On Fri, 8 Mar 1996, Paul_Cockshott wrote:
> 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)
>
> Paul
> ----
> What is involved here is surely a rise in the
> velocity of circulation of money. If we average
> the velocity of circulation over the entire stock
> of gold coins, then a lower reservation price of
> gold is the familiar phenomenon of an attempt to
> hold a smaller real balance. A generalised attempt
> by all holders of coin to run down their balances,
> is a generalised rise in the demand for commodities,
> providing the opportunity for general price rises.
> Indeed this is the only possible result if we
> ignore international trade.
>
> If we factor that in, part of the additional demand
> is reflected in increased imports which drive
> down real balances directly.
>
>
When there are substantial speculative balances, the average velocity of
money will shift around a lot, precisely because of changes in
speculative opinion. On the other hand, this velocity doesn't tell us
much in this case, either.
The immediate effect of a change in speculative opinion in gold prices of
commodities would come from the direct transactions in stocks of gold and
stocks (or futures contracts) in commodities. These transactions will
move prices, and, allowing for smoothing, will eventually influence the
prices at which newly produced commodities sell as well.
Duncan
>