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

From: cmgermer@UFPR.BR
Date: Mon Nov 29 2004 - 18:22:18 EST

I have read your working paper and your posts very carefully and I would
make the following remarks:


> 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.

It seems to me that the real problem in what you mean by saying that
Marx’s method is “quantitatively equal to MV/L”. This might be true in
algebraic terms, but what one has to look at is if they are logically
equal. What Marx meant with the equation M=P/V is clear, but what you mean
with the equation MELT=MpV/L is not clear to me. One of the logical
problems, which I already raised, is the meaning of L (which is total
labor contained in the circulating commodities, including both living and
dead labor), since you suggest that the equation expresses an
unconsciously operating rule of distribution of social labor. The problem
is that what is distributed is living labor, not dead labor. The way in
which this rule operates would also have to be explained. What do you
think of this?

Secondly, the MELT is the average quantity of gold produced in a unit of
time (say one hour). As far as we stay within Marx’s theory, the MELTp is
the expression of the same amount of gold in terms of depreciated paper
money. Since we are dealing with the circulation and prices and paper
money, I think we have to reduce the values to their expression in terms
of the standard of prices, which is a quantity of the money commodity
contained in the unit of account, such as the dollar for instance. Thus,
the MELT can be expressed both in the official standard (Dg - gold dollar)
and in the paper standard (Dp – paper dollar), in the following way:

        MELTg=MELT/Dg, which is the MELT expressed in units of gold dollars
(Dg=an officially declared amount of gold);

        MELTp=MELT/Dp, which is the same amount of gold represented by the MELT,
expressed in terms of depreciated paper dollars.

In this case Dp is the “implicit gold content of the paper standard”,
i.e., of the paper dollar, which is allways less than the official
standard (because there is a paper standard only when Mp>M*). Thus, Dp has
to be calculated. It is given by the equation:


The MELTp then becomes:  MELTp = {(MELT)/Dg} (Mp/M*).

Since we have to translate values into prices, the MELT has to be thus
translated from the start, because at this moment gold is already money
and circulates in the form of the official standard, say the dollar. Your
expression for the MELT is 1/Lg, which is the quantity of gold produced in
one hour. I think 1/Lg is misleading, because the MELT it is not expressed
in terms of labor, making the understanding more difficult. We could for
instance represent this amount of gold with Gl (letter l goes for labor –
the gold expression of one hour of labor time), such that  MELT = Gl.

The MELTp would then be:   MELTp = Gl/Dp = (Gl/Dg).(Mp/M*)

I think at this point you can no longer represent values or prices in
terms of labor, only in terms of the standard of prices expressed in a
fixed amount of gold.

MELTg would then be:  MELTg = Gl/Dg, which is the MELT expressed in gold
dollars. This is also somewhat missleading because Gl/Dg is the same
amount of gold as Gl, but expressed in units of the gold dollar. For
example, if Gl=50 g gold, and Dg=5 g gold per dollar, then the MELT would
be 50 g of gold and the MELTg would be 10 gold dollars.

The prices of commodities follow the same line. The value of commodity i
is represented in an amount of gold:

        Gi = (MELT)Li = Gl.Li, which is expressed in gold dollar prices as:

        Pg = Gi / Dg,

        and in paper dollar prices as:

        Pp = Pg/Dp = (Pg/Dg)(Mp/M*)

At this time, labor times (the substance of value) have already been
converted into amounts of the equivalent of value (the form of value -
gold), and subsequently in its expression in the official standard of
prices. Thus, [sum (Pi)] can no longer, in my opinion, be represented by
l/Lg.[sum (Li)], but only by [sum (Gi)] or by [sum (Gi/Dg)].
For the same reason, MELTp=(Gl/Dg).(Mp/M*), instead of (l/Lg)(Mp/M*).

This is the way I think one can represent this process without losing
contact with Marx’s theory.

A third aspect of your presentation which presents difficulties, in my
opinion, is the fact that you are unable to represent IPM prices without
starting with commodity money. I think that if you want to prove that a
pure paper money standard is possible, you have to start with pure paper
money without reference to a commodity money.


>> 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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