[OPE-L:5767] commodity money

Fri, 28 Nov 1997 16:08:35 -0500 (EST)

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This debate is becoming really important. A few points on recent posts:

On Claus's comments on Duncan's message and mine: I think that the fact that
central banks still hold large gold reserves is neither here nor there.
Recent movements (most famously in Germany) to revalue their gold stocks to
market values can be seen as a first step to selling them. So be it; I hope
the money is well spent. (See also the piece in The Economist which Duncan
has mentioned.) More broadly, we have to distinguish between what has
happened historically (and still rules in the minds of a lot of people,
including some central bankers and prominent academics) and what is
theoretically necessary from a Marxian angle.

>From this perspective, Claus's argument that in Capital 3 Marx analyses the
financial system and interest-bearing capital with gold-money in mind is
highly relevant. Regardless of the time of writing, which may lead to an
interesting discussion on its own, I think that a careful analysis of the
text will show that a gold-based monetary system is *irrelevant* to the
substance of Marx's argument. Gold is not necessary for the derivation of
banking capital from productive capital, the determination of the category of
interest, the analysis of the limits of the interest rate, and so on. It is
obviously relevant for Marx's critique of the monetary arrangements in
Britain, and the 1844 act in particular, but that's another problem, that has
nothing to do with the *theoretical necessity* of a gold-based monetary
system. This is a testable proposition, and I'd like to try and reject it.

On Paul C's message: I agree with much of its content. However, I never said
that prices of production only started to operate once the gold standard was
abandoned. This would have been an absurd proposition, and I apologise if my
message has induced this sort of confusion.

On Costas's message: I agree with what Costas has said, and think his post
advances our understanding of what measure of value means and how it operates
in practice. Two points, though:

-My message was not meant to illuminate the way in which measure of value
actually works and acquires social content, or the role of the price of
production of gold as the centre of gravity of the production price system. I
completely agree with Costas's description of an empirical process of
price-determination that takes place in real time, *can* be based on gold
(but *may not* be based on gold at all, and would still function in much the
same way), and can go wrong. This highlights the *ideal* way in which measure
of value functions, which was important to Marx. I think Costas's post
complements my points, and illuminates them from another angle. I don't see
any incompatibility between the two views whatsoever. The difference is that
Costas is telling us how it worked under gold, and I'm saying we don't need
gold for it to work.

-I think Costas has also made an important point in his discussion of the
'loss of anchor' for the monetary system once gold is abandoned. In my view,
once gold is abandoned the price level is (more clearly than ever) determined
historically. A computer costs stlg.1000, not stlg 1 million or 1 billion,
for historical reasons. To a large extent, prices are what they are because
they were what they were. Having come from a country that has had five (or
six, I forget) different currencies in twelve years, I've seen too many new
currency names and too many elimination of zeroes to believe in anything
else. In other words, what matters is the *relative prices*, which establish
the (tendential, erratic, etc) equality of profit rates across branches. The
absolute price level is inconsequential. With gold, we have an anchor.
Without gold, we don't. The price level becomes

Finally, on the quantity theory of money: I'd be glad if Costas explained
more clearly what he means, and stated more clearly how he thinks the price
level is actually determined.