[OPE-L:2331] Re: A Responce to Duncan Foley

Duncan K Foley (dkf2@columbia.edu)
Wed, 22 May 1996 20:10:19 -0700

[ show plain text ]

On Wed, 22 May 1996, chaion lee wrote:

> 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?

Well, no. Given that my time is limited, I've chosen to reply to issues
where I think the conversation will be most interesting. But it would be a
mistake to take a lack of reply as acceptance or agreement with some
particular formulation.

> 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.

I don't think we're too far apart here: I argue that it is speculation on
the future conditions of production that ultimately influences the market
price of gold. Current production conditions obviously have a lot of
information about future ones, so it's likely that they will often be the
most important factor.

> But, if the latter
> is higher than its current production cost, then the production
> of gold will increase to satisfy its increased demand.

The problem here is that the new production of gold is quite small in
relation to the current stock. In a speculative market "supply" and
"demand" are not very well defined, since speculators are willing to
absorb or emit very large quantities of the commodity in response to small
changes in price.

> 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.

I don't see your logic here. What about speculators on foreign exchange
markets? Don't they care about the relationship between the internal and
external value of currencies? Of course these can and do diverge markedly,
but they tend to gravitate together over time.

> 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
> us.

This is part of the story, but the political economy seems somewhat out of
date for the 1990s, at least from the U.S. perspective. We see ourselves
in decline as a world economic power; we've gone from being the largest
creditor to the largest debtor, and the issue of direct foreign investment
is now mostly how much of it the U.S. will tolerate from other countries.

> 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?

In what sense do we "bother" with it?

> 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).

Again, I'm not sure exactly what you mean here, but the issuance of state
credit money doesn't seem very analogous to gold-mining to me. Gold-mining
is a capitalist production process: anybody can decide to go into it and
see what they can produce. I don't see the analogy with the state credit.
Is there some way a worker or entrepreneur can produce more state credit

> The labor that the worker paid to acquire the money is a
> tax the whole society paid indirectly to the state. ey 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. r 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.

I'm not sure whether you're talking about seignorage and the inflation tax
here, or direct taxes. As I said in my first posting, it seems to me the
basis of the state credit is its taxing power, which creates an asset
which can to some degree be monetized.