From: Allin Cottrell (cottrell@wfu.edu)
Date: Sat Jun 12 2004 - 21:03:38 EDT
Claus wrote: "Now, the widespread view today is that money is no more a commodity, because gold not only does not circulate, as is also not used officially to define the standard of prices. In my opinion this conclusion has two problems:" "1) it does not account for the role played by gold in the monetary system of our days. This account seems to me to be necessary, since gold is present in very expressive amount as an official international monetary reserve and in even greater amount as private reserves;" Petroleum also bulks large in national reserves; so do wheat and butter. The role of gold in present-day monetary systems seems nugatory, a mere historical hold-over. You wrote earlier: "[T]he Dollar is still valued at $42,2222 an ounce of gold in the balance sheet of the Fed." I would claim this has it backwards. It's not that the dollar is valued at 0.0237 (1/42.222) ounces of gold. This statement has no economic meaning. The Fed is not willing to sell gold at $42 the ounce, nor is it able to buy gold at that price. Rather, the Fed finds itself holding gold for historical reasons: it is obliged to produce a balance sheet, and for that purpose the gold must be valued in terms of the current monetary standard, namely the dollar. They could do the valuation at the current market price, but for whatever reason (convenience?) they choose to value the gold at $42.22 per ounce. They are able to perform this "conventional" valuation (meaning, one based on an arbitary convention) only because it doesn't matter to anyone, since they do not undertake to buy or sell gold at the stipulated accounting price. "2) if one abandons the definition of money as a commodity, in Marx, one is left without a theoretically consistent concept of money." I think this begs the question. In my view the chartalist conception of money is theoretically consistent. "In Marx's theory money is the general equivalent of value because it is also a commodity. Thus, the value of the standard of prices is given by the amount of social labor necessary to produce it." Yes, we all know that. But Marx was wrong on this point. He apparently thought something like this: To measure (or express) the length of objects, a ruler must itself be an object with length. To measure (or express) the value of commodities, money must itself be a commodity with a value. This sort of argument has several problems. The physical side of the analogy is wrong. We can measure the length of objects by means of instruments that are not in themselves objects with length (sonar, lasers). Besides, money does not "measure" the value of commodities. It provides a unit of account in which prices are stated. These prices can be quite arbitrary (as in the case of the Fed's accounting valuation of gold). But for reproducible commodities sold regularly on organized markets, there are definite social mechanisms enforcing some degree of convergence of relative prices onto relative values. The absolute level of prices is determined "elsewhere", roughly speaking by the balance between the state's emission of money and its cancellation of money via taxation. -- Allin Cottrell Department of Economics Wake Forest University, NC
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