From: Rakesh Bhandari (rakeshb@STANFORD.EDU)
Date: Wed Jul 14 2004 - 21:01:55 EDT
Claus, thanks for trying to understand me. here are some quick answers. > >2) in the two cases, I think, you build a regular dollar standard of >prices, which is a basket of commodities in the first case and a single >commodity in the second. In the first case, the definition would be 1 >dollar=(x barrels of oil + y oz of gold + z bushels of grain)/1000 (which >is similar to the dollar standard defined in 1934: 1 dollar=1 oz gold/35). >Your second case is a regular standard of prices based on gold. The change >in the value of the money commodity (or of the basket) does not require >any change in the definition of the standard of prices, although the >prices of the ordinary commodities do change as a result, as you rightly >assume in your example. > >However, as Fred remarked, the basket of commodities cannot be money >because it does not have a physical unit. This I don't understand. Say that Greenspan aims to ensure that x barrels of oil, y grams of gold and z bushels of grain sells for $1000 over the medium term. If that basket now comes to $1100, he sells bonds; if it comes to $900 he buys bonds. It's a modified gold standard in two ways: the commodity is composite, and Greenspan is allowed some flexibility. He may go on buying bonds to inflate the economy in a time of a crisis but will then will play catch up after the crisis is over. At 10:17 AM -0300 7/14/04, cmgermer@UFPR.BR wrote: >Hi, Rakesh, > >I would like to make some comments on your post below. I’m not sure I >understood your argument: > >1) you made the value of the basket-money decrease and the value of >gold-money increase, which leads to the decrease and increase of the value >of money, respectively. Then you say the latter is impractical because the >real value of debts would increase. > Your example raises some questions: >wouldn’t the opposite happen if the value of the basket increased and the >value of gold decreased? Yes. The problem may be the instability in the value of a money commodity such as gold, given the role of accident in the determination of labor productivity. Seious inflation could result from the sudden discovery of rich mines which allow for the labor time per unit of gold to drop; serious deflation could result if extant mines suffer declining marginal returns and more unrewarded time is spent in discovery. The gold standard seems incapable of providing monetary stability required for long term contracts. The gold bugs are fetishists in that they think fixing the dollar as so many oz of gold provides stability. But fixing the dollar as so much of a thing does not fix or guarantee its value. A stability of dollar in terms of a quantity of things does not make it a stable value! In my example I was focusing on an increase in the relative value of gold vis a vis other commodities because it seems that the gold standard had to be abandoned as a result of its deflationary consequences, no? At the same time it is hardly surprising that gold served as the universal equivalent for some time. >In this case wouldn’t you have to conclude that >the basket-money is impractical? Yes. I think what Greenspan is discovering that he has to do is to make sure $1000 roughly buys the same quantity of a composite commodity, made up of things in high demand and that overall undergoes changes in productivity that are regular, and in the same direction as the mass of commodities. Otherwise, the MELT will drop too quickly, too precipitously. >Why do you assume that the value of the >basket would rise and that of gold would fall, but not the opposite? I assumed the opposite in my example. >I also don’t understand why the increase in the debts as a result of the >increase in the value of money turns a single money commodity impractical. If for example there was no way to predict that the value of the gold commodity would rise sharply--say new gold discoveries turned out to be mirages--actors may have taken on debts that they find themselves unable to repay, no? > However, if it were possible to >manufacture a composite commodity made up of fixed proportions of its >three components, It doesn't have to be manufactured. > then the resultant product would be a regular commodity >and could become money, because in principle any commodity is entitled to >become money (however, some of them are more suitable to this end than >others, this being the reason for metals, and finally gold among them, >have become the preferable forms of money along history). Yes but why did the gold standard come to prove so destructive in the course of capitalist development? For critics to say that its abandonment has had negative consequences does not prove that the gold standard was not destructive or a "fetter". > But in this case >there is no reason for an artificial composite commodity instead of a >regular one to become money. The imagined composite commodity would be >something like the ellectrum, proposed by Marshall. This reminds me of my >answer to Howard, in which I may have made a mistake, saying that the >ellectrum was not viable for the same reason as the simultaneous existence >of gold and silver as money in the same market space. > >Claus. > > > >>> >>> I am. Some sum of money, say $1000, has to stay constant as a >>> quantity not of one commodity but a basket of commodities--e.g. x >>> barrels of oil, y oz of gold, and z bushels of grain. This is >>> probably what Greenspan aims to do more than maintain price stability >>> per se. And this is what Greenspan has to do if he wants the dollar >>> to remain the closest appromixation to world money (and thus preserve >>> the attendant privileges to the US financial sector and US govt). So >>> just as Greenspan seems to be running a modified gold standard, I >>> subscribe to a modified Germer theory of commodity money. There can >>> at best be a partial dissolution of the fetishistic commodity basis >>> of money as long as capitalist relations of production prevail. To >>> maintain the commodity basis of and the constant value of the dollar, >>> Greenspan has to sacrifice the economy at the altar not of gold but >>> a basket of things. >>> >> >> Rakesh, how would you determine the MELT (the money new-value produced per >> hour of socially necessary labor-time) in your suggested case that money >> is a "basket" of commodities, rather than a single commodity? >> >> "The quantity of labor-time required to produce a unit of a "basket" of >> commodities" makes no sense, because a basket of commodities HAS NO UNIT, >> in physical terms. >> >> Fred, >> This may be a serious problem but I don't see it yet. Please take this as >> an >> attempt to think aloud. I am not committed to these positions. >> >> >> >> If $1000 is set equal to x barrels of oil, y oz of gold, and z bushels >> of >> grain (and I am assuming that Greenspan aims to maintain the value of >> dollar >> as just that over the medium term) and the socially necessary abstract >> labor time required to produce that basket then decreases--say it took >> 1000 >> hours and now only takes 500 hours--then the MELT changes correspondingly, >> no? Before $1000 represented 1000 hours; now it represents only 500 >> hours.The MELT (the money new-value produced per hour of socially >> necessary >> labor-time) has thus increased: 1 hour of labor now adds $2; before 1 >> hour >> added only $1. $1000 only purchases half the labor time that it used to: >> Foley's value of money has thus decreased. >> >> Now say someone produced cuisinarts. It once took him 50 hours to produce >> one; now it only takes 40 hours. The cuisinart would have inititally cost >> $50 at the old MELT; now it will cost $80 at the new MELT. The cuisinart >> is >> now more expensive in money terms even though its production now takes >> less >> time in absolute terms. If the cuisinart now only took 15 hours to >> produce, >> its price would be $30 at the new MELT. Of course if it now took 25 hours >> to >> produce, its money price would not have changed at the new MELT. >> >> >> If Greenspan had to stick to a gold standard, how would things work out? >> Say $1000 is set to w oz of gold. Where it once took 1000 hours to mine > > that >> amount of gold, it now takes 1500 hours in the mines that have not been >> tapped out. The MELT (the money new-value produced per hour of socially >> necessary labor-time) would now be 67 cents. $1000 would now purchase 1.5 >> x >> the labor time that it purchased before. The MELT has decreased; the Foley >> value of money increased. >> >> The cusinart that now took 15 hours to produce would only sell for $10 at >> the new MELT. The money price would have just crashed; cuisinarts had been >> selling at $50 given the old level of productivity at the previous MELT. >> Under such a money standard debts contracted at an earlier time would >> probably become intolerable. >> >> For this reason, the gold standard is impractical. >> >> >> >> I am just proposing a hypothesis of how Greenspan may be conducting >> monetary policy with an eye to sensitive commodity prices. >> >> I have not understood Allin's objections to the thesis that to measure >> value >> money has to be a commodity--they may of course be persuasive. Claus' >> theoretical points seem persuasive to me at this point. So I am just >> trying >> to figure out the different ways in which money could still be understood >> as >> a commodity in a world of fiat, non covertible money >> >> Yours, Rakesh >>
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