Makoto makes a number of interesting comments on my story about gold and
speculation. I want to respond to just one of them now:
On Fri, 8 Mar 1996 mktitoh@e.u-tokyo.ac.jp wrote:
> Duncan K Foley <dkf2@columbia.edu> wrote in [1332] on Wed, 6 Mar 1996 on my
> note: With many thanks, let me furhter ask Duncan;
>
> 'A speculator forms an opinion about the price at which she is willing to
> hold stocks of a durable asset (like gold), which I call her "reservation
> price". If speculators as a group hold this opinion firmly, their
> tendency to buy and sell the asset at this price regulates the market
> price.'(D)
Makoto:
>
> As the standard of price, say a pound sterling is a quater ounce of gold,
> would not change here, a lower 'reservation price' for gold should, as you
> say later, always mean in this context a higher gold (or pound) prices of
> commodities (the inverse of 'the price? of gold'). If you are one of
> speculators having gold as an asset, do you purachase commodities dearer
> than the prices offered in a market? Or can you expect to sell your
> commodities dearer in order to get gold asset than others just by your
> special character as one of speculators? Without somehow inducing a general
> changes in opinion of sellers of commodities to raise their prices, the
> exchange value of gold as money would not be altered, just by an opinion of
> speculators.(M)
Duncan:
The reference to "standard of price" suggests that we are now thinking of
a gold standard world. If the commitment of the government to
convertibility is credible, then speculators will tend to support the
mint price in relation to currency. But the issue we are discussing has
to do with the formation of relative prices between gold and commodities.
The individual speculator does express her opinion by buying or selling
the commodities in question. If she is in a small minority, her
transaction will not have any impact on market prices, because other
speculators will take up her position. If she is in a strong majority,
the relative prices will move.
Duncan
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