[OPE-L:1984] Re: Re: the money supply

Akira MATSUMOTO (akiram@mail.ucr.edu)
Mon, 27 Dec 1999 11:07:59 -0800

Dear Gerald

I am sorry to delay my replay, because I have been a long trip during the
Christmas vacation.

At 4:58 AM -0800 99.12.17, Gerald Levy wrote:
> Re Akira's [OPE-L:1930]:
> > The other side adresses the contemporary currrency as the credit money.
> > +It's circulation is based on the principle of means of payment.
> > +They think that the contemporary currency just functions in place of the
> > money.
> Currency *is* money, or -- more accurately -- it is one component of the
> money supply. Therefore, I don't understand why you think that currency
> functions _in place of_ money.

I think that first of all, money should be measure of value. What is money
is a kind of mirror to reflect the value of other commodity by itself. I
tell currency from money in this standard. In other words, currency doesn't
have a necessary and sufficient condition as measure of value.

Of course, this view is not necessarily a prevailed opinion in even Japan.
It might has a problem whether the distinction between money and currency is
significant, especially because, as Marx said the bills(credit money)"
ultimately cancel each other out , by the balancing of debts and claims,
they function absolutely as money, even though there is no final
transformation into money proper". Maybe you pointed out this point, I

> > Therefore the money or measures of value is ultimately gold.
> Why the "therefore"? Simply because you have credit money doesn't require
> gold to function as commodity money. Indeed, there is no necessary reason
> to believe that when you have credit money, there will of necessity also
> be commodity money whether of gold or some other object.
> > However
> > I guess this group does't always consider gold as the money, but the
> > commodity money. They think the present money is gold because we cannot
> > point out another commodity as money.
> This sounds like circular reasoning:
> Q: why is gold commodity money?
> A: Since we can't point out any other commodity as money, the money
> commodity must be gold.
> Yet, this assumes what must be proved. That is, whether there is commodity
> money at all.

Logically Marx proved it, I think. In this point my opinion is the same as
Dr. Germer's.
The problem is how the value flactuation of the commdity money make the
price change(how commodity money work as measure of value). I cannot help
approve that this subject dosen't still investigated at all. We are faced
with the difficult problem about the theory of international value and so on
for its sake. Especially, *the relative value of money *(C1-Ch. "NATIONAL
DIFFERENCES OF WAGES") should be the key-word.

But one of the reason why I still emphasize that the commodity money
underlie the contemporary money is that we cannot explain the price
fluctuation without the assumption of the commodity money.

1) The changing of the money-supply isn't necessarily related to the price
If the contemporary money would be valuables as such and its value would
depend on its volume, the change of the money-supply would regulated the
price and the govornment could operate the volume of the money supply and
its value. It isn't truth.

2) In the he money-supply and the price cannot be operated perfectly and
directly as the monetarist argued. Once we accept the paper money would be
measure of value as such, we should stand on the same ground as the

We think there are four factors of the contemporary price fluctuation.
1)The changing of value of the commodity
2)Thr changing of value of money
3)Inflation (the devaluation of the standard of price)
4)The realtive change of money value (this is different from the above*the
relative value of money*)= for example, business cycles

The factor 2) of them only might be at work on a very long way round,
because of the reason which I mentioned above.

Even though several functions of money are replaced by a substitute, it
cannot take in place of the ulitimate measure of value. As I mentioned
above, we couldn't consider the money supply regulated the price or the
value of the contemporary money. Therefore it should not has its value as
such but be a mere subsutitute.

The problem is what the substance of value of the contemporary money is? In
other word, the school of the paper money still has the problem. In this
point what Dr. Costas asked is on the right lines.

> > +The international currency is also the credit money.
> What about the (US) Dollar?

The sustance of the (US) Dollar in the world market is *the bank account* in
Banks in the USA, that is, the liability of the USA to the rest of the

> btw, how can the benefits of *seigniorage* be explained within the context
> of your theory?

It is the repayment of the debt of government by its debt itself.
This is the very problem of the public credit.

Btw, nowadays the government doesn't issue the paper money directly. What
the government issues is only subsidiary coins as limited legal tender
(partial legal tender). These limited legal tender compose the asset of the
central bank as *money*.


Best Wish



Visiting Scholar
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Associate Professor on Money and Banking
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