[OPE-L:2354] Re: A Responce to Duncan Foley

Duncan K Foley (dkf2@columbia.edu)
Fri, 24 May 1996 11:18:40 -0700

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On Fri, 24 May 1996, Chai-on Lee wrote:
(short on time, so I'm replying only to a couple of Chai-on's points)
> Dear Duncan,
> 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.

I don't think the last remark is correct. The supply is limited by what
could be produced if all social resources went into gold mining, for

> 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.

This point seems to support my idea, since this is part of the arbitrage
between state currencies and commodities.

> So, the absolute level of prices
> are not important because they are not final demanders. They
> are only interested in the margins.

>From the point of view of the individual speculator, the prices are given
and he chooses his portfolio, but from the point of view of the system as
a whole the portfolio is given and prices have to adjust to make
speculators willing to hold it. I put forward a model of this situation in
my paper for Bergamo.

> 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?

If they're worrying about it, they don't show it very often. In effect we
do pay off maturing debts by issuing more.

> [Duncan 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.

I don't think I understand your point of view here. In a gold standard
system workers have to labor in order to earn a wage in gold, but that's
not the same as producing gold.