[OPE-L:5773] Re: explaining inconvertible money

Duncan K. Foley (dkf2@columbia.edu)
Sat, 29 Nov 1997 13:02:07 -0500 (EST)

[ show plain text ]

On Costas' discussion of "Inconvertible Money"

Costas remarks:

>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.


I somewhat doubt the formulation "valueless money". The money issued as the
debt of the State is not valueless, since it is a liability backed by
assets, including the taxing power of the state. I agree that the value of
the monetary asset doesn't necessarily have to arise from its being a
produced durable commodity like gold.

>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.


I'm not sure what I think is the most powerful explanatory principle, but
the two most often invoked are institutional movement of money wages (the
Keynesian "Phillips curve") and speculation.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu