Re: (OPE-L) recent references on 'problem' of money commodity?

From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Sun Nov 14 2004 - 12:59:43 EST

>Rakesh, with Marx's commodity money (e.g. gold), the MELT is determined by
>the quantity of gold produced in one hour (e.g. 0.5 shillings).
>In your suggested bundle-of-commodities money, HOW WOULD THE MELT BE
>DETERMINED?  This is what I don't see.  Maybe a weighted average of the
>quantity of oil and gold and grain produced in one hour?  But how obtain
>this weighted average, since one cannot add together oil and gold and

Fred I thought I answered this on 8th July. I repost my earlier
reply. Please note that the idea I am putting forward is a thesis
commonly put forward by--I must admit!--the von Miseans, i.e. the
idea that in following sensitive commodity prices Greenspan has been
running a modified gold standard. Perhaps this is all the post
Keynesians want recognized, Marxists have to end up in bed with the
Austrians on money!

Yours, Rakesh

You had asked:

Rakesh, how would you determine the MELT (the money new-value produced per
hour of socially necessary labor-time) in your suggested case that money
is a "basket" of commodities, rather than a single commodity?

"The quantity of labor-time required to produce a unit of a "basket" of
commodities" makes no sense, because a basket of commodities HAS NO UNIT,
in physical terms.
And I replied.

This may be a serious problem but I don't see it yet. Please take this as an
attempt to think aloud. I am not committed to these positions.

  If $1000 is set equal to  x barrels of oil, y oz of gold, and z bushels of
grain (and I am assuming that Greenspan aims to maintain the value of dollar
as just that over the medium term) and the  socially necessary abstract
labor time required to produce that basket then decreases--say it took 1000
hours and now only takes 500 hours--then the MELT changes correspondingly,
no? Before $1000 represented 1000 hours; now it represents only 500
hours.The MELT (the money new-value produced per hour of socially necessary
labor-time) has thus increased:  1 hour of labor now adds $2; before 1 hour
added only $1. $1000 only purchases half the labor time that it used to:
Foley's value of money has thus decreased.

Now say someone produced cuisinarts. It once took him 50 hours to produce
one; now it only takes 40 hours. The cuisinart would have inititally cost
$50 at the old MELT; now it will cost $80 at the new MELT. The cuisinart is
now more expensive in money terms even though its production now takes less
time in absolute terms. If the cuisinart now only took 15 hours to produce,
its price would be $30 at the new MELT. Of course if it now took 25 hours to
produce, its money price would not have changed at the new MELT.

If Greenspan had to stick to a gold standard, how would things work out?
Say $1000 is set to w oz of gold. Where it once took 1000 hours to mine that
amount of gold, it now takes 1500 hours in the mines that have not been
tapped out. The MELT (the money new-value produced per hour of socially
necessary labor-time) would now be 67 cents. $1000 would now purchase 1.5 x
the labor time that it purchased before. The MELT has decreased; the Foley
value of money increased.

The cusinart that now took 15 hours to produce would only sell for $10 at
the new MELT. The money price would have just crashed; cuisinarts had been
selling at $50 given the old level of productivity at the previous MELT.
Under such a money standard debts contracted at an earlier time would
probably become intolerable.

For this reason, the gold standard is impractical.

  I am just proposing a hypothesis of how Greenspan may be conducting
monetary policy with an eye to sensitive commodity prices.

I have not understood Allin's objections to the thesis that to measure value
money has to be a commodity--they may of course be persuasive. Claus'
theoretical points seem persuasive to me at this point. So I am just trying
to figure out the different ways in which money could still be understood as
  a commodity in a world of fiat, non covertible money

Yours, Rakesh

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