[OPE-L:5768] explaining inconvertible money

Fri, 28 Nov 1997 16:08:32 -0500 (EST)

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Forwarded message:
From: CL5@soas.ac.uk (Costas Lapavitsas)
To: Asfilho@aol.com
Date: 97-11-28 05:43:39 EST

I agree with the spirit of Alfredo's argument on the measure of value
(27th Nov), and I also agree with the significance of the divergence
of price of production from 'direct price', but not with the
conclusion he draws regarding gold etc.

The reason is that in Alfredo's approach 'measure of value' lacks
a social mechanism giving it content - it is entirely an exercise on
paper: x of one commodity divided by y of gold gives us a price. A
better way to proceed, it seems to me, is to start with the more or
less subjective expression of the value of commodities into the body
of the money commodity. The subjective (and individual) dimension of
this expression is inherent to the relationship between the relative
and the equivalent in the form of value. The repeated transformation
of commodities into money (or their failure to do so) constantly
validates and rectifies the individual expression of values into
money. Insofar as the value of the money commodity provides the
centre of gravity for this, it does not do so systematically nor
with social necessity. That is also the social content of money's
function as measure of value in general. It is a real as opposed to an
ideal process.

Standard of price, on the other hand, is a conventional function of
money established through the division of the money commodity
by the state. The resultant accounting system of prices is clearly
abstract but, for Marx, founded on the system of commodity values.

So, under capitalism, does money have to have value in order to
measure values and set prices?

The real process of value measurement, alluded to above, is now
different. It again takes the form of repeated transformation of
commodities into money but these transformations muct now secure the
replenishment of capital advanced and the pro rata accrual of surplus
value. This must take place with social necessity, expressed as the
movement of capital from lower to higher return activities.
Insofar as the value of the money commodity provides a centre of
gravity for this it does so as the price of production of gold.

The accounting system of capitalist prices, on the other hand, which
allows the redistribution of surplus value to take place, could very
well be set in terms of units of valueless money - whether these units
possess value or not is entirely irrelevant to the formation of
relative prices of production. Moreover, so long as a commodity money
remains within the system, and is exchangeable somehow with the
standard of price, an anchor exists for the accounting system of
prices. The problem here is, and it is easily the most difficult
problem for all Ricardo-based systems of values and prices, that when
the money commodity is banished from the system, the aggregate price
level becomes indeterminate, or, what is the same thing, the
accounting system of prices loses its anchor. That could be seen as a
real problem of the post-Bretton-Woods world, but the theoretical
problem remains.

To finish this rather long message, one could resolve the problem by
arguing that when money is valueless the price level is
institutionally determined (one could also use the quantity theory of
money). This (the former), it seems to me, is what Duncan is doing. My
own preference, however, is not to make the price level
entirely exogenous. In this respect, it might be preferable to
acknowledge a partial validity for the quantity theory of money.