[OPE-L:5788] Re: commodity money

Massimo De Angelis (M.Deangelis@UEL.AC.UK)
Tue, 2 Dec 1997 16:55:38 GMT0BST

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Alfredo writes: . In my view, once gold is abandoned the price
>level is (more clearly than ever) determined
> historically. A computer costs stlg.1000, not stlg 1 million or 1 billion,
> for historical reasons. To a large extent, prices are what they are because
> they were what they were. Having come from a country that has had five (or
> six, I forget) different currencies in twelve years, I've seen too many new
> currency names and too many elimination of zeroes to believe in anything
> else. In other words, what matters is the *relative prices*, which establish
> the (tendential, erratic, etc) equality of profit rates across branches. The
> absolute price level is inconsequential. With gold, we have an anchor.
> Without gold, we don't. The price level becomes
> historical/traditional/arbitrary.

I think there is a difference between historical and arbitrary. I
agree with the former, not quite sure about the latter because:

1. Changing the currency denomination as a linear trasformation
of old currency, does not affect, in principle, the price
level. It affects only its expression.

2. "Relative prices", that Alfredo seems to stress,
often change following changes in the absolute price
level (due **for example** to class struggle induced inflationary
pressures or widespread technical change across the national
economy). This is the case especially for those prices of those
commodities exposed to international trade or heavily dependent on
imports. With the change in price level (relative to other
countries) you have a change in the exchange rate, which is a
"relative price" among two currency. This of course has an effect on
term of trade and all that.