[OPE-L:2127] Re: gold

From: Gerald Levy (glevy@PRATT.EDU)
Date: Thu Jan 13 2000 - 03:53:42 EST

---------- Forwarded message ----------
Date: Thu, 13 Jan 2000 02:00:24 EST
From: Akira Matsumoto

Dear member

I argued in the previous letter that

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The purchasing power index of gold = the value index of a unit gold/the
commodity value index-----(D)

Consequently, if we abstract the alienation problem of the commodity price
from its value with the business cycle, what is the purchasing power index of
gold is the ratio between the fluctuation of the gold value and the
fluctuation of the ordinary commodity value.
------------------------

Roy W. Jastram calculated the purchasing power index of gold both for about
400 years (1560~1976) in England and for about 170 years (1800~1976) in the
USA (The Golden Constant, John Wiley & Sons,1977). According to it the long
term trend of the purchasing power index of gold keep 100 stably during the
gold standard before 1930, however we can identify the fluctuation of the
purchasing power index of gold somewhat. This fact points out that the
fluctuation of gold value kept pace with the fluctuation of the commodity
value as the formula (D) mentioned.

We have to observe the problem of the unconvertible system in turn.
Under the unconvertible system the standard of price wasn't fixed. When a
excess currency circulate, the standard of price is devaluated virtually.
Thereby the price of the ordinary commodity should be the followings.

The price of the commodity = (the commodity value / the value of a unit of
gold )*the price of a unit of gold(as a reciprocal number of the de facto
standard of price)------------------------(E)

Moreover the market price of gold doesn't always consist with the de facto
standard of price. Therefore the purchasing power index of gold could be the
formula (F).

The purchasing power index of gold = the price (market price) index of a unit
gold/the commodity price index

=the price (market price) index of a unit gold/{(the commodity value
index/the value index of a unit gold)*the price index of a unit gold(as a
reciprocal number of the de facto standard of price)}---------------------(F)

Consequently we cannot identify "the price of a unit of gold" as the
denominator with "the price of a unit gold" as the numerator. Here we should
look at the relation between "the commodity value index/the value index of a
unit gold" under the unconvertible system. But we cannot confirm this
relation as such. So we try to compare the increasing rate of gold
productivity with the increasing rate of the productivity in the ordinary

Socialism Study Group in West Germany (SOST; Sozialistischen Studiengruppen)
calculated the changing of the labor productivity in the gold product
department form the ratio between the outputs of gold and the total labor
volumes of gold production in the South Africa during 1940 and 1976 (Gold,
Preise, Inflation, VSA Verlag,1979). When we compare these data with the
index of the labor productivity of the manufacturing industries in West
Germany and the USA, then we can see that both data kept pace with each other
in the long term roughly. Eventually "the commodity value index/the value ind
ex of a unit gold" should be close to 1 in the rough.

According to the mentioned consideration, we can accept the following formula
under the unconvertible system.

The purchasing power index of gold = the price index of a unit gold(market
price)/the price index of a unit gold(as a reciprocal number of the de facto
standard of price)-----(G)

Moreover we have to proceed to the calculation of the de facto standard of
price and the problem of the cost price of gold. But I cannot afford any time
now.

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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