[OPE-L:2349] Re: A Responce to Duncan Foley

Chai-on Lee (conlee@chonnam.chonnam.ac.kr)
Fri, 24 May 1996 02:07:04 -0700

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Dear Duncan,

Thanks again for your reply.

[Duncan 1]

> 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.

Chai-on (1)
What do we have to think ultimately influences the market price of gold?
Current condition of production or future condition of production?
Future cop will influence the current size of market demand, and to that
extent will influence the current market price. Yet the current market
price cannot deviate too much from the current production cost of
production (or current price of production). Otherwise, it would be of no
use to discuss labor-values and market values.

[Duncan 2]

> 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.

Chai-on (2):
In the Keynesian model, the supply of money and the demand for money
are referred to as including all the money in the hands of the public
because keynes comprised not only speculative demand but
precautious and transactional demands in his analysis. But, in our
speculative market, we should not incorporate all the potential supply
and demand in our analysis. For example, in the stock market, the
amount of supply of Company A's stock on a certain day is relatively
small compared to the whole Company A's stock in the public. In the
demand, too, we should not include the whole potential demand.

Although it is true that the new production of gold is quite small in
relation to the current stock, the new production increases or decreases according to the market price deviating from the
market value (the production price/the production cost, whatever
you like). There is no limit to the amount of the supply from
the current production of gold, once the free mobility of resources
is given.

[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

Chai-on (3):
Speculators in the foreign exchange market do not buy and sell
only foreign currencies. They also buy and sell other goods and
assets for the speculative gains. So, the absolute level of prices
are not important because they are not final demanders. They
are only interested in the margins. So, the expected rates of price
change is more crucial. Yes, the relationship between the internal
and external value of currencies is importt but it is so only in
evaluating the future changes of the exchange rates.
If they are to be final demanders, they should be interested more
in the absolute levels rather than the rates of price change (or if
they have to decide the appropriate amount of demand to be sold
to the final consumers soon after).

[Duncan 4]

> 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 (4):

The US government worries about the future position of the USA since
they are becoming one of the largest debtor in the world. Why not
the printed dollars paying off the debts?

[Duncan 5]

> 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 money?

Chai-on (5):

What is at issue is not if the gold mining is free and competitive, but
if we have to pay a labor (or a labor product) or not to get a printed slip
of money just as when we dig out a piece of gold. Even in the gold
standard, workers or entrepreneurs could not produce freely the gold money.

[Duncan 6]

> 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.

Chai-on (6):
Yes we are not too apart from each other here. The only difference
between us is this: you do not make any distinction between the paper
money and the credit money (the money substitutes). You call all of
them the credit money.