Re: (OPE-L) Re: on money substance and abstract labor

From: Rakesh Bhandari (rakeshb@STANFORD.EDU)
Date: Wed Jun 23 2004 - 18:05:59 EDT

At 2:46 PM -0400 6/23/04, Allin Cottrell wrote:
>On Wed, 23 Jun 2004, Rakesh Bhandari wrote:
>>At 9:57 PM -0400 6/21/04, Allin Cottrell wrote:
>>>What are the consequences if G'span omits to do what, exactly?  If he
>>>omits to consider the price of gold as such, nothing.
>>Well the argument is about whether the commodity basis of money has
>>been transcended. My point is that non convertible money or even
>>irrelevance of gold does not prove that said basis has in fact been
>Your point is not made by the observation that those reponsible for
>managing the money supply pay attention to the price level when making
>their decisions.  That is a commonplace, and has nothing to do with
>whether "the commodity basis of money has been transcended".

As I suggested in a previous post,  that Greenspan had to play catch
up (say in 2000 after many successive rate reductions in the wake of
the Asia Financial Panic) suggests that he is obliged to maintain the
value of dollar as some tradeable basket of commmodities (into which
the dollar, unlike other forms of money, is indeed directly
convertible, e.g. dollars can directly buy oil).  Otherwise, the
dollar will lose its function as nearest substitute for world money
and thus endanger both the economies of scale and competitive
position enjoyed by the US financial sector and the seigniorage
privileges of the USG.

I had asked:

Isn't the Federal Reserve Board under Greenspan  known to have
implicitly followed sensitive commodity prices such as gold and oil
in the determination of US monetary policy (I think Barkley Rosser
mentioned this years ago on the pkt list)? Could something like a
modified gold standard be developing  with central banks attempting
to maintain the value of their currency as some tradeable basket of
goods and services, e.g. x amounts of gold and y amount of crude oil
and z amount of corn?  Do central banks find themselves limited in
deviating from such a policy or having to play a catch up if they do
deviate temporarily from this policy? If the "producers" of
government monies fail to maintain fairly constant measures of
purchasing power--that is, if they allow their money to 'inflate' or
'deflate'--will "private producers" of monetary numeraires gain
acceptance for their products (as Hayek perhaps fantastically

>>>   If he's willing
>>>to let inflation rip in the U.S. (say, monetizing Bush's deficits)
>>>there may be consequences.
>>Well he seems to have accomodated federal spending.
>He has held interest rates quite low, but the degree of monetization
>of the federal deficit has been fairly modest:
>Year   Federal Deficit ($b)  Increase in M1 ($b)
>2002      240.0                  37.8
>2003      414.5                  78.0

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