**From:** Fred Moseley (*fmoseley@MTHOLYOKE.EDU*)

**Date:** Wed Nov 24 2004 - 18:17:39 EST

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On Tue, 23 Nov 2004 cmgermer@UFPR.BR wrote: > Claus: > Marx never determined the MELT with inconvertible paper money, in the > sense you did, i.e., assuming a *valueless* equivalent of value (!). Claus, I am not arguing that Marx determined the MELT in the case of inconvertible paper money (IPM) WITHOUT reference to gold. I discuss in my recent paper how Marx determined the MELT in the case of IPM, and WITH reference to gold (more on this below). What I am arguing is that Marx's method of the determination of the MELT in the case of IPM with reference to gold is QUANTITATIVE EQUAL to MV / L, as I will demonstrate again below. > When inconvertible paper money exceeds the needs of circulation and > depreciates, what results, according to Marx’s theory, is that a unit of > paper standard will represent a smaller amount of gold than the official > standard, but it will always represent the amout of gold that would > cirulate in normal conditions. This sounds to me like my interpretation of Marx's determination of the MELT in the case of IPM, so we appear to agree on this interpretation (which I think is an important agreement). Algebraically, in the case of gold money, the MELT is determined by: (1) MELT(g) = 1 / Lg where Lg is the labor-time required to produce a unit of gold. The inverse of Lg is the gold produced in one hour, which determines the money new value produced per hour of SNLT in all other industries (i.e. determines the MELT). In the case of inconvertible paper money (IPM), Marx in effect assumed that the determination of the MELT is determined by: (2) MELT(p) = [1 / Lg] [Mp / Mg*] where Mp is the quantity of IPM and Mg* is the quantity of gold that would be required if commodities sold at gold prices (as you put it: "the amount of gold that would circulate under normal conditions"). Thus in the case of IPM, the MELT is determined by the product of [1 / Lg] and the ratio of actual paper money to gold money required. For example, if twice as much Mp were forced into circulation that is required for circulation on the basis of gold prices (i.e. the ratio Mp / Mg* = 2), then the MELT would be twice as large (i.e. each hour of SNLT would be represented by twice as much paper money) and hence the prices of all commodities would double. Marx argued that in this case, the paper money does not represent labor-time directly, but rather indirectly through gold. In the above example, twice as much money would represent the same quantity of gold required for circulation, and this quantity of gold would continue to represent the same quantity of SNLT contained in all other commodities. Or inversely, each unit of paper money would represent half as much gold, which would represent have as much SNLT. In Marx's words: "If the quantity of paper money represents twice the amount of gold available, then in practice $1 will be the money-name not of 1/4 ounce of gold, but of 1/8 of an ounce. The effect is the same as if an alteration had taken place in the function of gold as the standard of prices. The values previously expressed by the price of $1 would now be expressed by $2." ($ is pounds in the text) (see also C.I. 221-26; Grundrisse, pp. 131-36; Contribution, pp. 119-22). So are we agreed on this interpretation of Marx's implicit determination of the MELT in the case of IMP that it depends on both Lg and the ratio (Mp/Mg*)? Hoping (and thinking) that we are agreed on this interpretation, let's examine equation (2) more closely, and in particular the term Mg*. This is the quantity of money that would be required for circulation if commodities sold at their gold prices, as determined by Marx's "anti" quantity theory of money in Chapter 3 of Volume 1 (pp. 210-220). According to Marx's theory, the quantity of gold required to circulate gold prices is determined by: (3) Mg* = P / V where P is the sum of individual gold prices and V is the velocity of money. The individual gold prices are in turn determined by: (4) Pi = [1 / Lg] [ Li ] And thus the sum of these individual gold prices is: (5) P = [1 / Lg] [sum(Li)] = [1 / Lg] [ L ] Now, if we substitute equation (3) for Mg* into equation (2) for MELT(p), we obtain: (6) MELT(p) = [1 / Lg] [Mp / Mg*] = [1 / Lg] [Mp / (P/V)] = [1 / Lg] [MpV / P] Finally, if we substitute equation (5) for P into equation (6) we obtain: (7) MELT(p) = [1 / Lg] [MpV / P] = [1 / Lg] [MpV / (1/Lg) L] = [1 / Lg] [MpV Lg / L) (8) = MpV / L Thus we can see that, in Marx's case of IPM, the MELT is equal to MpV / L. The MELT in this case is the product of two fractions, and Lg is in the denominator of one fraction and in the numerator of the other fraction, so that Lg cancels out in their product, the MELT(p). Therefore, a change of Lg HAS NO EFFECT on the MELT. For example if Lg were doubled, then [1 / Lg] would be cut in half, so that the net effect on their product, the MELT(p), would be zero. On the other hand, if Mp were doubled, then the MELT(p) would double according to EITHER equation (2) or equation (8). To repeat, I am not arguing that Marx determined the MELT in this way without reference to gold. But I think I have shown that Marx's method of determination of the MELT, in the case of IPM, with reference to gold, is quantitatively equal to MpV / L. Therefore, with respect to the quantitative determination of the MELT, it DOES NOT MAKE ANY DIFFERENCE whether we assume that the MELT is determined today by equation (2) or equation (8), because equation (2) reduces to equation (8). This is the main point I have been trying to make. Claus (and Paul B. and Riccardo and others), I hope this clarifies my interpretation. What do you think? I look forward to further discussion. Comradely, Fred

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