
contemplate "paying it off" except by issuing more. As long as the
government keeps its fiscal deficit within certain limits, this process
is not self-contradictory and can continue indefinitely.

Chai-on (6):
On this we can have quite different prospects for the future of
the world capitalism, for the future of the ex-socialist economies.

Duncan (7):
I don't agree with this, as I've explained. Do you really think
that the U.S. government will ever return to gold? Even if this
is a possibility, its influence on the value of the dollar will
depend on the gold price at which convertibility is resumed.
What do you think this will be?

Chai-on (7):
Of course, U.S. government can never and will never return to gold.
But the world capitalism, too will not tolerate the US deficit
indefinitely. Otherwise, why does the US government bother with
the international balance deficits? why not they pay off the
deficits by printing the dollars?

Duncan (8):
I don't understand what you mean here. Certainly workers have
to earn their wage, but that doesn't produce any money (or
necessarily gold). The debt of the state is created in credit
transactions, not through the expenditure of labor.

Chai-on (8):
Right, workers do not produce any money. But they have to work to pull
out a piece of paper money from the vault of the government.
I keep the state apart from the social relation of commodity exchanges.
The state does not exchange products with commodity producers, but
simply taxes tributes.
The state is analogously seen as the gold mine, workers pay labor or
labor-products to dig out a slip of money from the gold mine (from the
government). The labor that the worker paid to acquire the money is a
tax the whole society paid indirectly to the state. Although the state
did not pay anything in return for the labor, the worker is
however still happy if only he can buy a commodity from other producers
with the money he received from the state. Nobody paid the tax
directly to the state in this case. Nevertheless, the state received
onesidedly a certain amount of labor (or labor-product) from the
society indirectly. The state can use the labor in constructing certain
utilities for commodity producers, in which case, the labor is better
utilized than being expended unproductively in digging out gold.
The US utilized the resources mobilized by the dollars in constructing
a free world market, in liberating the people from the socialism, etc.

Yours Faithfully,

Chai-on Lee