Theresa May's approach to the Brexit negotiations is bizarre. She and Chancellor Hammond do not seem to realise that the UK is a supplicant in these negotiations. Like a large part of those who voted for Brexit, they seem to be under the delusion that the Britain is still some significant global power as it was at the height of its colonial empire, able to dictate terms to others. But, the real situation was shown by the fact that her and Hammond's only threat to the EU was that if she didn't get what she wanted she would turn the UK into some kind of Third World banana republic, rather like Batista's Cuba of the 1950's, but without the sunshine. The other thing that showed Britain's true state in the world was Michael Gove's grovelling interview with Donald Trump, where it was clear that the Tories are prepared to prostitute the UK in order to obtain the favours of anyone who might give them a handout.
The only thing more bizarre than the position adopted by May and Hammond is the position taken by Labour. How on Earth could Keir Starmer believe that May's statement on Monday amounted to her not calling for a hard Brexit? And that confusion was continued by other Labour spokespeople, including Emily Thornberry. The line seems to be, May says she wants access to the single market, and so on that we also see as important, so although we don't think she can get it, we will support her stance."
That is daft, and confused. The fact is that everyone knows that Britain is not going to get unrestricted access to the single market, and it will be impossible to be in the Customs Union, or even have some half in half out position. Labour has a duty to workers to say that the Tories position is untenable, rather than allow them to be misled and taken down the garden path for the next two years. But, the Tories position starts from opposition to immigration. Everything else follows from that, and Labour has now been drawn into tailing them.
But, Labour's starting point should be the demand for free movement of workers, as the basis for building EU wide workers solidarity. But, Labour as an electoralist party is also limited by those same colonial mindsets that are behind the Tories bizarre stance. The racist, nationalist arrogant attitudes that the Tories carry forward into the negotiations originally came from the old Mercantilist ruling classes that created the British Empire, but a large reservoir of those ideas necessarily resides within the working-class, as the largest social class. It is also why those ideas were able to roll over far larger, more ideologically sound socialist and social-democratic parties in World War I and II.
The Tories have no difficulty accommodating to those reactionary ideas, it is what they are based on, but those ideas create a contradiction for Labour. As a social-democratic party, its basic function is to create the conditions that facilitate the growth of socialised capital, and that requires a growth of the kind of larger economic bloc, regulation of the market and so on that the EU represents. A central aspect of capital accumulation for such large-scale socialised industrial capital, is the sweeping away of restrictions, and frictions such as those caused by those old reactionary concepts that lead to racism, sexism and so on.
But, Labour has to contend with the fact that large numbers of workers remain in the thrall of those old ideas that were handed down from the old colonialist past. In order to win elections, it is then led to pander to those ideas, rather than to fundamentally challenge them. So, Labour is then led into all sorts of contradictions and idiocies trying to square the circle, trying to pretend that there can be "non-racist immigration controls", and so on.
Now is the time for socialists to be clear, But so far what is being offered lacks any clarity or consistency whatsoever.
How would you respond to the argument that free movement of labour is a bad thing because it allows firms to shift the costs of spatially matching the workforce to the jobs off themselves and onto the workers?
ReplyDeleteAn example quoted was that German car manufacturers established factories in Eastern Europe (to take advantage of lower wages there) before those countries joined the EU, but that once those countries did join, the eastward movement of jobs was replaced with a westward movement of workers, which led to Western Europe becoming overcrowded while Eastern Europe was progressively depopulated.
Do you want to discuss Boffy?
ReplyDelete“… regulation of the market and so on that the EU represents...”
(Boffy)
Are you demanding regulation to make sure that the movement of capital and labour are free from regulation!
Or what regulation of the market, and so on, are you demanding?
If I am for a larger economic block does it follow then that I am for greater regulation?
George,
ReplyDeleteA bad thing for who? It is not a bad thing in the case you gave for those eastern European workers who were able to move to where there were better paying jobs.
The notion also of matching workers to jobs, and the associated concept of "overcrowded" is false. It assumes that there is a fixed number of jobs (and/or resources) that are then shared out. Marx showed long ago why that idea is wrong, as I've discussed elsewhere. The additional workers who move into the economy, are also additional consumers of commodities, which creates an increased market, which encourages additional investment of capital, which creates additional jobs, and because capital only employs additional labour when that labour produces a surplus value, the additional surplus value provides additional revenue for capitalists, landlords, and the state, which creates additional demand and so on.
Moreover, a part of the additional surplus value instead of being consumed as revenue is instead used to accumulate additional capital, which creates additional jobs, which creates additional revenues, and surplus value. As Marx sets out in Capital III, this continual increase in population is the basis of extended reproduction as set out above.
In Germany, for example, which has taken in by far the most refugees in the last year or so, its economy has grown the most in response, and it has near full employment.
And, as I have set out elsewhere, in most countries there is no "overcrowding". Certainly there isn't in Germany. In Britain, a greater proportion of the land area is taken up by gold courses than by residential housing (about 1.5%). Even taking into consideration all urban land use for housing, industry, commerce, schools, roads etc, only around 10% of the land area is developed, and as I have again set out the additional immigrant workers, just like any additional workers from domestic growth of the workforce are the basis of increasing the resources available. In other words, resources such as coal are the product of workers digging them from the ground, resources such as food are the product of workers cultivating and harvesting them, resources such as education and healthcare are the product of workers providing them. They are not a fixed amount that is shared out, but increase as the numbre of workers available to produce them increases.
STD,
ReplyDeleteI'm not demanding anything in that regard. I am pointing out as marx does that capital goes through a process of development, and Marxists are in favour of that development occurring as quickly as possible as the basis for a transition to socialism.
Regulation of the economy is a natural aspect of socialised capital, as a means of trying to provide the most stable long term conditions in which capital accumulation can take place effectively. That is also easier to achieve on the basis of larger economic units such as the EU. But, its also why where such larger economic blocs are not possible to establish, capital after WWII attempted to create para state, international bodies such as the IMF, World bank, GATT (WTO) to create such regulation.
George,
ReplyDeleteA further point. I'm not sure your points in relation to Germany apply. Germany was always able to obtain migrant labour from Turkey, rather than needing to invest capital in other countries. In fact, since former Eastern Bloc countries joined the EU, there has been a large rise in investment by German capital into those countries. For example, VW bought up Skoda in the Czech republic and Slovakia, and has since then invested heavily in recapitalising the production in those countries.
The point here is that free movement of capital allows the capital to go to where it can be used most effectively, and thereby produce the most surplus value, which creates the conditions for a more rapid accumulation of capital, which means more workers can be employed, and higher wages can be paid. In the eastern bloc, workers were employed inefficiently, productivity levels were very low, little surplus value was produced, so the potential for economic growth was reduced, and so the potential for employment was restricted, and the potential for raising real wages was reduced to near zero, which is why those economies collapsed.
I just saw your link and argument George.
ReplyDeleteFrom your argument on your forum I see that you don’t want to: “… treat workers as little more than a commodity…”
Trouble is that the worker is less free to move than a commodity. A commodity is freer to move than a worker. The worker must first win the freedom to move as freely as a commodity. Only then can the worker win the freedom to move freer than a commodity.
Workers doubt that workers have the know-how to run stuff. So workers believe that they need a ruling class to control how workers move. One of the things which workers can do to remedy this is to work to simplify the way to run stuff. In that way workers can gain the experience and know-how themselves to run stuff. In that way workers can eliminate the need for a ruling class.
It is a question of who the worker should believe in.
Should the worker believe in professional politicians labour and capitalist who are exploiting the worker?
Or should the worker believe in the worker?
Thanks Boffy,
ReplyDeleteThere’s a lot in what you say.
I’m pleased to say that lots of workers are demanding their say. To say something one way or the other about the changing need for “regulation” we need at least to know what regulation. I can try to guess what you mean but I still don’t know what regulation – hence my question.
STD,
ReplyDeleteIn the 19th century, as Marx describes in detail, the initial process of industrialisation takes place with masses of available potential labour-power to utilise. Capital uses this potential labour-power very wastefully. Life expectancy for workers was slashed to about a third its previous level. Eventually, this apparently limitless supply itself was used up, as marx describes in Capital I, quoting the speech of William Ferrand in Parliament.
Individual capitalists, like Wedgwood recognised the danger and the problem, that unregulated competition would destroy the very labour they required to produce surplus value, which would thereby undermine capital itself. So, as Marx says the establishment of a normal working-day, which itself can be objectively determined, becomes transformed into a legal requirement to regulate the activity of capital for the interests of capital in general. The establishment of Factory Acts to control the conditions under which workers work, has a similar effect.
But, what applies within the confines of national economies in the 19th century applies to the global economy today. Unregulated competition between different capitals within a national economy can become unregulated competition between capitals based in different national economies,which thereby creates the need for wider regulation, so as to establish level playing fields within which capital operates optimally.
By the end of the 19th century, private capital was being replaced by very large-scale, socialised capital. Its programmes for productive investment were so huge that they could only rationally be conceived as long-term investment plans, stretching out over several years, with the life expectancy of fixed capital becoming more and more extended, and with capital also needing to incorporate plans for financing such investment, for marketing the output and so on. This is not longer the small scale private capitalism of the 16th-19th century, which responds to every small movement in market prices, and levels of demand. It is increasingly a capitalism that seeks to maximise long-term profits, precisely by operating within an increasingly planned and regulated environment.
The introduction of central banks at the start of the 20th century was a part of that increasing regulation and planning. Oligopolies hate falling nominal prices, because they undermine profits. An oligopoly may not raise its prices when its competitors do, but they almost always cut their prices when their competitors do. Falling nominal prices creates such conditions. The job of central banks was to regulate the supply of money tokens so as to ensure that nominal money prices did not fall (deflation).
They thereby also created the necessary conditions for Fordism, whereby nominal wages rose year on year, but always actually by less than the rise in productivity, so that although real wages also rise, the rate of surplus value also rises, creating the basis for the rate and mass of profit to rise. It is also why this large scale socialised capital comes to an accommodation with trades unions, which via collective bargaining regulate this annual rise in nominal wages, and also facilitate the rise in productivity. There were some good articles in Capital and Class in the 1980's about how US unions welcomed the role of the Taylorists.
The Welfare State, regulates the supply of concrete labour-power. The education system churns out the right kinds of concrete labour-power to meet the immediate needs of capital; during periods of slower growth it can reduce the resources going for that purpose, and vice versa. The same applies to the provision of healthcare. The huge state sector of the economy acts as an automatic stabiliser to regulate the level of aggregate demand, required by this large scale capital, to facilitate the realisation of surplus value once produced etc.
I‘ve been checking on Google. At the start of the 20th century capitalists could still exchange pounds for gold at a legally fixed weight. So how then could the Bank “regulate the supply of money tokens so as to ensure that nominal money prices did not fall (deflation)”? The Bank of England did abandon the gold standard but due to the emergency of war. And the Bank returned to the gold standard in 1925. Once more the Bank abandoned the gold standard in 1931. But nor was that to “regulate the supply of money tokens so as to ensure that nominal money prices did not fall (deflation)” It was rather because the Bank was running out of gold.
ReplyDeleteThere’s no one right way to make capital operate optimally. The right way must change for different classes and for the same class at different times and places.
A century ago the iron and steel capitalists in Birmingham hoped to profit from supplying the materials for building great foreign railways and such. Birmingham was for war. In Manchester the textile capitalists were also concerned about foreign markets but for their textiles. They were for peace. Which class of exploiters should we side with? Should we side with what capital needs? What is that? Or should we rather consider what the worker needs?
As soon as possible workers must learn to take responsibility. It is nuts to allow bosses responsibility for the regulation.
You are confusing two different things, and making a similar mistake as that made by Ricardo as discussed by Marx in A Contribution to The Critique of Political Economy. The Gold Standard effectively set the exchange rate of sterling against the dollar and other currencies by making each equivalent to a certain quantity of gold. But, that does not change the amount of money tokens put into the economy, or its equivalent in terms of bank credit.
ReplyDeleteMarx describes the situation in the 19th century whereby the Bank of England determined how much currency to put into circulation to meet the needs of commodity circulation. He discusses the situation in relation to both gold and silver money tokens, and paper tokens. The issue is over how much of these tokens are put into circulation in excess of what is required to function as money.
You are right that there is no one way that functions as optimal for all capitals. That is why as Marx says, the state operates as an Executive Committee of the ruling class, and operates in the interests of capital in general, not any particular section of capital. But, what remains true as Marx says in Capital I, for all Capital is that what it requires is a level playing field within which to operate, and what applies for all large scale capital, which becomes the dominant form, is for that level playing field to also provide stable conditions for investment over long periods, and preferably on an ever wider global basis.
Its not a matter of siding with capitalists, but of opposing those measures which as Marx says in criticising Sismondi, and supporting Ricardo, inhibit the most rapid accumulation of capital, and development of the working-class. Those conditions which bring about the most rapid accumulation of capital, not only benefit workers in the short term, by creating higher levels of employment and living standards, but they also create the conditins for workers to develop socialised forms of capital, as the transitional form of property to the co-operative commonwealth.
In the 1900’s even if the Bank of England could have affected prices by making the £5 note buy just say £4 worth of goods then what would have happened? The capitalist class would have demanded the legally fixed weight of gold in exchange for £5 notes.
ReplyDeleteI knew you took the worker’s side. A free worker owns the means to work 1) alone to use small means to work 2) as a co-op to use big means to work.
Know-how is also a means to work. The worker is not free so long as the regulating is monopolised by bosses. Then the experience and know-how of regulating are also monopolised by bosses.
I trust you will agree that the worker needs to gain in experience and know-how and to become the regulator.
Theoretically, the owners of bank notes could have gone to demand gold, but they generally didn't because what they required was currency not the commodity gold. This is the mistake that Ricardo also made, as described by Marx of not recognising the difference between gold as money and gold as commodity. As Marx describes in "A Contribution" gold and silver coins also circulated at face values far different from their actual value in terms of gold or silver content. In other words, they were only money tokens that nominally represented a given weight of gold or silver. Its for that reason they can be replaced with other tokens to fulfil that function, such as copper, zinc, or paper that are much cheaper to produce, and thereby release capital for productive purposes.
ReplyDeleteAs Marx says about Scotland there had been a marked reluctance for its population to use gold, preferring instead to use paper banknotes for currency. The 1845 Bank Act, which mirrored the 1844 Act, was seen as an imposition in Scotland. As Marx and Engels describe in Capital III, even with the 1844 Bank Act, which related the issue of bank notes to the gold reserves, it was never a one to one relation, and when the Act, led to the credit crunches of 1847 and 1857, because not enough notes entered circulation, the Act itself was suspended so that more notes could be thrown into circulation by the Bank of England.
The concept of a free worker is used by Marx to refer to the condition whereby the labourer is not themselves owned, as is the case with a slave or serf, or indentured apprentices etc. He makes a similar comparison with those who are legally committed to very long contracts of employment. But, Marx's definition of a free worker is one who is free to negotiate the terms of the sale not of themselves, but of their labour-power, in the market as with any other commodity, and thereby to obtain the value of that commodity, i.e. the value of their labour-power, as wages. The defining characteristic of capitalism is that not only is the free labourer able to sell this commodity labour-power in the market, but as they have no other commodity to sell, they must sell this commodity in order to live, and given the specific nature of this commodity as factory labour, it can only be sold to the capitalist owners of factories.
I agree that the worker needs to gain experience in all spheres, not just of the tasks of manual and mental labour, but also of supervision, organisation, management etc. so as to be able to control and regulate the labour process, and social reproduction. That is the significance of the period of transitional development whereby workers develop workers co-operatives,a nd other forms of socialised capital.
But it wasn’t just old worn out thin under-weight gold coins nor the much cheaper to produce copper, zinc, or paper.
ReplyDeleteIt was the legally fixed exact weight and quality of the gold which the Bank was exchanging for banknotes which made gold money.
Please say if I’m not clear in what I mean by a free owner worker.
Workers (rather than co-op bosses) control the free co-ops but do you mind how trade union bosses control the trade unions and political bosses control the political parties? If workers gain by controlling then why control co-ops only?
The point was that what people wanted was merely the token of value so as to be able to use it as currency. If the value of paper tokens is devalued, it does not matter if the owner of such a banknote exchanges it for an ounce of gold. When they exchange the ounce of gold for a banknote, they will simply get back the banknote they initially handed in to get the ounce of gold. Because the paper money prices of all other commodities will have risen, and an ounce of gold is equal in value to say £1 (fixed), the same as the face value of a £1 bank note, they will have to hand over more ounces of gold (£'s) to obtain those commodities.
ReplyDeleteThen there is the question of credit money, of the velocity of circulation and so on.
Of course, I think that workers should exercise control over all aspects of their life. I don't see what this has to do with Marx's definition of free labour.
1) You say:
ReplyDelete“… If the value of paper tokens is devalued…”
If the tokens were Not convertible for a legally fixed weight of gold then that is something which we are not discussing for the 1900’s.
The tokens were convertible for a legally fixed weight of gold.
Your problem would be to show gold holding its value and yet devaluation of the tokens.
2) To be clear:
A free worker owns the means to work.
That is not the same as a free wage labourer in a capitalist firm.
"The worker is free only when he is the owner of his instruments of labour – this can be the case either in individual or in collective form; the individual form of ownership is made obsolete by the economic development, and more so with every day; hence there remains only that of collective ownership."
(Marx)
Where I was saying the worker’s side I was thinking of demystifying politics; more democracy; the worker saying his say and taking more of a part. Workers from either side of the Europe debate might unite for aims like that – all part of the broad economic and political trends which you are discussing here.
The value of gold does not change, the value of the tokens does as Marx illustrates in "A Contribution".
ReplyDeleteI think the terminology around free worker and free labour is being used differently to convey different ideas. Yes, in terms of the emancipation of the working-class that is only possible in terms of the situation that Marx describes in the quote, but when Marx talks about free labour, as opposed to slave/serf labour etc. he is talking only about the ability of the worker to sell their labour-power freely in the market.
I see what you mean about the word free.
ReplyDeleteOn the other point I’m not sure exactly where to look in "A Contribution".
The value of gold does not change since you said:
“... The value of gold does not change, the value of the tokens does...”
Ok then let:
1 roll of cloth
1 coat
Etc... Each = 1/4 ounce of gold.
You need to exchange 1/4 ounce of gold for the cloth.
Next suppose you do not have 1/4 ounce of gold. All you do have is a £1 banknote which you think no one will accept for the cloth (because you said the £1 banknote is devalued).
I can only repeat:
Back in those days the Bank still had to exchange your £1 banknote for 1/4 ounce of gold. Everyone would accept 1/4 ounce of gold for the cloth.
This is the mistake that Ricardo makes, and which Marx describes in "A Contribution". It isn't 1/4 ounce of gold that is exchanged for the cloth in a money economy. Its a gold coin, a token, currency, which exchanges for the cloth. What the rate of exchange of these coins/tokens for cloth then is, will no longer be determined by the value of gold to cloth, but by the volume of such coins put into circulation relative to the value of commodities the currency has to circulate.
ReplyDeleteIf the total value of commodities to be circulated is equal to say £1 million, and say each gold coin has the name £1, and if the velocity of circulation is equal to 1, there is no credit money and so on, then 1 million coins need to circulate. If 2 million gold coins are put into circulation, the supply of coins will exceed what is required for circulation, and the value of the currency/the money tokens will halve - even though the value of the gold in the token is unchanged.
As Marx says, the consequence is then that the money price of commodities doubles, and the gold tokens get hoarded, and melted into bullion, which now has a higher value than the gold coin. But, as Marx says, with paper tokens this latter part cannot occur. The paper has no value of itself, so it cannot be hoarded or converted into an underlying commodity. The paper continues to circulate, and the money prices of commodities continues to be inflated as a result.
Incidentally, what the Bank exchanged was a £1 banknote for a £1 gold coin, and as illustrated the £1 gold coins could just as easily be in excess supply, causing inflation. In fact, three are lots of historical examples, of where gold came into an economy, for example loot from South America, which was then minted into coins thrown into circulation, and inflation resulted.
ReplyDelete“How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given. The number of pieces of paper with a denomination of £5 which could be used in circulation would be one-fifth of the number of pieces of paper with a denomination of £1, and if all payments were to be transacted in shilling notes, then twenty times more shilling notes than pound notes would have to circulate. If gold coin were represented by notes of different denomination, e.g., £5 notes, £1 notes and 10s. notes, the number of the different types of tokens of value needed would not just be determined by the quantity of gold required in the sphere of circulation as a whole, but by the quantity needed in the sphere of circulation of each particular type of note. If £14 million were the level below which the circulation of a country never fell (this is the presupposition of English Banking legislation, not however with regard to coin but to credit money), then 14 million pieces of paper, each a token of value representing £1, could circulate. If the value of gold decreased or increased because the labour-time required for its production had fallen or risen then the number of pound notes in circulation would increase or decrease in inverse ratio to the change in the value of gold, provided the exchange-value of the same mass of commodities remained unchanged. Supposing gold were superseded by silver as the standard of value and the relative value of silver to gold were 1:15, then 210 million pound notes would have to circulate henceforth instead of 14 million, if from now on each piece of paper was to represent the same amount of silver as it had previously represented of gold. The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.”
ReplyDeleteCont'd
"The intervention of the State which issues paper money with a legal rate of exchange – and we speak only of this type of paper money – seems to invalidate the economic law. The State, whose mint price merely provided a definite weight of gold with a name and whose mint merely imprinted its stamp on gold, seems now to transform paper into gold by the magic of its imprint. Because the pieces of paper have a legal rate of exchange, it is impossible to prevent the State from thrusting any arbitrarily chosen number of them into circulation and to imprint them at will with any monetary denomination such as £1, £5, or £20. Once the notes are in circulation it is impossible to drive them out, for the frontiers of the country limit their movement, on the one hand, and on the other hand they lose all value, both use-value and exchange-value, outside the sphere of circulation. Apart from their function they are useless scraps of paper. But this power of the State is mere illusion. It may throw any number of paper notes of any denomination into circulation but its control ceases with this mechanical act. As soon as the token of value or paper money enters the sphere of circulation it is subject to the inherent laws of this sphere.
ReplyDeleteLet us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for a total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it was brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise of prices would be merely a reaction of the process of circulation, which forcibly placed the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation."
(A Contribution to the Critique of Political Economy, Chapter 2)
"In the circulation of tokens of value all the laws governing the circulation of real money seem to be reversed and turned upside down. Gold circulates because it has value, whereas paper has value because it circulates. If the exchange-value of commodities is given, the quantity of gold in circulation depends on its value, whereas the value of paper tokens depends on the number of tokens in circulation. The amount of gold in circulation increases or decreases with the rise or fall of commodity-prices, whereas commodity-prices seem to rise or fall with the changing amount of paper in circulation. The circulation of commodities can absorb only a certain quantity of gold currency, the alternating contraction and expansion of the volume of money in circulation manifesting itself accordingly as an inevitable law, whereas any amount of paper money seems to be absorbed by circulation. The State which issues coins even 1/100 of a grain below standard weight debases gold and silver currency and therefore upsets its function as a medium of circulation, whereas the issue of worthless pieces of paper which have nothing in common with metal except the denomination of the coinage is a perfectly correct operation. The gold coin obviously represents the value of commodities only after the value has been assessed in terms of gold or expressed as a price, whereas the token of value seems to represent the value of commodities directly. It is thus evident that a person who restricts his studies of monetary circulation to an analysis of the circulation of paper money with a legal rate of exchange must misunderstand the inherent laws of monetary circulation. These laws indeed appear not only to be turned upside down in the circulation of tokens of value but even annulled; for the movements of paper money, when it is issued in the appropriate amount, are not characteristic of it as token of value, whereas its specific movements are due to infringements of its correct proportion to gold, and do not directly arise from the metamorphosis of commodities."
ReplyDelete(ibid)
Thanks,
ReplyDeleteI’m not a fast reader.
If the total prices of commodities circulated in one day are £1m and each gold £1 coin moves 1 time then there cannot be 2m x £1 coins circulating. There is then just 1m x £1 coins circulating.
When a sale does not lead at once to the next purchase the coin stops circulating.
1m coins circulating plus a further 1m coins just sitting around = 1m coins circulating.
That will cause no inflation.
Not true, as Marx sets out, and provides historical evidence of. The owners of the 2 million coins, seek to use them for the purpose they exist, i.e. their use value as currency. So, they throw them into circulation to demand other commodities, and the consequence is that the exchange value of each coin is halved, relative to other commodities, so that the price of other commodities doubles - inflation.
ReplyDeleteIt is no different to the point Marx makes in Theories of Value about the exchange of commodities. Its never just a matter of the value of the commodities being exchanged, but also of demand and supply, of each of the commodities being exchanged.
“Here a great confusion: (1) This identity of supply, so that it is a demand measured by its own amount, is true only to the extent that it is exchange value = to a certain amount of objectified labour. To that extent it is the measure of its own demand -- as far as value is concerned. But, as such a value, it first has to be realized through the exchange for money, and as object of exchange for money it depends (2) on its use value, but as use value it depends on the mass of needs present for it, the demand for it. But as use value it is absolutely not measured by the labour time objectified in it, but rather a measuring rod is applied to it which lies outside its nature as exchange value.”
That measuring rod, is of course, the ability to meet the needs of the buyer, i.e. its utility for that buyer. Supply is determined by exchange-value, whereas demand is determined by use-value. Physical production has to be continually expanded to reduce individual value below social value, but Marx points out that just because producers supply increased physical quantities to market, consumers have no reason to consume these increased physical amounts, just because they represent the same amount of value, i.e. he understands elasticity of demand.
“The value supplied (but not yet realised) and the quantity of iron which is realised, do not correspond to each other. No grounds exist therefore for assuming that the possibility of selling a commodity at its value corresponds in any way to the quantity of the commodity I bring to market. For the buyer, my commodity exists, above all, as use-value. He buys it as such. But what he needs is a definite quantity of iron. His need for iron is just as little determined by the quantity produced by me as the value of my iron is commensurate with this quantity.
It is true that the man who buys has in his possession merely the converted form of a commodity—money—i.e., the commodity in the form of exchange-value, and he can act as a buyer only because he or others have earlier acted as sellers of commodities which now exist in the form of money. This, however, is no reason why he should reconvert his money into my commodity or why his need for my commodity should be determined by the quantity of it that I have produced. Insofar as he wants to buy my commodity, he may want either a smaller quantity than I supply, or the entire quantity, but below its value. His demand does not have to correspond to my supply any more than the quantity I supply and the value at which I supply it are identical.”
(Theories of Surplus Value 3)
If too much of the money-commodity is supplied and thrown on to the market, relative to the value of commodities for which it exchanges, then as Marx sets out above, the exchange value of the money-commodity will fall, irrespective of any change in its own value, and that is true also of money tokens acting as currency, whether those tokens are gold coins or paper notes.
Money as a commodity is not the same as money as a token. Your quotations in your replies show it. Suppose that we used plain decorator’s wall paper for money. Then 1 roll of wall paper = half of 2x rolls. But next suppose we use paper as a token. It does not follow now that the £1 paper banknote = half of the £5 paper banknote. Why? The law says so and also because £5 paper banknotes have different writing on them.
ReplyDeleteIf THIS 1/4 once gold coin = 5x THAT 1/4 once gold coin just because the law said so and the coins had different writing on them then gold would in that case be just a token.
For some reason you are over generalising and so mixing-up money as a commodity and money as a token by slurring over the difference. Maybe you are not giving yourself time to think. You need now to talk about the difference.
As you are a reader of Marx you read it in Capital that (in the scientific sense) the law of paper money tokens is that the issue of paper money must not exceed the amount of gold that would circulate if there were no paper money.
There is then always some amount of gold that would circulate if there were no paper money.
That law makes sense. I mean it makes sense as we think of the difference between money as the gold commodity and money as the paper token.
That law would be nonsense if there was no difference and money was always a token.
For the reasons that Marx sets out, in "A Contribution" money in the shape of a gold coin etc. always is a token, and as Marx describes, this is shown by the fact that a 1 ounce gold coin that circulates with the name £1, continues to circulate as a token of that much value, whether or not the actual gold coins in circulation continue to actually contain 1 ounce of gold.
ReplyDeleteThe determining factor, as Marx sets out, is not whether this token actually continues, or ever does contain that weight of gold, but whether the quantity of such tokens in circulation, and thereby representing the corresponding amount of money/value/labour-time is more or less than is required to act as currency, i.e. to circulate the corresponding mass of commodities.
If more of these tokens is put into circulation, even if they contain the full weight of gold, then those tokens will be devalued as currency, and the money prices of commodities will thereby be inflated. Even if the gold content of such tokens falls by 20%, they will continue to circulate the previous value of commodities, provided that the mass of tokens put into circulation is not increased. And, for that same reason, if the gold tokens are replaced by paper tokens, the same thing will apply.
"What was originally an insignificant divergence of the nominal content from the actual metal content of metallic currency can therefore reach a stage where the two things are completely divorced. The names of coins become thus detached from the substance of money and exist apart from it in the shape of worthless scraps of paper. In the same way as the exchange-value of commodities is crystallised into gold money as a result of exchange, so gold money in circulation is sublimated into its own symbol, first in the shape of worn gold coin, then in the shape of subsidiary metal coin, and finally in the shape of worthless counters, scraps of paper, mere tokens of value.
But the gold coin gave rise first to metallic and then to paper substitutes only because it continued to function as a coin despite the loss of metal it incurred. It circulated not because it was worn, but it was worn to a symbol because it continued to circulate. Only in so far as in the process of circulation gold currency becomes a mere token of its own value can mere tokens of value be substituted for it." (A Contribution)
In other words, its clear that even with gold coins, those in circulation do have different gold content, either because of wear and tear or deliberate clipping, and yet this does not prevent these gold coins of different weights still circulating as an equal amount of value, equal to their nominal face value, precisely because it is backed by law.
And, for this reason as Marx sets out the value of gold coins can and does fall below the value of gold bullion, as well as because too many coins are put in ciruclation.
You say:
ReplyDelete“... Even if the gold content of such tokens falls by 20%, they will continue to circulate the previous value of commodities, provided that the mass of tokens put into circulation is not increased. And, for that same reason, if the gold tokens are replaced by paper tokens, the same thing will apply...”
Yes exactly.
In Marx as I already said: The law of paper money tokens is that the issue of paper money must not exceed the amount of gold that would circulate if there were no paper money.
You have not yet got to my point:
According to Marx’ law of paper money there’s a given amount of gold that would circulate if there were no paper money.
If the sum of prices circulated in one day add up to £1m and if each gold £1 coin moves 1 time then that adds up to 1m x £1 coins circulating.
Under-weight, clipped, worn or reject coins end up as no longer legal.
As some will use credit so you will want fewer coins.
But in fact there remains a given amount.
Here Marx’ law does not say that the issue of paper money must not exceed the amount of gold that would circulate – but by-the-way there is no given amount that would circulate.
What would that mean?
That would be sheer nonsense.
Nor does Marx’ law say that money is always just tokens and that the law of money tokens is that the issue of tokens must not exceed the amount of tokens that would circulate if there were none.
What would that say to you?
It would just be still more nonsense.
All such nonsense melts away only when we see the difference between gold and paper money.
Let’s be clear. In Marx as I said: The law of paper money tokens is that the issue of paper money must not exceed the amount of gold that would circulate if there were no paper money.
1. The point being as Marx says that whether the coins are full weight or under weight they act as tokens of value. The value they represent as such a token then has nothing to do with their actual content, but with the quantity of them in circulation relative to the quantity of value they nominally represent.
ReplyDelete2. If 1 million gold coins are required to circulate £1 million of commodities, but 2 million coins are put into circulation, then the value of each coin as a token of value will halve, and this will be reflected by the fact that the nominal price of commodities will rise to £2 million. The same would apply if the face value of the coin was raised to £2, whilst 1 million of them were in circulation.
3. Marx's point is that the coins continued to act as a representative of their full value, even though they had been seriously worn or indeed had been clipped. He quotes Benjamin Franklin to that effect.
“At this very time, even the silver money in England is obliged to the legal tender for part of its value; that part which is the difference between its real weight and its denomination. Great part of the shillings and sixpences now current are by wearing become 6, 10, 20, and some of the sixpences even 50%, too light. For this difference between the real and the nominal you have no intrinsic value; you have not so much as paper, you have nothing. It is the legal tender, with the knowledge that it can easily be repassed for the same value, that makes three pennyworth of silver pass for a sixpence."
Cont'd
4. Marx's law does say there is a given amount of value of gold money that needs to circulate given any value of commodities to be circulated, and given the velocity of circulation. The whole point being that if more gold money is put into circulation than this, the gold money tokens (coins) become devalued. Each gold coin becomes worth less than the value of gold it represents or contains. That is why, the gold coins then become converted into bullion, and sent abroad. But, its also why, as Marx says, that cannot happen when those gold tokens are replaced by paper tokens, which have no intrinsic value. The paper tokens then have to continue to circulate in excess so that the consequence is that the value of each token must fall, so that their total value is only equal to the value of currency required for commodity circulation.
ReplyDeleteThat is why, as I originally stated, central banks were established with control over the issue of paper currency, which enabled them to regulate inflation.
5. Marx does say that money as currency is always a symbol or token, even when that currency is itself a gold or silver coin, acting as a representative of a given weight of the money commodity. And its precisely for that reason that other tokens can take its place. As he says,
"Only in so far as in the process of circulation gold currency becomes a mere token of its own value can mere tokens of value be substituted for it."
I think you are going round in circles. I would suggest spending some time reading "A Contribution" carefully, because you are clearly confused on this matter. I would also read Chapter 3 of Capital I, which also deals with these issues, which may help to deal with your confusion.
You say:
ReplyDelete“... 4. Marx's law does say there is a given amount of value of gold money that needs to circulate given any value of commodities to be circulated, and given the velocity of circulation. The whole point being that if more gold money is put into circulation than this, the gold money tokens (coins) become devalued. Each gold coin becomes worth less than the value of gold it represents or contains. That is why, the gold coins then become converted into bullion, and sent abroad. But, its also why, as Marx says, that cannot happen when those gold tokens are replaced by paper tokens, which have no intrinsic value. The paper tokens then have to continue to circulate in excess so that the consequence is that the value of each token must fall, so that their total value is only equal to the value of currency required for commodity circulation...”
Agreed – I could have written that paragraph.
“... That is why, the gold coins then become converted into bullion, and sent abroad. But, its also why, as Marx says, that cannot happen when those gold tokens are replaced by paper tokens, which have no intrinsic value. The paper tokens then have to continue to circulate in excess so that the consequence is that the value of each token must fall, so that their total value is only equal to the value of currency required for commodity circulation...”
You are explaining the difference between gold coins and paper symbols correctly there.
How can I disagree?
I would only worry if you said:
That’s why, the gold coins cannot then become converted into bullion, and sent abroad because they are just the same as paper tokens, which have no intrinsic value. The gold then has to continue to circulate in excess so that the consequence is that the value of each gold coin must fall, so that their total value is only equal to the value of currency required for commodity circulation.
But I don’t see how you can say that. You are rather explaining the difference between gold coins and paper symbols. So you will not say that they are the same.
I hope.
Its a question of time. An excess of gold coins results in the value of each coin as a token of value falling, no different than if an excess of paper tokens are in circulation. The excess of the gold coins the same as with paper tokens results in the fall in the value of the token/coin.
ReplyDeleteThe coins do continue to circulate, and that is what causes the prices of all other commodities - including gold as a commodity - to rise relative to these gold currency tokens/coins. And that continues for a period of time, whose duration depends upon how long it takes, for those coins to be taken out of circulation, melted down into bullion and sent abroad.
Yes. In the 1900’s there was not more currency than there ought to be. The currency was not devalued. The amount of gold in circulation was self correcting. With gold as currency it is a question of time. Excess of gold currency goes back to what it ought to be. It depends on how long it takes to take those coins out of circulation, melt down into bullion and send abroad. The Bank of England abandoned the gold standard 1914-1925. So I guess that 1914-1925 (including 4 years of war) nothing much was correcting the amount of banknotes circulating. It was possible freely to increase above the amount. There was inflation 1914-1925 I think. There was then more banknotes in circulation than there ought to be. And what happened next? The Bank of England returned to the gold standard 1925. That meant the Bank did exchange the now devalued currency for gold and at the old ratio. Therefore the Bank was running out of gold and so again abandoned the gold standard in 1931.
ReplyDeleteI’m partly guessing but it should be possible to Google to see if the numbers/amounts fit as I find more time.
You seemed as though you were grasping Marx's concept, by now realising that even gold coins of full weight act as mere tokens of value, and that this means that they can circulate in excess, and then your last comment indicates you hadn't grasped it properly.
ReplyDeleteIt is not the fact of the gold standard, which determines that paper money is limited to the required proportion, as you have been arguing. The argument you are putting is the same argument that Ricardo put, and which was implemented in the 1844 Bank Act. As Marx shows that argument is false, and it is why the Bank Act had disastrous effects by limiting the issue of notes to its gold reserves, rather than to the value of gold that was required for commodity circulation,which then led to a credit crunch, which then led to the Act having to be suspended so that more notes could be put into circulation.
It was also faulty in the other direction, as Marx and Engels demonstrate, because at times, the Bank had large gold reserves, which would have meant that more notes could have been put into circulation than was required for the value of commodities to be circulated.
The fact that a note can be exchanged at the Bank for a gold coin of the same nominal value, or for gold bullion to be sent abroad to cover imported commodities, does not at all mean that too many notes cannot be put into circulation relative to the amount of gold money required for commodity circulation, and that consequently the value of these tokens will fall relative to the vale of the money they represent, so that commodity prices thereby rise. Nor does it mean that at times, too few of those notes will be in circulation relative to the amount of money required for circulation, so that the value of these tokens rises, there is deflation, money hoarding, a contraction of credit, rises in interest rates, and thereby a contraction of commodity circulation and economic activity.
It was precisely for this reason that as large scale socialised capital, requires regulation of the economy, at the end of the 19th century, start of the 20th century, central banks role is to prevent such deflation of prices, which is detrimental to the activities of olipolies.
I’m not sure what you mean. You cannot mean it’s is not the fact of the gold standard that given the chance people (in time) ship gold to where they get value for it? I’ve an open mind. Please share what really happened.
ReplyDeleteThe gold standard only fixed the exchange rates between currencies, i.e. Dollars to Pounds, each being fixed against a certain weight of gold. But, this does not prevent within an economy the quantity of money tokens, be they gold coins, silver coins, or paper notes being put into circulation that is more than or less than the amount of the money commodity required to circulate a given value of commodities within that economy.
ReplyDeleteThe difference between the gold or silver tokens, and paper tokens is that I have already set out following Marx's description in "A Contribution", Chapter 3 of Capital I, and his analysis of what was wrong with the Bank Act, based on Ricardo's erroneous theory of money, which made the same mistake you are making here of confusing the value of gold as commodity, and the value of gold coins as currency.
As Marx says, in that analysis, the difference is that, over time, an excess of gold coins, results in those coins being hoarded, melted down into bullion and then either sold for their gold content (for example to jewellers) or else exported, in exchange for foreign commodities, or used for foreign investment. That can happen because the gold as commodity has its own intrinsic value. As I've pointed out recently this could also be seen when a few years ago the price of copper soared, so that the value of copper in some UK 2p pieces was greater than the nominal value of the coin, so that if a ton weight of these coins was melted down, the copper was worth about £1,000 more than the nominal value of the coins. Incidentally, this shows why this is not a straightforward process, because you need to own a sufficient quantity of such coins to make it worth while melting them down, and it assumes you have the equipment to undertake such a process.
But, it is impossible to do this with paper tokens - and usually with other metallic coins that represent a fraction of the currency unit, as these coins are usually made from base metals - because unlike gold or silver they have no intrinsic value. If you bleached a paper note to remove the writing, and sell it as paper, it would have no significant value. And so, as Marx says, these notes continue to circulate. They do not get hoarded - in fact the time they get hoarded is not when they are in excess like gold coins, but when they are in short supply, and so when their value as currency rises sharply - instead they continue to circulate, but now with the value of each note depreciated. The total volume of paper currency then continues to represent the same amount of value, but with each note representing proportionally less value.
As the face value of each note remains the same, the fall in value of the note is manifest by the fact that the nominal value/price of all commodities rises, or may remain the same depending on whether the fall in value is greater or smaller than the depreciation of the currency, i.e. more of these notes with the same face value have to be given in exchange for them. In other words, even if the value of commodities circulating within the economy falls, as a result of rising productivity, so that money would have to be taken out of the economy to compensate, and the prices of each commodity, on average, falls as against gold, this can be avoided with paper money, because the quantity of paper money in circulation remains the same, whilst this volume of paper money represents now a smaller amount of value, so that the value of each note is smaller.
Cont'd
This can be seen quite clearly over the last 30 years. In the 1970's, through the 1980's, a massive amount of innovation occurred, in response to the profits crisis of the 1960's and 70's. The innovation was aimed at replacing what had become expensive labour-power, and also reducing the value of materials, particularly oil, or finding more efficient means of using them. The base technology around which this occurred was the development of the microchip, which in turn spawned a series of products based upon it that revolutionised production. The consequence of this revolution in production that occurred from the mid 1980's onwards, was to increase productivity massively. Not only was labour shaken out of a lot of production, but high wage, skilled labour-power in jobs like printing was replaced by unskilled labour, as things like photocopying, computer type-setting and so on were introduced.
ReplyDeleteThe value of fixed capital was massively reduced, and the value of circulating constant capital was also massively reduced. The computer chip also meant that things like fuel injection on car engines could replace carburetors. Oil usage was made many times more efficient,and so on. Not only did this massively increase the rate of profit from the mid 1980's onwards, but it also brought about a massive fall in commodity values. Yet, although the nominal prices of some commodities fell - for example, you could buy cheap clothes produced in China, compared to their former prices - general price levels did not fall. There was a continual inflation of prices year on year, despite the fall in commodity values. Nor could this be explained by a corresponding fall in the value of gold. It was explained by the fact that central banks continue to increase the volume of bank notes, and credit money put into circulation, so that the value of each money token fell, so that the nominal prices of commodities rose.
I have also explained in several posts, the mechanism by which in the last few years, the consequence of this is that these money tokens and credit find their way into the purchase of assets, which causes an asset price inflation, which then drains liquidity from commodity circulation, causing a disinflation of commodity prices, reduced levels of economic activity etc.
Thank you,
ReplyDeleteYesterday you brought in the view that the paper money which would circulate varies with gold reserves I think. You may show where Ricardo said that. I don’t know. But you cannot show where I said that.
Gold Currency
I said: If the sum of prices circulated in one day add up to £1m and if each gold £1 coin moves 1 time then that adds up to 1m x £1 coins that would circulate.
I hear people reminding us how some will use credit. Then fewer than 1m £1 gold coins would circulate. There’s a remaining amount.
Paper Currency
I said: The law of paper money is that the issue of paper money must not exceed the amount of gold that would circulate if there were no paper money.
We take it always that all events (turning gold currency into jewellery...) take time.
Nothing in what I said is my idea – I got it from Marx.
Did I appeal for my answer to gold that the Bank wants in reserve? No.
Is there some alternative and truer theory why I should change what I said? Did something happen why I should change what I said? Should I change from what I said to what you said? Why?
The law of paper money is that the issue of paper money must not exceed the amount of gold that would circulate if there were no paper money.
There is then an amount – a changing amount – of gold that would circulate if there were no paper money.
In notes there are now around £3,421m in circulation.
Due to that amount, and to the sum of prices circulated etc., so each cheap alloy £1 coin has the exchange value of just some small trace of gold.
That’s devaluation of the currency (compared with 1914).
That’s devaluation of the currency (in general).
Prices are higher – in general.
That’s inflation in – in general.
It is not deflation for coats and inflation for assets.
Continued
ReplyDeleteNo sorry I meant in 2014 notes and coins in circulation = £60261m
The point is that you got hung up on this idea that the notes in circulation CANNOT, any more than gold coins, circulate in excess so long as those notes can be exchanged for a fixed weight of gold, which for some reason you also associated with the gold standard, which actually only fixed the external value of the currency to other currencies.
ReplyDeleteThe point is that Marx shows that this is not true. Paper notes do not get hoarded when their value is depreciated as a result of being put into circulation in excess. Rather they get hoarded when the value of those tokens rises. As Marx sets out the excess paper notes continue to circulate in excess, and the consequence is that the actual value of each note is then depreciated relative to its nominal value, and this is reflected in the rise of the nominal prices of commodities.
Your point about the owners of such notes demanding to exchange them for gold as the basis for this mechanism preventing an excess circulation of notes is precisely the argument made by Ricardo that this circulation must then be related to the Gold reserves in the possession of the Bank, otherwise when the owners of those notes come to exchange them for gold, the Bank would be unable to comply!
"Due to that amount, and to the sum of prices circulated etc., so each cheap alloy £1 coin has the exchange value of just some small trace of gold.
That’s devaluation of the currency (compared with 1914)."
Actually, no that is not Marx's argument. Marx says it does not matter whether the gold or silver in a coin is reduced compared to the weight of gold it is supposed to contain. The gold or silver coin is only a token for a certain value of gold or silver which it nominally represents. Consequently, it does not matter whether this actual intrinsic value of the coin or token is diminished or not in terms of a devaluation of the currency. What diminishes the currency is the fact that more of it is put into circulation, so that each token be it a gold/silver coin/ base metal coin or paper is thereby devalued relative to the value of currency it nominally represents.
It wasn't the fact that rulers debased gold coins that caused a devaluation of the currency, but the fact that having debased them, they used the additional gold or silver to mint additional coins, so that the coinage in circulation was in excess of the value of the money commodity it represented. Its for that reason, as Marx describes by historical references, that over time, the relation between the names of gold and silver coins became totally detached from the weight of precious metal that originally gave them their names.
As far as deflation of commodity prices and inflation of asset prices, you are quite wrong again for the reason that Marx sets out. The monetary authorities can try to influence the general price level by issuing money tokens or credit in excess of the requirements of circulation, but having done so they lose all control over what then happens to that additional liquidity. So, if the liquidity goes into buying assets, whose prices appear to be on an endless rise, which provides the prospects of huge and guaranteed capital gains for the owners of those assets, it is understandable that the liquidity will go into the purchase of those assets, indeed then causing their prices to rise and so fulfilling the prophecy. But that drain of liquidity into the purchase of those assets then means that liquidity intended for general circulation for commodity purchase is restricted, and the consequence is a disinflation or even deflation of commodity prices.
I wrote one other comment before this one (a correction) which seems to be still in the post. I guess it will appear any time now.
ReplyDeleteYou are not getting what I’m saying.
When there is no paper money, just gold, then I’m classing that as gold standard.
When there is paper money and the Bank will exchange paper money for gold at a legally fixed weight then I’m classing that as gold standard.
Either way and whatever you call it people will do with the gold what they cannot do with paper. Gold has intrinsic value of gold. Paper does not.
I even shared an example with you where I thought the authorities had too much gold currency or too much currency that you could exchange for a legally fixed weight of gold 1931. But that was not the authorities trying to cause inflation. I don’t know of any example of the authorities trying to cause inflation that way. You have shared no example of that with dates. Would it work? No not in the long run it would not or CANNOT. Why? Once the face value of your gold currency shrinks people ship it to wherever they get full value, jewellers turn it into jewellery...
Pennies are no longer copper as people were melting them down for the copper. If 2017 £1 coins were gold are you saying that the same people would not melt them down for gold?
It’s as simple as that.
I put it this way:
If the sum of prices circulated in one day add up to £1m and if each gold £1 coin moves 1 time then that adds up to 1m x £1 coins that would circulate.
The law of paper money is that the issue of paper money must not exceed the amount of gold that would circulate if there were no paper money.
There is no inflation to speak of. Does that mean that some prices can’t rise or fall? No. why should it?
If the quantity of gold coins in circulation is 1.1 million, representing a nominal value of £1 million, those coins will continue to circulate, but the value of each coin will fall by 10%, manifest as a rise in prices of commodities of 10%. Will people melt down the coins to obtain the gold content, probably not, unless as with the example I gave of recent 2p coins, they own a vast quantity of such coins to make it worth the exercise. The vast majority of people who owned 2p coins whose copper value was greater than the face value of the coin did not melt them down, but continued to use them as 2p coins.
ReplyDeleteIf 1.1 million £1 bank notes are in circulation, which represent a nominal value of £1 million, the value of each note will fall by 10%, and this will be manifest in a 10% rise of prices. Will all the workers who obtain these £1 notes as their wages, go to the Bank of England and demand a £1 coin in its place (which would similarly only by £1 value of commodities, whose price was now £1.10) solely in order to melt this coin down, to obtain its gold content, and so as to sell the gold to a jeweller or to send it abroad.
Clearly they would not. Firstly they want the note for the same reason they wanted a gold coin. They wanted it as currency to be able to exchange for commodities, and as they need those commodities in order to live, that is not only their priority, but the necessity rather than messing around trying to arbitrage small amounts of gold, with a large transactional cost. Moreover, because the devaluation of the note results equally in a 10% rise in their wages, these devalued notes buy the same quantity of wage goods as before, so they are happy that they are no worse off.
Have you not heard of the Weimar hyperinflation of the 1920's?
Incidentally, 40 years ago, I did an econometric analysis of this using UK currency and commodity price data going back (I think) about 200 years. It showed a strong correlation between rises in the volume of currency in circulation with subsequent rises in commodity prices, lagged by 2 years, which is what would be expected given the time for the additional currency to work through the economy.
ReplyDeleteIf I have time, and can find the study, I will transcribe the data, and post it, but I'm not sure where the study is, so it may take a while.
Thank you,
ReplyDeleteIt will be useful if you do find that study.
I don’t disagree with anything that you have said so far today. Still it doesn’t take all to change their paper money at the bank. We are discussing economic law. We want to get at the trend. In the long run it’s enough for some to change their paper money at the bank to take it out of circulation.
I am here to learn and for interesting discussion. I’m not here to disagree or try to undermine you. I can’t see where to disagree and so your comments so far today are not as interesting to me as your last comment yesterday.
It’s interesting how your last paragraph there is one long mistake.
I said: If the sum of prices circulated in one day add up to £1m and if each gold £1 coin moves 1 time then that adds up to 1m x £1 coins that would circulate.
Yes some will use credit. Then fewer than 1m £1 gold coins would circulate. There’s a remaining amount.
But you rather talk as if credit and currency are the same. They are not.
"I said: If the sum of prices circulated in one day add up to £1m and if each gold £1 coin moves 1 time then that adds up to 1m x £1 coins that would circulate."
ReplyDeleteNo, that is wrong, for the reason that Marx describes in "A Contribution". If 2 million gold coins are put into circulation, then these 2 million coins will circulate as tokens of value, and as Marx says, as such tokens the excess quantity of these tokens will result in the actual value of each token being halved, manifest in a doubling of prices. It is that doubling of prices, including the price of gold, which then results in some of these tokens being withdrawn from circulation, and converted back into bullion.
You still haven't grasped Marx's point that the gold coin even of full weight only acts as a symbol or token of the gold money commodity it represents. That was the same mistake as that made by Ricardo. Nor is it a matter of commercial credit acting to reduce the amount of gold coins or bank notes required for circulation.
Commercial credit does reduce the amount of money required for currency, because it means that commodities are bought by commodities, as Marx describes in Theories of Surplus , with money only acting as means of payment to cover the balance of such transactions. As marx puts it as commercial credit increases in importance for the circulation of commodities so the role of money as means of circulation declines and its importance as means of payment rises, though the relative quantity of money required in total, thereby declines.
"I don’t disagree with anything that you have said so far today. Still it doesn’t take all to change their paper money at the bank. We are discussing economic law. We want to get at the trend. In the long run it’s enough for some to change their paper money at the bank to take it out of circulation."
ReplyDeleteExcept that if the vast majority do not take the opportunity to convert their bank notes for gold - and they don't unless there is some kind of panic, which was more the situation in the 18th and previous centuries, when private banks issued notes way in excess of their gold deposits - then those notes will continue to circulate as currency, the value of each note will decline, and prices will rise accordingly, which is what the central bank wants to happen when commodity prices are in danger of deflating.
It takes time to assert itself. And the law of paper money is ... Please fill in the dots.
ReplyDeleteAnd the law of paper money is not the same as the law of metallic money for the reason that Marx sets out, i.e. the paper has no intrinsic value, so it continues to circulate,with each note being thereby devalued.
ReplyDeleteThe difference thereby is not simply a matter of time, because the paper money does not get withdrawn. It stay in circulation, and price levels are thereby raised.
Yes not simply a matter of time and:
ReplyDelete“Such a law exists; stated simply, it is as follows: the issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols.”
http://www.econlib.org/library/YPDBooks/Marx/mrxCpA3.html#I.III.68
The point being that gold and silver is replaced by symbols (gold and silver coins, and later copper, nickel and other coins), and these can be put into circulation in greater quantity than the amount of gold or silver that would have circulated. The value of these tokens is then each diminished, so that in total they only represent the appropriate value required for circulation.
ReplyDeleteOnly where the intrinsic value of the symbol exceeds its nominal value can it be hoarded and melted down. That does not apply with gold and silver coins that have been worn or clipped; it does not apply to copper or nickel coins etc. that nominally represent a quantity of gold; and it does not apply to paper.
That is why central banks can put a greater quantity of these tokens into circulation than would represent the amount of gold or silver that would have circulated. As Marx says, John Law and the Pereire Brothers thought that this was the secret for the state creating wealth. In fact, it simply led, when the vast quantity of such issuance became notable, and also resulted in that liquidity going into the purchase of financial assets - such as law's Mississippi Scheme, in the blowing up of financial bubbles and inflation.
But, to go back to the initial issue of dispute, which you seem to have gone away from, it means that even where these paper tokens can theoretically be converted into a fixed weight of gold, it does not prevent central banks from engaging in such over-issuance to create mild inflation, or to prevent deflation of prices in the interests of large scale industrial capital.
The point being, however, that having put such excess tokens into circulation, the Bank has no control over where those tokens go. Normally, it will go into commodity circulation, and cause commodity prices to inflate, or not deflate. However, at times such as the last thirty years where for other reasons - low interest rates, causing capitalised asset prices to rise - it may simply go into financial speculation causing bubbles to inflate, which encourages further such speculation, as the search for capital gain replaces the search for yield. In those cases, the excessive supply of such tokens causing the repeated blowing up of asset prices and a diversion of liquidity from commodity circulation, until such time as the production of surplus value itself is undermined, so that no amount of additional liquidity can cause those asset prices to be reflated.
Gold Currency
ReplyDeleteI thought we had agreed about this.
The sum of prices regulates the sum of coins.
If the sum of prices circulated in one day add up to £1m and if each gold £1 coin moves 1 time then that adds up to 1m x £1 coins that would circulate.
It is not (the other way around) the sum of coins that regulate the sum of prices.
“...The quantity of money thrown into the circulation at the beginning of each day is of course determined by the sum of the prices of all the commodities circulating simultaneously side by side. But once in circulation, coins are, so to say, made responsible for one another. If the one increase its velocity, the other either retards its own, or altogether falls out of circulation; for the circulation can absorb only such a quantity of gold as when multiplied by the mean number of moves made by one single coin or element, is equal to the sum of the prices to be realised. Hence if the number of moves made by the separate pieces increase, the total number of those pieces in circulation diminishes. If the number of the moves diminish, the total number of pieces increases. Since the quantity of money capable of being absorbed by the circulation is given for a given mean velocity of currency, all that is necessary in order to abstract a given number of sovereigns from the circulation is to throw the same number of one-pound notes into it, a trick well known to all bankers...”
http://www.econlib.org/library/YPDBooks/Marx/mrxCpA3.html#I.III.55
No, that is quite wrong, and I have never said that or agreed that, and nor does Marx.
ReplyDeleteIf the velocity of circulation remains the same, and more coins are thrown into circulation, the value of each coin falls relative to the value of gold money it represents. Nominal prices thereby rise, and because the value of each gold coin falls below its intrinsic value, that is what leads to those coins gradually being withdrawn to restore balance.
That is only possible because the gold coin has intrinsic value. It is why the law relating to such coinage is different to the law relating to paper money tokens, because the latter has no intrinsic value, and so they cannot be withdrawn from circulation. They remain in circulation, and their value remains depreciated, sot that nominal price levels remain raised.
What you are confusing is the sum of values with the sum of prices. The sum of prices depends upon what the sum of values is being measured against. For example, the sum of prices will be higher where the money commodity is gold rather than silver, for the simple reason that the value for silver is lower than the value of gold, and so more silver is required as currency than gold.
ReplyDeleteMarx describes situations where this is the case, where gold replaces silver, and vice versa as the money commodity.
Correction:
ReplyDelete" For example, the sum of prices will be higher where the money commodity is silver rather than gold..."
Sorry I must watch what you say.
ReplyDeleteGold Currency
If there are just weighing scales and the metal gold then the sum of prices regulates the weight of metal that must circulate.
I mean if the sum of prices circulated in one day add up to 1m x 1/4 ounce and if each 1/4 ounce moves 1 time then that adds up to 1m x 1/4 ounce that would circulate.
Paper Currency
If there are just paper banknotes then the issuing authority regulates their amount:
The issue of paper banknotes must not exceed the amount of gold that would circulate if there were no paper banknotes.
So far there’s nothing to disagree about.
But from here on it seems there’s nothing that we can agree about.
Where do you want to start?
When you said that you agreed with Marx you made me hope that you agreed with my quotes from Marx. I see now how that is not always so.
If the sum of prices circulated in one day add up to 1m x 1/4 ounce and if each 1/4 ounce moves 1 time then that adds up to 1m x 1/4 ounce gold that would circulate.
10 coats
1 roll of cloth
Etc... Each = 1/4 ounce of gold.
Here gold does not have a price.
Here yes the exchange value of a commodity as in a weight of gold is its price. But what then is the price of 1/4 ounce of gold? 1/4 of gold cannot be its own price.
Let the exchange value of gold vary and all else remaining the same. You get a change:
20 coats
2 rolls of cloth
Etc... Each = 1/4 ounce of gold.
That change then affects coats and cloth at the same time and in the same direction.
It will not affect the relative price of coats as compared to cloth.
You must find some other explanation then for any new change in the relative price of coats to cloth.
If there is some “bubble” in the price of coats how can you prove that it would not have been so had gold exchange-value not changed?
I can see that it will require a lengthy explanation of Marx's theory and method for you to grasp this, so forgive me if this drags on over a few comments, posted as and when I have time.
ReplyDelete“If there are just weighing scales and the metal gold then the sum of prices regulates the weight of metal that must circulate.”
Go back a step. Price is the value of a commodity expressed in money, as universal equivalent form of value – here the money commodity is gold. Before you can say the sum of prices regulates the weight of metal of gold, you must first determine what is the basis of prices. That depends upon the value of the commodities being circulated, and the value of gold. If the total value of commodities is equal to 1 million hours, and an ounce of gold has a value of 1 hour, then 1 million ounces of gold will be required as money, assuming the velocity of circulation is 1. The average price of a commodity is then equal to 1 ounce of gold.
If the value of gold falls to say 0.5 hours per ounce, then prices will rise, and more gold will need to be thrown into circulation. Similarly, if silver is used as the money commodity, and 10 ounces of silver are produced in 1 hour, the average prices of commodities will rise from 1 ounce of gold to 10 ounces of silver. Ten times as much silver will need to be thrown into circulation as if gold was the money commodity. And, as Marx sets out in “A Contribution”,
“Supposing gold were superseded by silver as the standard of value and the relative value of silver to gold were 1:15, then 210 million pound notes would have to circulate henceforth instead of 14 million, if from now on each piece of paper was to represent the same amount of silver as it had previously represented of gold. The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.”
If a greater quantity of paper is put in circulation than this, the value of each piece of paper thereby falls, and unlike gold or silver it cannot be simply withdrawn from circulation.
But, even here things are not so simple, as Marx sets out in Theories of Surplus Value, and the latter parts of Capital III. The assumption that commodities exchange at their values was used by Marx in his initial explication in order to work up to a more complex theory. But, Marx knew from the start that commodities do not exchange at their values. Under capitalism, they exchange, only on average, at prices of production, which themselves differ from exchange value. But, most of the time they exchange at market prices that vary from the price of production, being sometimes above and sometimes below it, as a result of variations in supply and demand. However, we can ignore the question of price of production here.
Cont'd
Ok thank you,
ReplyDeleteYou start your comment with 1) just weighing scales and a precious metal as currency. You go to 2) the use of paper currency pegged by law to a precious metal. And you end with 3) paper currency and no precious metal.
What you say there seems fine to me.
I was also going to look at 1, 2, and 3 but please let’s agree about 1 before moving on to 2 and 2 before 3.
Just to be clear, before I submit my further comments. You say,
ReplyDelete"You start your comment with 1) just weighing scales and a precious metal as currency."
I start with a precious metal as the money commodity, not necessarily as currency. There is a big difference between the two, as Marx describes, and as I will elaborate in my further comments. A precious metal, say gold, acts as the money commodity, and thereby forms the basis of determining the relative values of commodities against it, i.e. prices. But, this precious metal does not at all have to be currency. Even where the currency is initially comprised of this precious metal, the currency itself becomes mere tokens, and the value of these tokens even of gold coins, thereby diverges from the money commodity it represents.
For example, £1 may initially be the name given to 1 ounce of gold, and represented by a £1 coin, just as a silver thaler may represent a given quantity of silver. However, over time the actual content of these coins will change, and is set by the monetary authorities. Over time, a £1 coin may actually be minted containing only 1/100 of an ounce of gold, for example. Gold as the money commodity will still be the measure of value, but now what was previously designated as £1 value of commodities, will now be represented as £100, and where previously 1 £1 coin was sufficient to circulate these commodities, now 100 such coins are required for this circulation, even though the actual value of the commodities themselves has not changed.
I will submit the continuation of my comments shortly.
And did you note this: “...The quantity of money thrown into the circulation at the beginning of each day is of course determined by the sum of the prices of all the commodities circulating simultaneously side by side... ...Since the quantity of money capable of being absorbed by the circulation is given for a given mean velocity of currency, all that is necessary in order to abstract a given number of sovereigns from the circulation is to throw the same number of one-pound notes into it, a trick well known to all bankers...”
ReplyDeletehttp://www.econlib.org/library/YPDBooks/Marx/mrxCpA3.html#I.III.55
Yes, but if there are too many gold coins in circulation and they are withdrawn by sending bank notes to replace them, that does not change the situation that too many money tokens are in circulation, be those tokens gold coins or paper notes. In fact, this rather makes the point for me that whatever the actual value of the gold coins relative to the gold they represent, central banks know that in general the public would accept paper notes. This was particularly the case in Scotland, as marx points out, where there was little in the way of currency in the form of gold coins, and rather paper notes were preferred by the public.
ReplyDeleteMoreover, the same does not apply in reverse. If the bank seeks to cause inflation it pushes more notes out into circulation, and because these have no intrinsic value they cannot be melted down etc. If the bank wants to withdraw them, it has to a) reduce the new issuance, and b) engage in open market operations to to sell bonds, and take in money.
I will resume my original comments shortly.
Part 2
ReplyDeleteBut, Marx also explains why, even prior to capitalism, commodities do not exchange at their values, but at market prices, that similarly vary up and down from their exchange value, again because of variations in supply and demand, and different rates of productivity in different spheres. As he explains in Capital III, and discusses at greater length in Theories of Surplus Value, its only true to say that if 10 coats require 10 hours to produce, and 1 roll of cloth requires 10 hours to produce they both have a value of 10 hours, and are, therefore, equal in value, if the labour expended on the production of each was socially necessary.
If cloth and coat producers are the only people in this economy, the cloth producer may spend 10 hours producing cloth, and the coat producer 10 hours producing coats, but if the cloth maker only has need for 1 coat, and the coat maker only has need of 1 coat for themselves, 8 coats will have been produced and thrown into circulation, which were not required, which, therefore, have no use value, and consequently no value. The 8 hours of labour expended on producing these coats will not have been socially necessary. As Marx explains, therefore, it is as though the 10 coats only have a value equal to the socially necessary labour of 2 hours.
In that case, the value of a coat falls to 0.2 hours, and now 1 coat will exchange for only 0.2 rolls of cloth. If we replace coats with gold here, the same thing applies. If too much gold is produced relative to what is socially necessary, for example to meet the demand from jewellers, as well as the demand for currency, then the exchange value of this gold will fall, despite there being no change in its value. That will continue until this excess production or supply has been removed. In the meantime, as the measure of value, gold will have been depreciated, causing prices measured by it to rise. As Marx describes, in Capital II, initially this is not a problem, because gold production was so limited that it only just about covered what was required for jewellery production, and to replace worn out coinage. (There is another issue here as I've described elsewhere, given that all gold ever mined is still in existence so that new production represents only a small and diminishing proportion of potential supply.)
But, there were times when large amounts of gold entered economies, for example, when Spain conquered Latin America, when the consequence was a flood of gold into circulation, depressing its exchange value. And, where paper money replaces previous metals this increase in the supply of such tokens by the central bank can be effected at any time, which was the point I initially made, that you dissented from.
Moreover, Marx explains that just as a greater quantity of coins are required in circulation where silver is used rather than gold, the same is true even where the same metal is used, over time, which again causes an inflation of prices. So, what initially is designated £1, as equal to 1 lb. of sterling silver, over time becomes gradually depreciated, so that although the name £ remains, its actual content continually falls so that it actually represents much less weight of silver than this. Consequently, a greater quantity of silver coins, each designated £1 might then be in circulation, whilst circulating only the same value of commodities, the prices of which, designated in pounds are thereby similarly raised.
Cont'd
Yes I (like you) I was taking it that all commodities exchange at their labour hour values. That is also the fact if not for each commodity then for one total social basket full of commodities – if not for one day then on the average and over time.
ReplyDeleteWe cannot talk about the introduction of the first coin. Not yet. We haven’t found enough agreement. For the same reason we cannot talk about the introduction of the first paper money. Not yet. We haven’t found enough agreement.
Our starting point then is an economy where we do agree that:
The sum of prices regulates the weight of gold that circulates them.
If the sum of prices circulated in one day add up to 1m x 1/4 ounce gold and if each 1/4 ounce moves 1 time then that adds up to 1m x 1/4 ounce that would circulate.
Some will use credit. Then less than 1m x 1/4 ounce would circulate. There’s a remaining amount.
It is not then (the other way around) the weight of gold that regulates the sum of prices.
It is rather the sum of prices that regulates the weight of gold that circulates.
You would think that agreement means that we can move on now but no. Not yet. Why? First we must sort out what we say about credit.
Lend me 1/4 ounce gold and that is 1/4 ounce. You have a claim to it and so do I. But it is the same 1/4 ounce. To count it as 2 x 1/4 ounce is to count it twice. That is a miss-count.
If we agree so far then yes let’s move on. But in that case please let’s move on to just paper money.
Then let’s be clear.
Marx’ law of paper money is that the issue of paper money must not exceed the amount of gold that would circulate if there were no paper money.
No, I do not agree with much of that, but to deal with what I disagree with would only distract from the further comments I planned to present, and which I will submit as and when I have time. But, in summary what I disagree with above is:
ReplyDelete1)I do not accept that in total and over time the commodities exchange at their values. That might be the case in relation to the question of prices of production and exchange values (though in the concluding chapters of Capital III, Marx shows why even that is not true), but it does not apply in relation to the point I made, and which marx cites as one of those reasons it does not apply in relation to prices of production etc. That is, it assumes that commodities are produced in the correct proportions, so that demand and supply match. That is not true for individual commodities, not for commodities in total, so that the result is that some expended labour-time is not socially necessary and so does not count as value producing.
2. The sum of values is expressed as a weight of gold as the money commodity. It is not gold that circulates these commodities but currency, gold is only the measure of their value, the universal equivalent form of that value. As the value of gold varies, as well as the value of commodities so that relation changes. But, what the price, of any commodity is, and so what the sum of prices is does not just depend upon the relative value of the commodities and of gold, it depends upon the value of the currency unit. If the currency unit is £, and this £ originally was defined as 1 ounce of gold, then if now this £ is defined as only 1/10 ounce of gold, prices will rise to ten times their previous level, and ten times as many £ coins will need to be circulated.
The total of prices will be ten times its previous level, but the total weight of gold coins circulating the commodities will be the same.
You are failing to make the distinction between gold as the money commodity that is the measure of value, and gold as currency, as gold coins that act to circulate commodities.
"It is not then (the other way around) the weight of gold that regulates the sum of prices."
But it is the weight of gold that each coin contains that determines prices, sa marx spells out. As set out above a £1 coin that represents 1 ounce of gold will exchange fo a commodity that has a value equal to 1 ounce of gold, but a £1 coin that represents a tenth of an ounce of gold, will only exchange for a commodity that is equal to a tenth of an ounce of gold. But, the price of the commodity will be equal to £1 in each case.
I am not sure why you would think that there was agreement at that point, because none of the arguments you have made here are ones that I have agreed to previously,and my responses here are no different to those I have given you before.
I think its confusing and a distraction for me to respond to your individual comments before I have finished the original set of my responses to you, which will in any case respond to the points you are making. It would be better if you waited until I have finished those responses, before commenting further. I will only now respond with my original set of responses, and if I have time after that, I will come back to any further comments you have.
Part 3
ReplyDelete“The issue of paper banknotes must not exceed the amount of gold that would circulate if there were no paper banknotes.”
What does “must not” mean here? As Marx sets out, it is necessary to understand the laws regulating money by looking first at precious metals and coins, before considering paper notes. On the basis of what has been described above, we have two issues in relation to metallic coins and tokens. Firstly, the money commodity acts as the measure of value. That is if 1 ounce of gold is equal to 1 hour of labour-time, and 1 coat is equal to 1 hour of labour-time, then the price of a coat is equal to 1 ounce of gold. If the total value of commodities to be circulated is equal to 1 million hours, then 1 million ounces of gold is required for their circulation. This is the measure of their value.
If 1 ounces of gold when minted into a coin is given the name £1, then the total value of coins and of commodities being circulated, is equal to £1 million. But, as Marx says, over time, the actual metal content of these coins when minted is reduced, whilst the name of the coin remains the same. If a £1 gold coin when minted only contains 1/100 ounce of gold, then 100 times as many of these coins will enter circulation, and the prices of the commodities will then rise to £100 million, even though it is only equal still to 1 million ounces of gold. Nor could these £1 coins be melted down, because their actual gold content now is only equal to 1/100 ounces of gold.
If we then take the issue of paper notes, then it is the case that the law that determines the quantity of gold coins that are required to circulate commodities remains in force, and lies behind the law relating to the issue of paper notes. That is that if only the quantity of notes are issued that corresponds to the value of gold they represent, the value of each note will equal the gold it represents. However, there is nothing preventing a central bank from issuing more notes than this, any more than there is anything preventing them from reducing the gold content of gold coins, and then issuing more coins, so that commodity prices are thereby raised.
The issue of whether these notes are convertible or inconvertible is rather meaningless. Firstly, as I said before, the reality is that those that demand banknotes do so, because they are demanding means of circulation or means of payment. They want banknotes not for their own intrinsic value, but because they need to buy commodities with them, or to settle payments on previous transactions. They are not going to be rushing to the bank to convert such notes into gold coins. Consequently, even where these notes are issued in excess of the gold they represent, thereby causing an inflation of prices, they continue to circulate, and those in possession of them do not try to convert them for gold, unless the excess circulation has been taken to extremes, causing a financial panic. This is all the more the case, in that the same inflation of prices means that just as those who have to hand over more of these notes to buy what they need, so too they receive more of them in return for the things they sell.
Cont'd
Sorry I promise you I don’t mind waiting. I will wait as you wish. I will wait till you ask me something. You ask:
ReplyDelete1) “... I am not sure why you would think that there was agreement at that point...”
The reason why I am sure that there is agreement at that point is that I said it was before the introduction of the first coin. That’s what the painstaking re-weighing of the gold each time was about. It’s true but besides the point that we disagree at a point after the introduction of the first coin.
It also helps how we share: “The assumption that commodities exchange at their values was used by Marx in his initial explication in order to work up to a more complex theory.”
Then you ask:
2) What does “must not” mean here?
That’s here:
“If we agree so far then yes let’s move on. But in that case please let’s move on to just paper money.
“Then let’s be clear.
“Marx’ law of paper money is that the issue of paper money must not exceed the amount of gold that would circulate if there were no paper money.”
He says:
“If the quantity of paper money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name not of 1/4 of an ounce, but of 1/8 of an ounce of gold. The effect would be the same as if an alteration had taken place in the function of gold as a standard of prices. Those values that were previously expressed by the price of £1 would now be expressed by the price of £2.”
(Marx)
http://www.econlib.org/library/YPDBooks/Marx/mrxCpA3.html#I.III.68
Part 4
ReplyDeleteSecondly, as Marx points out, whatever the legal fiction about such notes being convertible for a given weight of gold, the economic reality is that they are not convertible, at that fixed weight, because the actual value of each note has been reduced below the value of the gold or silver it represents.
“While the denomination of paper is based on gold or silver, the convertibility of the note, i.e., its exchangeability for gold or silver, remains an economic law regardless of what juridical law may say. For instance, a Prussian paper thaler, although legally inconvertible, would immediately depreciate if in everyday commerce it were worth less than a silver thaler, that is if it were not convertible in practice. The consistent advocates of inconvertible paper money in Britain, therefore, had recourse to the ideal standard of money. If the denominations of money, pound, shilling and so on, are names for a determinate amount of particles of value, of which sometimes more, sometimes less are either absorbed or lost by a commodity when it is exchanged for other commodities, then the value of an English £5 note, for instance, is just as little affected by its relation to gold as by its relation to iron and cotton. Since its designation would no longer equate the bank-note in theory to a determinate quantity of gold or of any other commodity, its very concept would preclude the demand for its convertibility, that is for its equation in practice with a determinate quantity of a specific thing.”
In other words to use the term “must” here is to substitute moralism for scientific objectivity. There is no “must” for the authorities in this regard. They can and do print paper money tokens in excess of the gold they represent. The only convertibility of these notes, therefore, as Marx states above is, determined by economic and not juridical law (i.e. what the juridical law states about the right to convert at a fixed weight) on the basis of their depreciated value, arising from this excess supply, and not some theoretical fixed relation to gold. In just the same way, banks, because they know that, at any one time, only 10% of deposits will be accessed, hand out loans equivalent to 10 times their deposits, and thereby create bank money. The authorities know that people will not convert notes into gold coins, and if they did, the response would be to simply change the law to end such convertibility. That is what happened in a similar fashion in 1971, when DeGaulle demanded the US convert its dollar holdings into gold at the official exchange rate of $30 an ounce. Nixon simply responded by closing the gold window, ending dollar convertibility, and introducing laws against individuals holding gold.
Cont'd
Shall I ask you something on that?
ReplyDeletePlease let me know where I make a mistake.
ReplyDeleteI’ll thank you at once.
But please watch what I say.
In “practice” I simply “must” at least correct you here.
An ordinary economist will substitute ideas of justice or moral sentiment for scientific objectivity. So are you unless you understand how the economics of labour works. So are you unless you understand how a scientific objective economic law says in practice that A must cause B. In practice for instance let the issue of paper money become 2 x what it ought to be. It is in practice that the general price level must move. Note the word here. Note the word “must”:
“Such a law exists; stated simply, it is as follows: the issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols.”
(Marx)
http://www.econlib.org/library/YPDBooks/Marx/mrxCpA3.html#I.III.68
Prices moved 1914-1925 (including 4 years of war) more than they moved over the previous 100 years. Why in practice that sudden doubling of prices? Because in practice the issue of paper money was 2 xs what it ought to be.
Part 5
ReplyDelete“Here yes the exchange value of a commodity as in a weight of gold is its price. But what then is the price of 1/4 ounce of gold? 1/4 of gold cannot be its own price.”
But, gold/silver as commodity only acts as the money commodity, which forms the proxy for abstract labour, and so measure of value. It is the universal equivalent form of value. But, prices are different. Prices are expressions of value denominated in currency units. These currency units are initially precious metal coins. The names of these coins are originally derived from the weight of metal they contained. But, firstly, the exchange value of these coins is determined by their function as currency, and depends upon whether they are in circulation in the appropriate amount. If £1 is the name given to a 1 ounce gold coin, the price of 1 ounces of gold will then be £1. However, if too many of these coins are put in circulation, the value of each coin is reduced as currency. Suppose, 10% too many coins are put in circulation. In that case, the price of gold will rise to £1.10 per ounce, even though the value of gold has not changed.
Moreover, as Marx says, over time, the amount of gold contained in each of these coins is reduced at the time it is minted.
“The weight of gold fixed upon as the standard of prices deviates from the weight that serves as the circulating medium, and the latter thereby ceases any longer to be a real equivalent of the commodities whose prices it realises.”
When the official gold content of a £1 coin is then only 1/100 of an ounce of gold, and 100 times as many gold coins are put in circulation, the price of an ounce of gold rises to £100, and the prices of all other commodities rise accordingly.
It is this fact that gold coins become mere tokens of themselves that enables these coins to be replaced by worthless scraps of paper. But, as Marx says, also the law for these scraps of paper is different than for gold or silver. The value of the paper is determined by the quantity of it thrown into circulation.
If we go back to your initial comment and objection, therefore, it was,
“At the start of the 20th. century capitalists could still exchange pounds for gold at a legally fixed weight. So how then could the Bank “regulate the supply of money tokens so as to ensure that nominal money prices did not fall (deflation)”?”
The point being as Marx says above, and as I have demonstrated, this ability to convert £1 notes for a legally fixed weight of gold is a fiction. If 10 million £1 notes are put in circulation, and represent £5 million of gold, then its clear, as Marx says, that whatever the legal entitlement, economic law indicates that these 10 million notes will not be exchanged for £10 million of gold, because the actual convertibility of each note is only for £0.50 of gold. Consequently, the bank could issue notes in excess, safe in the knowledge that whatever it said on the note about “promising to pay the bearer”, the bearers would never seek such conversion, and if they did in any numbers, the convertibility would simply be legally ended.
Cont'd
Part 6
ReplyDelete“You must find some other explanation then for any new change in the relative price of coats to cloth.
If there is some “bubble” in the price of coats how can you prove that it would not have been so had gold exchange-value not changed?”
The relative prices of commodities are not just a function of their values. They are also a function of changes in demand and supply, which might also arise from different levels of productivity in each sector, as Marx describes in Theories of Surplus Value. But, Marx also discusses the effects of constraints of currency in various market segments. Different money tokens are used for different purposes. Copper coins, for example, are used for purchases of smaller denominations. In the example I have given elsewhere, consider the following, 1p chews are bought from machines using 1p copper coins. If too few of these coins are in circulation, they cannot be bought. This may have one of at least two consequences.
Either a) this will cause a drop in demand for 1p chews, so that the price will drop irrespective of the value/price of production of chews b) buyers of chews will be forced to buy them from retailers, using silver or gold coins or notes, who will only sell them in larger quantities, so that the demand for chews may spike higher in the short term, causing their price to rise, whilst buyers having acquired this surfeit of chews, will then have a supply to last them for a while, so that future demand declines. Neither of these two potential outcomes derive from a change in the value of chews, or their exchange value to other commodities, but arise from this shortage of currency of a particular denomination.
Cont'd
Part 7
ReplyDeleteA similar factor arises in relation to a bubble of asset prices. These assets have no value. Their price is a capitalised value of the revenue they produce. But, if buyers of these assets believe that this capitalised price is likely to rise, then unlike commodities bought for consumption, this rise in price provides the buyer with the potential of a capital gain. If I need to buy a loaf of bread each weak to eat, I may if I expect the price of bread to rise, attempt to buy it ahead of the price rise, but I will derive no capital gain from it, because I will eat the bread, not resell it later. By contrast, if I buy a government bond, or a company share, or a piece of land, I do so not for the purpose of consuming it. If as a result of a devaluation of the currency, due to an excess of liquidity being injected, the prices of bonds, shares and land rises then at some future point, I can resell these assets, and thereby secure this capital gain.
If it appears that such capital gains are more or less guaranteed, because not only is the central bank issuing excess liquidity so that this rise in prices occurs, but is also itself using this additional liquidity to buy bonds (Quantitative Easing), whilst company executives seeing this same process use their profits to buy back shares with the same effect, and builders accumulate land banks rather than building on them, landowners hold on to land rather than release it for additional building and so on, then a disproportionate amount of this excess liquidity will be diverted into such speculation, and it will not go into the purchase of commodities for productive or consumptive purposes.
Anyone with the ability to do so will minimise what they spend on consumption, in order to divert this money into the purchase of assets, thereby driving up the demand and price of those assets, whilst holding back the demand for commodities, and thereby constraining their prices. Companies will use profits to speculate themselves in these financial assets, buying bonds and shares etc., they may even borrow for that purpose. At the same time they will not then spend money as capital, employing additional workers, raising the demand for labour-power, and so wages; they will not buy additional factories, machines and materials, raising the demand for those commodities, and so those commodity prices.
The consequence is a relative increase in asset prices compared to commodity prices, and that relative rise is then a self-fulfilling prophecy for those that speculated in those assets, who thereby see large capital gains, which encourages them to reduce their purchases of commodities even further where possible, depressing demand, and prices, and to divert yet more of the liquidity into asset purchases, increasing the demand even further, and thereby inflating the bubble in those asset prices further.
Cont'd
Part 8
ReplyDeleteBut, in reality all of this discussion has been moot. My original point was that central banks role from the start of the 20th century was to regulate general price levels to prevent deflation, because such general deflation is against the interests of oligopolies' profits. The basis of the discussion was your dissent from this view on the grounds that paper money was convertible for a fixed weight of gold.
You wrote,
“At the start of the 20th. century capitalists could still exchange pounds for gold at a legally fixed weight. So how then could the Bank “regulate the supply of money tokens so as to ensure that nominal money prices did not fall (deflation)”?”
I've shown why Marx says such convertibility at a fixed rate is meaningless, and impossible. But, more than that, the history of the last century proves my point, and the last thirty years proves it in spades! Central banks printed money and inflated prices, even as rises in productivity reduced values. The official price of gold went from $30 an ounce in 1970, to $800 an ounce in 1980, when gold was traded, and similarly went from $250 an ounce in 1999 to nearly $2000 an ounce in 2011.
The point I was making has been proved. Central banks print money to regulate the general level of prices in the interests of large scale industrial capital, and sometimes in the interests of the owners of fictitious capital. Indeed, in one of your further comments you answered your own original question and contradicted the whole of the points you have made based upon it since. You wrote,
“Prices moved 1914-1925 (including 4 years of war) more than they moved over the previous 100 years. Why in practice that sudden doubling of prices? Because in practice the issue of paper money was 2 xs what it ought to be.”
Which rather leads me to ask exactly what the point of your comments had been!
Ends.
ReplyDeleteI do say:
“Prices moved 1914-1925 (including 4 years of war) more than they moved over the previous 100 years. Why in practice that sudden doubling of prices? Because in practice the issue of paper money was 2 xs what it ought to be.”
(My comment)
And I commented as I don’t get your original point.
I look on the start of the 20th century as 1900.
If that doubling of prices occurred 14 years earlier then I guess that you would have mentioned it occurring 1900. You didn’t and it didn’t. But what if it did?
I would still have commented. I would still not get your original point.
If the Banks role was as you say then how do you explain its return to gold in 1925?
All that you have proved here is that the Bank cannot regulate general prices. The Bank is too clueless. At the most the Bank could cause inflation/deflation by accident. Currently they do not know how to cause inflation. That’s the real reason why the point is moot.
Think about it this way.
If someone lends me an amount of un-coined gold to buy something with (we’ll pretend that no one has invented coins) and if I repay the same amount how then does that act to increase the amount of gold in circulation? It makes no odds - none whatever. It still makes no odds if I agree to repay 2x the amount of gold. In that case somebody simply gains something which I lose. Or why not let’s say that they sell my “I owe you” for the amount to someone else. Any gains which lenders gain from me remain costs to me. There is a +. But that is the same as to say that there is also a -. + and – add up to 0.
Of course yes the lenders may gain in gold that they did not work for. But all the gold that those lenders gain by not working comes to them originally from the worker who does work. Who is it who finds and gets the gold? It is the worker.
Here in this dull subject of counting (1+1=2) it is just the same as if they stole an amount of gold. What they gain someone lost. Does that change the overall amount? No. There’s no change there. Why should that cause any inflation at all? It does not.
If we can agree at all then we should be able to start by agreeing about un-coined gold. I want you and me to agree. I trust you want the same. Un-coined gold is a step. One step leads to the next – but first step first.
I think your attempt to reconcile your comments about the fact that banks did cause price inflation with your earlier comments about that not being possible due to fixed rate convertibility looks like a stretch.
ReplyDeleteI think your further comments show you have not understood the difference between values and prices, and that you have not understood the difference between gold as commodity and measure of value, and gold as currency, as means of circulation.
But, the discussion is now as a result simply going round in circles. I do not have time to take it round in just another circle.
What! When you have time lease show me any comment where I
ReplyDeletesaid that the banks could not cause price inflation 1914-25.
I ask:
ReplyDelete… [p]lease show me any comment where I said that the banks could not cause price inflation 1914-25.
You have not yet shown any? That’s because there’s no such comment to show. My comments just say what the banks did.
1914-25 the banks abandoned fixed rate convertibility. That meant that 1914-25 the banks would no longer exchange paper money for the fixed weight of gold. And 1914-25 the banks issued paper money (issued symbols) 2x the amount of gold which actually would circulate if not replaced by symbols. So there was price inflation where there was none before. 1914-25 is a plain text-book case to show how it is that Marx’ law of paper money works in practice.
I think your attempt to reconcile your comments with what took place 1914-25 looks like more than a stretch. What you have said just fails to stand up.
It’s as I said. Please say if I’m not clear. I don’t mind repeating. This is a good discussion. Please attack what I said. It makes no sense to attack what I’ve not said.
1925-31 is yet another plain text-book case in the other direction. The banks restored fixed rate convertibility. That meant that 1925-31 the banks once more exchanged paper money for the fixed weight of gold. The banks issued far less paper money. What results do we find? Did prices rise? They fell like a stone. But that is not price inflation. That is price deflation. Why did prices fall? With the help of Marx it’s clear why. But we discussed Marx’ explanation above. That was in my last comment. Let’s compare what you say:
ReplyDeleteYour original point:
“My original point was that central banks role from the start of the 20th century was to regulate general price levels to prevent deflation, because such general deflation is against the interests of oligopolies' profits”
(From your comment)
Does your original point fit the years 1925-31? Is it your original point that the geniuses from the bank were trying to push prices up by pushing prices down?
Your original point could hardly be more wrong.
Nor was the bank’s role from the start of the 20th century just to prevent deflation. You might as well say that the bank’s role from the start of the 20th century was just to prevent inflation. It is truer to say that the bank’s role from the start of the 20th century was to prevent both inflation and deflation. The bank’s role from the start of the 20th century was stable prices. But from the start of the 20th century the banks were far too clueless to act their role. The banks are poor teachers of economics. The banks are not sure how to regulate prices even by trial and error. That’s why they entertain weird voodoo economics regulating that won’t regulate like this:
“… The internal price level is mainly determined by the amount of credit created by the banks, chiefly the Big Five…”
(J M Keynes 1923)
http://delong.typepad.com/keynes-1923-a-tract-on-monetary-reform.pdf
That’s your bank’s way to explain price levels. Has it worked? No.
Anyone who has read the first part of Marx’ book should be attacking the bank’s explanation as dangerous nonsense. If I lend you my coat then I no longer have the coat but you have the coat. Does that mean then that you have “created” two coats from the one coat when you return my coat to me? No. All it means is that you no longer have the coat but now I have the coat. We passed the coat to-and-fro and the coat is now back where it began. It’s the same coat.
Not only do I not see you attack the bank’s explanation but you even say it’s the true explanation.
If you can recommend the bankers’ way to add to the amount of money to determine the price level by the amount of credit then you should also be able to show how the same way adds to the amount of coats by creating coats out of my coat. I would like to see exactly how you think it works. Please show how by using my coat.
If you fail to show how the same works by using my coat or somehow then you should be attacking it as dangerous nonsense. In that case I would like to see exactly how you attack it. Again please show how.
You say:
“… money tokens put into the economy, or its equivalent in terms of bank credit…”
(From your comments)
If you count the notes in circulation and add bank credit then you count notes twice or more. That is not how to count. That is the banker’s error. You need to count notes once – it works the same for coats.
In my next I’ll comment more about using gold as money.
Assume that each £1 is of the metal gold and then the sum of such coins in circulation varies with the sum of prices and the average number of moves that each coin moves per day.
ReplyDeleteIt’s true that some will use credit. Then people will use fewer coins.
So all told let the sum of such coins in circulation total 1m.
Price list:
1 roll of cloth
1 coat
Etc. £1 (each).
With your £1 coin you may buy, for instance, a roll of cloth.
As a curiosity it was possible to restrict the number of coins. All else being equal now restrict the number to not 1m coins but to just 1/2m coins. Now the price level is half what it was. With £1 you bought your £1 roll of cloth. Now given that the number of coins is restricted £1 buys not one but 2 rolls of cloth.
Price list:
2 rolls of cloth
2 coats
Etc. £1 (2 for the previous price of 1).
Note price deflation.
There’s the truth in what you say. I call that a curiosity only as we need not talk of it here. We would need to talk of it if it was what the bank was doing from the start of the 20th century.
Nor is it true that it works the same but the other way around. I mean you can repair the shortage of gold coins until £1 buys you just one roll of cloth. Still I repeat that there’s not a way to force still more gold coins into circulation until gold money devalues as paper money does.
All of your comments in your latest posts demonstrate that you still haven't understood Marx's theory of value, or of money and credit. If you look back in my previous comments, let alone my other posts dealing with Marx's theory, you will see that I have answered the arguments you put several times over.
ReplyDeleteWhen you say,
"If you count the notes in circulation and add bank credit then you count notes twice or more. That is not how to count. That is the banker’s error. You need to count notes once – it works the same for coats."
You are directly contradicting Marx who sets out that the amount of currency required in circulation is reduced by the amount of credit used for circulation.
I do not have time to keep repeating the same explanations, so I will not be commenting further, on all of that.
You are really stretching with your arguments in relation to the role of the banks. It looks like an attempt to reconcile your contradictory statements simply by use of sophistry and semantics. The argument I put was that the reason central banks were set up was to try to prevent general price deflation, and the mechanism for doing that was via control of the supply of currency and credit in circulation.
Your argument was that they could not achieve this if the amount of currency in circulation was limited by the requirement for notes to be convertible to a fixed weight of gold. Following Marx, I showed why your argument is false. Firstly, generally people do not convert notes to gold, because what they require is currency, not gold - unless they are a jeweller, for example. Secondly, if a large number of people sought to exchange notes for gold, and notes had been issued in excess, so as to raise the general price level, so that the central bank could not in practice carry out such conversion, it would simply not do so, it was suspend the requirement for convertibility, as indeed they did, when such situations arose.
Again I have already set out that in previous comments, and cited Marx to the same effect. I do not have time to keep repeating these arguments. I would suggest going back and reading my replies more carefully, along with my other posts setting out Marx's Theory of value, commodity exchange, money and credit, as well as thoroughly reading what Marx has to say.
One final comment, before I leave you to think about these issues. You say,
ReplyDelete"If I lend you my coat then I no longer have the coat but you have the coat. Does that mean then that you have “created” two coats from the one coat when you return my coat to me? No. All it means is that you no longer have the coat but now I have the coat. We passed the coat to-and-fro and the coat is now back where it began. It’s the same coat...
If you fail to show how the same works by using my coat or somehow then you should be attacking it as dangerous nonsense. In that case I would like to see exactly how you attack it. Again please show how."
This illustrates clearly your confusion of value with prices and currency tokens.
Its precisely because the amount of value does not change, but the quantity of currency in circulation representing that value does increase that nominal prices rise!
Take your example. 1 coat exchanges for 1 roll of cloth. Now 1 coat token also exchanges for 1 cloth token. If I buy your cloth, I give you 1 coat token, which you accept, because you know that this token can be readily exchanged for a coat. Similarly, you buy my coat, and pay me with a cloth token, which I readily accept, because I know that I can exchange it for the roll of cloth I require. 1 roll of cloth = 1 coat = 1 cloth token = 1 roll of cloth token.
Now, I print up 2 coat tokens, and give them to you in exchange for 2 rolls of cloth. But, I have still only produced 1 coat. When you come to get my coat, I say, sorry I only have a limited number of coats to sell, and all these other people with coat tokens want to exchange their tokens for my coats, so the price of my coats has been raised to 2 tokens.
The value of coats and cloth has not changed, but the value of coat tokens has halved.
Hope this helps to clarify your confusion, but I have no more time to try to explain these fairly basic Marxist concepts to you. I am sure that if you spend more time reading what I have set out, and what Marx says you will begin to grasp the basic concepts fairly quickly.
Have I got what you mean? I know that you haven’t got what I mean. You and I know that there’s no point in trickery. It’s easy and straight forward to check the facts:
ReplyDelete1) History of events
It’s true that the bank simply would not and could not exchange notes for gold at a fixed weight when situations arose. The only question is when did the situations arise? Do you want it that the situations arose at the start of the 20th century for some reason? In fact it was 1914 when the situations arose. There’s no point in you arguing with me over it. Rather take up your argument with the real history of events. Good luck with that argument.
2) Counting
It’s true that you use fewer notes in circulation by using more credit. What do you say to bankers then who say no it’s the other way around? When they have counted the notes and coins in circulation do they stop there? No they go on:
“… The internal price level is mainly determined by the amount of credit created by the banks, chiefly the Big Five…”
(J M Keynes 1923)
http://delong.typepad.com/keynes-1923-a-tract-on-monetary-reform.pdf
According to the banks there’s not less but more in circulation due to credit. It contradicts the most basic counting. It contradicts Marx because Marx knew how to count.
3) History of ideas
Just as you need to tell notes from credit when counting notes so you need to tell Marx’ from Keynes’ explanation of price inflation.
You should write a post on it.