# [OPE-L:2249] Gold and the standard of price

From: Kimikomat@aol.com
Date: Thu Jan 20 2000 - 03:10:57 EST

Dear Member

I have to comment Costas' opinion [OPE-L 2234] and Allin's opinion [OPE-L
2123 and 2240]. But for now I try to observe the relation between the cost
price of gold (the output cost of gold) and the standard of price in order to
show you my opinion.

The cost price of of gold is the price in gold volumes to represent the total
sum of values of both the constant capital and the valuable capital which are
invested in gold productions. We can show the price of ordinary commodity in
the following formula.

a commodity price = (the commodity value /the value of a unit gold)*the price
of a unit of gold -------(1)

Therefore the output cost of a unit of gold can be formularized in the
followings.

the output cost price of a unit of gold = {(values of the constant capital /
values of a unit of gold)*the price of a unit of gold} + {(values of the
valuable capital / values of a unit of gold)*the price of a unit of
gold}={(values of the constant capital + values of the valuable capital)/
values of a unit of gold) * the price of a unit of gold ----(2)

Values of a unit of gold is an individual value in the marginal mine of gold
(C+V+M (=Surplus value)). Consequently, the output cost in the marginal mine
of gold is the followings.

the output cost price of a unit of gold = {(C+V)/(C+V+M)}* the price of a
unit of gold ---------------(3)

*The price of a unit of gold* in the formula (1) is the official gold price
(the reciprocal of the standard of price) under the convertible system and
the gold price as the reciprocal of the de facto standard of price under the
unconvertible system. Under the unconvertible system the de facto standard of
price depreciates with the deterioration of the currency (proceeding of
inflation). Then the price of a unit of gold rises up and so does the output
cost price of gold. Thus the the output cost price of gold become an
indicator of the de facto standard of price.

On the supposition that the ratio of {(C+V)/(C+V+M)} in the gold industry is
the letter r, the price of a unit of gold multiplied by *r* makes the output
cost price of gold. What is the price of a unit of gold is the money name
given to a unit of gold. Accordingly what is the output price of gold is
nothing except the money name given to *r* unit of gold. If we consider the
output cost of gold directly, it is the total amount of both the capitalistic
cost spent for the gold production, that is, the price of means of gold
production and the wage of labor in the gold industry. It means the money
name given to gold volumes corresponding to (C+V ) of a unit of gold.

If we get both the output cost price of marginal gold mine and the official
gold price under the convertible system where there isn't any estrangement
between the official gold price and the de facto standard price of gold, we
could calculate the value of *r* by the formula (3).

For now I try to calculate the value of *r* as an approximate value with the
data before the double gold price system (1968) when the gpld market price
corresponded to the official gold price. However I cannot help using the data
of the average cost in the gold mine (though strictly it must be the cost in
the marginal mine).

The official gold price in South Africa was 25 Rand per a ounce during 1949
and 1971/12. That is, A ounce of gold =25 Rand = \$35. When I calculate a
weight average of the output cost of gold according to IMF (Staff paper, Vol.
XV, No3,1968, p.483, Chart 6), it is about 17.1 Rand in 1961 and about 16.6
Rand in 1965. Eventually I got 0.68 in 1961 and 0.66 in 1965 as the value of
*r*.
I try in turn the same calculation according to the data of the
Wirtwatersland Gold Vein in South Africa in 1967 (Rae Weston, Gold: A World
Survey, 1983, p.146) which said us that in the vein 30 million ounces of gold
were produced as a whole and its average cost was \$21 per ounce. Eventually
we could get 0.6 as the value of *r*.

As we should put a couple of premises into this attempt, it is difficult to
get the exact value. But here I think the value of *r* is approximately
betweem 0.6 and 0.7. This value, that is the output cost of gold implicates
the important means as the indicator of the de facto standard of price.

the output cost orice of gold = 0.6 or 0.7 * the price of a unit of gold (as
the reciprocal of hte de facto standard of
price)---------------------------(4)

Btw, the value of *r*, that is, the value of (C+V)/(C+V+M) in the gold
industry should be stable if the organic composition of capital doesn't
change. SOST said about the organic composition of capital in the gold
industry of South Africa, *according to a rough estimate based on the Annual
Statistics of Business in the Gold Mines of South Africa, in the considered
period (1940~75), the ratio in the gold of the end product between the died
labor and the live labor didn't change so much*(Sozialistischen
Studiengruppen(Hrsg), Gold,Preise, Inflation, VSA Verlag, 1979, S.24).
Therefore, if the ratio between the died labor(C) and the live labor(V+M)
didn't fluctuate so much, the vale of *r* could be stable in general.

We can estimate the de facto standard of price since 1968 by the above
observation and data. But it isn't the subject here.

bye

Best Wish

Akira

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MATSUMOTO, Akira

Visiting Scholar
Department of Economics,
University of California, Riverside
1150 University Avenue
Riverside, CA 92521-0427 USA
Phone 909-787-5037x1575 or X1570
Fax 909-787-5685
Email: akiram@mail.ucr.edu
________________________

Associate Professor on Money and Banking
Department of Comprehensive Policy Making
school of Law & Letters
EHIME University
Matsuyama, Ehime
790-8577, Japan
Tel:+81-89-927-9237(office)
Fax: +81-89-927-8916
E-mail: amatsu@ll.ehime-u.ac.jp
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