We haven’t been comparing value to value: Kliman is right, but it is worse than that…

While I’ll admit to be skeptical about this, I have forgotten how important the distortions of fiat currency play out in the economy.  We compare dollars prior to Bretton Woods and then the Nixon conversation to fait currency, we moved into a different game. A game of monetarist distortions.  The reason is that “money’s” third function according to classical economics no longer applies to modern currency in a real way: it is not based by something with value outside of the promise of the state.  While inflation and deflation are still a problem in commodity-backed currency, fiat currency distorts this furtherer.   This makes the income inequality debate really painful because even when we adjust for inflation, we are not adjusting as compared to the value a commodity. 

I think a lot of reasons we as leftists miss this is that fiat currency problems seem to obsessions of the right–gold standard talk is like that of Ron Paul.  The reasons why neo-liberals oppose the gold standard is obvious in this light: it makes it harder to destroy symbolic value to create new space for the declining rates of profits.  Real value is destroyed more quickly and the deprivations of the market hit in much more obvious and rapid cycles while favoring the habits of the investor class.

As the tweet master and blogger Marxist Jehu has pointed out to me:

If you plot nominal GDP as a function of the price of an ounce of gold since 1929, Kliman’s numbers will look much different. There are two things to remember:

1. Value can only be expressed in a material that itself has value, a commodity. In 1929 GDP was measured in a dollar based on gold.

2. Moving out from 1929, you have to compare nominal dollar prices to those same prices divided by the price of an ounce of gold.

Once you do this Kliman will see that gold GDP shrank from 1971 to 1980. The stagflation was actually the second 20th C. depression. Expansion began again in 1980, as gold prices fell. Also he will see we have been in a depression since 2001. The crisis of 2008 was the collapse of the mechanism by which labor power was being devalued. Between 1971 and 1980, wages measured by the gold prices, fell to 10% of 1971 level, before recovering to 40% in 2000. In this crisis, labor power has been devalued to about 3% of 1971 levels.

Also, once it is understood that the dollar is not money, it will be obvious the global economy is being managed directly by DC. And, it has been since 1945. The dollar effectively give DC control of all exchange wherever it is used as medium of circulation — international trade. Much of the surplus value derived results from DC’s exploitation of the national capitals of other nations.

Tell Kliman to plug his raw dollar numbers into gold prices and notice the significantly altered results of his analysis. Capital went off of the gold standard in 1933 because it allowed labor power to be continuously devalued as H. Grossman predicted it would need to.

 

I will pass this on to Dr. Kliman, but I am also pondering the real implications of this myself.  To be a communist one needs to consider the philosophical, anthropological, and economic battles one is facing without obscurity. Fait currency is an obscurity.

 

 

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About El Mono Liso

Por una civilización de la pobreza.

Posted on December 9, 2011, in Economics, Marxism and tagged . Bookmark the permalink. 39 Comments.

  1. Douglas Solomon

    Recall Trotsky’s adherence of the gold standard? Lev was not an entirely mistaken tool, on that one. Mahkno was printing money like a Weimar’d fool, BEFORE Weimar, and it made the (un)Civil War a harder battle. As Mao observed, take not a pin from the poor, and the fiat money added more problems, via its accelerated worthlessness.

  2. To demonstrate the implications of gold as measure of value versus dollar prices:

    The first graph traces the initial divergence in 1933 (when the gold standard was ended) between gold and dollar measures of GDP between 1929 and 1940. As you can see the economy appears to recover in dollar terms by 1940, but is only 60 percent of 1929 level when measured in gold.

    Dollar versus Gold GDP 1929-1940:
    http://pogoprinciple.wordpress.com/2010/05/28/the-golden-grimace-part-two-a-closer-look-at-the-great-depression/usgdpgold-1929-1940-2/

    The second graph shows the actual divergence in dollar and gold measures of GDP from 1929 to 2009:

    Dollar versus Gold GDP 1929-2009
    http://pogoprinciple.files.wordpress.com/2010/06/usgdpgolddollarspercent_1929.jpg?w=592

  3. Why is this about “Kliman”? Who else computes or reports GDP or rates of profit in terms of gold? Why single out Kliman?

    I don’t accept the basic thesis that the dollar is not “money,” while gold is “money.” What *precisely* is meant by “money” here? Does it satisfy all of the “functions of money”?

    The notion that “Value can only be expressed in a material that itself has value, a commodity” contradicts the fact that things that aren’t produced commodities have prices. Don’t these prices express value (how much value it takes to acquire them in exchange), however imperfectly? And it’s an empirical fact that businesses, people, and governments measure prices and what they call values in terms of dollars and other currencies.

    When one computes U.S. GDP per capita (per person) in terms of gold, one finds:

    * It was a good deal LOWER in 1980 than in 1932. 1932 was at the bottom or near bottom of the Depression.

    * It was 6.6 times as great in 2001 as in 1980, which means that GDP per capita rose by an average of more than 9% per year for 21 years.

    * GDP per capita in 2010 was only about THIRTY PERCENT of GDP per capita in 2001, and it was LOWER than GDP per capita in 1929.

    Perhaps there is some context in which these are meaningful results, but I don’t know what that context would be.

  4. It would be useful even if one doesn’t accept the thesis that fiat currency doesn’t meet traditional criterion of money to look at it value to value if one is comparing pre-Bretton Woods to post-Bretton Woods. The short of value function would be the function that seems, at least, complicated by fiat currency since there is little extra-governmental backing the currency, but then again, even if there is gold backing the currency, there is little extra-governmental about it.

    Anyway, it is about “Kliman” because Jehu addressed it to a post I did about a month ago on how your numbers on Declining rate profit was convincing and how a conservative economist was fairly honest showed some interesting things on income disparity in between the bottom part of the 1% and the general population that confirmed your views.

    Jehu asked me explicitly to see what you would say about it. So that’s why. It wasn’t to point it out. However, it does seem that fiat currency does mean that inflation can be a way to destroy value from markets or, at least, hide it.

  5. Thanks for crunching the numbers.

  6. One more thing: I think that what underlies what Jehu wrote is the notion that gold is a transparent, non-problematic, and “pure” measure of what Marx meant when he referred to value. I think that this notion is simply incorrect.

    Why should we conclude that the 6- or 7-fold rise in the exchange-value of gold in terms of dollars (the dollar price of gold) over the past decade reflects a 6- or 7-fold rise in the nominal price level rather than a deviation of the exchange-value of gold from its actual value (due to speculation, etc.)–or some of both? There’s no such thing as an invariable measure of value.

  7. “Jehu asked me explicitly to see what you would say about it.” That’s what I meant by “why single out Kliman?”: “Kliman will see that … Tell Kliman to plug his raw dollar numbers into gold prices and notice ….” (Jehu). It’s not like I’m the only one who uses dollars to measure GDP, the rate of profit, etc.

    What is the “short of value function”? Store of value?

    I don’t argue that inconvertible electronic and paper money satisfy all functions of money perfectly. The problem is the false either/or (Jehu’s, not yours) — either they or gold must be “money,” so that, if they don’t satisfy all functions of money perfectly, then gold is “money.”

    You write, “It would be useful”? What is it? My GDP per capita results? If so, what are they useful for?

    I think the implications of the collapse of Bretton Woods is an important issue. I don’t think the implications of the decline in per capita GDP (in terms of gold) between 1932 and 1980 or between 1929 and 2010 are important issues.

  8. That has occurred to me too: commodities without use values are always subjectively valued. Hence their fetish possibility, but I think it would be interesting to see if using the same kinds of measure of values between periods as it may explain how declining value may be hidden for longer periods of time.

  9. Andrew,

    Actually, I support your thesis, so far as I understand it, regarding the rate of profit. And, I think GDP/Gold Price also supports your thesis. Gold is money — and not dollars — because, as Marx points out, money is only fully money when it assumes the form of a hoard — that is, falls from circulation. In circulation, money is only a token of itself. Outside of circulation, as a hoard, money represents an interruption of the movement of commodities and a crystallization of value.

    Also, by “gold is money”, I do not mean to imply that “money is gold” — a token of money, credit, etc. are also money in the broader sense..

    I would like to hear your thoughts on why the price of gold so closely follows your argument about the 1970s and 1980s.

  10. The context is this: by depression standards, the 1970s depression was longer and deeper than the contraction of the 1930s. The present depression, beginning in 2001, is now longer and likely deeper than the 1970s depression. Each succeeding depression is worse than the previous one.

    Regards 1929: we are both talking about the value of 1929 GDP versus 2010, not use values?

    Value, of course, can be created in form of a service. However, the expression of this value — exchange value — must ultimately be a material. The prices cannot express value unless the thing serving as the money itself has value.

  11. I think I should be clear on this: I do not believe that gold is either transparent, non-problematic nor pure. But, like democracy for Churchill, it beats everything else. There is said to be an on-going effort to constrain the price of gold down by governments, dating at least to the 1960s.

    Nor do I think the 6-7 fold rise in the price of gold reflects anything more than it did before the dollar was debased. In Marx’s theory, the purchasing power of commodity money tends to fall during expansions and rise during contractions. I find it quite significant that gold still exhibits this tendency even when its not being used as the money commodity.

    Finally, I am not sure what you mean when you say “There’s no such thing as an invariable measure of value” Are you saying gold’s own value varies? Or, are you implying gold itself varies in its useful qualities?

  12. I don’t think any of us are currently disagreeing with Dr. Kliman’s basic thought on this. Perhaps I worded this in a way that seemed more oppositional than it should be.

  13. I’m confused about the meaning of a number of things that Skepoet and Jehu have written here. The terse mode of expression makes things ambiguous. For instance, “I don’t think any of us are currently disagreeing with Dr. Kliman’s basic thought on this.” I don’t know what “this” is, nor (maybe for that reason) what my basic thought on it is.

    I apologize for surmising that Jehu thinks that gold is a transparent, non-problematic, and “pure” measure of what Marx meant when he referred to value. But his “it beats everything else” seems to be a clear example of the either/or thinking that I criticized.

    I wrote, “Perhaps there is some context in which these [figures for GDP in terms of gold] are meaningful results, but I don’t know what that context would be.” Jehu wrote, apparently in response, “The context is this: by depression standards, the 1970s depression was longer and deeper than the contraction of the 1930s. The present depression, beginning in 2001, is now longer and likely deeper than the 1970s depression. Each succeeding depression is worse than the previous one.”

    This isn’t *context*. It’s an interpretation of the data which *assumes* that figures for GDP in terms of gold are meaningful. But that’s what’s at issue, so this interpretation of the data begs the question (petitio principii). I’m looking for an argument as to why such figures are meaningful, not an explanation of what they would imply if they were meaningful.

    Jehu wrote, “when you say “There’s no such thing as an invariable measure of value” [a]re you saying gold’s own value varies?” Yes, partly. It’s value in Marx’s sense, determned by the amount of labor needed to produce it, varies over time. But more generally, the issue is this. Something is worth 2 ozs of gold last year, but only 1 oz of gold this year. Is it now worth less, or is the gold now worth more? As long as we confine ourselves to exchange-value when we refer to “value” or “worth,” this question is unanswerable and meaningless, as Samuel Bailey pointed out in the 1820s in opposition to Ricardian economics.

    Jehu wrote: “the expression of this value — exchange value — must ultimately be a material. The prices cannot express value unless the thing serving as the money itself has value.” I agree with the first sentence. So why not express value in terms of a wide variety of materials (cans of soup, dollar bills, lead, …) and see if the results are consistent? Then, if they’re not, provide a theoretical argument as to why one of these measures is the best suited to the specific question at hand OR a theoretical argument that measurement in terms of something immaterial is better suited to the specific question at hand.

    I think the second sentence is incorrect. Note, first, that it has nothing to do with the first sentence–dollar bills are material. Second, as I wrote above, “it’s an empirical fact that businesses, people, and governments measure prices and what they call values in terms of dollars and other currencies.” So in some sense of the word “value,” the second sense is empirically false. Third, If we use “value” to mean the worth as determined by the amount of labor needed to produce an article, a mortgage-backed security worth $x or y ozs of gold has no value, but one can exchange it indirectly for things that do have value in this sense (sell the MBS for dollars, and use the dollars to buy the things). So the MBS’s price expresses the amount of value for which it can exchange (indirectly). This is so whether the price is expressed in terms of dollars or in terms of gold. At any moment, its value (in this sense) in terms of dollars is *identical* to its value in terms of gold. E.g. the MBS is worth $10,000 = 6 ozs of gold. Since $10,000 = 6 ozs of gold, if $10,000 can purchase products of labor that take z labor-hrs to produce, then 6 ozs of gold can indirectly purchase products of labor that take z labor-hrs to produce.

    Jehu wrote, “I would like to hear your thoughts on why the price of gold so closely follows your argument about the 1970s and 1980s.” I don’t know what this means. Which argument?

  14. “I’m looking for an argument as to why such figures are meaningful, not an explanation of what they would imply if they were meaningful.”

    Well, I am of two minds here: gold is harder to inflate and distort relative values or destroy “wealth” covertly, but gold is subjectively valued differently now than when it was backed as currency, furthermore, since it does have use value, it has a tendency to deflate.

    Upon being showed the gold numbers, fiat currency looks like a way to hide the declining rate of profits from the general public, something harder to do with gold, which would be in line with your thesis. But, if gold is valued at totally differently divorced from its historical role of backing currency this actually wouldn’t be useful.

    I think Jehu should chime in as he has done the numbers.

  15. I think there is a misunderstanding here. I am not debating your thesis on the falling rate of profit. Rather, I am trying to throw light on that argument by referring to the gold measure of GDP as opposed to the nominal (dollar) measure. I believe it supports your view.

    Why gold? Okay, any money is only a proxy for value — it is not itself the value of the commodity, but an expression of the value of the commodity in its own money material. It is the use value of the money material that serves as the measure of the value of the commodity. We are making a statement that the use value of one thing can be created in the same period of time as the use value of another thing. Do I have this right? (I really am not an expert on Marx’s theory.)

    So, let us look at the use value of a one dollar bill — how much time does it take to create the bill. Is this duration the same, for instance, as the time it takes to create a $100 bill? Is the time to create a $100 bill the same or greater than that required to produce 100 one dollar bills? Obviously, there is a physical inconsistency here.

    And, what of a billion dollars added to the account of Goldman Sachs by the Federal Reserve? Does the use value of this billion dollars require more or less effort than the creation of a single dollar bill?

    Now, with regards to the use value of one ounce of gold: can I create one ounce of gold in the same time as one hundred ounces? One billion ounces? Even considering economies of scale, is such a thing possible?

    So, for use as a proxy for the value of the commodity, which is a more consistent, reliable and stable measure of the value contained in the good? Every proxy for value has flaws in that it is not the thing being actually measured in itself, but the thing against which it is measured.

    Moreover, we cannot even begin to directly determine the presence of the thing being measured — does a particular commodity, in fact, have value? Well, value is probably present in a steak or pair of shoes; but is it present in a Trident nuclear submarine? Both the steak and the sub can be exchanged for dollars, or even ounces of gold, but is a definite quantum of socially necessary labor time actually present in each? Since we can not answer this question directly, we might answer it indirectly, by comparing the dollar measure of a given duration of economic activity to the gold measure of this same activity.

    I am not sure if this answers your question.

  16. If the issue is the effect of inflation on the rate of profit, I think there are ways of addressing and controlling for this effect that don’t involve computing rates of profit in terms of gold. In my book, I have a rather long discussion of this. I “deflated” profits and net investments by the GDP price index. This results in measures of how much GDP-stuff (goods and services) the profit can purchase and how much GDP-stuff could have been bought with the funds used for net investment.

    Profit is the numerator of the rate of profit. The running total of net investments is the denominator of the rate of profit. Similarly, deflated profit is the numerator of the inflation-adjusted rate of profit, and the running total of deflated net investments is denominator of the inflation-adjusted rate of profit.

    I also did an analogous deflation, using a proxy for the monetary expression of labor-time (MELT). MELT-adjusted profit and net investment are measures of how much labor a dollar of profit of net investment “commands” in exchange, i.e., the amount of value, in terms of labor-time, that a dollar can purchase.

    The inflation adjustment and the MELT adjustment had a big effect of the *level* of the rate of profit, but on the whole they had little effect on *trends^ in the rate of profit. The main exception was the 1970s, where the nominal rate of profit rose substantially, but the inflation- and MELT-adjusted rates of profit fell or rose only a tad. From 1982 to 2007, the adjustments had very little effect. The extent of the fall in the MELT-adjusted rate of profit was almost the same as the extent of the fall in the nominal rate, while the inflation-adjusted rate fell by about 3/5ths as much.

    Revaluation in terms of gold would give us how much gold the profit can purchase and how much gold could have been bought with the funds used for net investment. I doubt that the ratio of profit in terms of gold to the running total of net investments in terms of gold tells us anything meaningful, but in any case the movements in this ratio vary markedly from movements in the nominal, inflation-adjusted and MELT-adjusted rates of profit.

  17. Reply to Andrew Kliman | December 12, 2011, 2:03 am

    I have not studied the concept of MELT, I will do so. But, it seems to me Marx’s argument was that the value represented by currency in circulation could not exceed the value of the gold necessary to replace it. So, I am not sure why MELT is necessary when you already have gold. Can you explain this?

  18. I think the MELT is a concept implicit in Marx’s work. He talks about the “monetary expression of value.” The MELT is a number that measures this. E.g., if an average (socially necessary) day of labor creates a value of 48 pounds sterling, and the average workday is 8 hours, then the monetary expression of the value created during the day is 48 pounds sterling, the monetary expression of the value created during an average work hour is 6 pounds sterling, and the MELT is (48 pounds sterling)/(8 labor-hrs) = 6 pounds sterling per labor-hr.

    One can also compute a MELT in terms of gold. If 6 pounds sterling are exchangeable for 2 ozs of gold, then the “gold MELT” in the above example is (2 ozs of gold/6 pounds sterling) x (48 pounds sterling)/(8 labor-hrs) = 2 ozs of gold per labor-hr.

    Now here’s what’s probably the KEY point: even when a gold standard prevails, the exchange-value of gold frequently differs from the value of gold, and thus the reciprocal of the “gold MELT–in this example, 1/2 labor-hr per oz of gold–differs from the value of the gold in terms of labor-time. I.e., more or less than 1/2 hour of labor is needed to produce an ounce of gold.

    The consequence of this is that, even when a gold standard prevails, conversion of stuff like nominal GDP into an amount of gold, by taking “the price of gold” and multiplying it by the GDP — e.g. (2 ozs of gold/6 pounds sterling) x (48 pounds sterling) = 16 ozs of gold — generally does not result in the amount of value *produced* in terms of gold. It results in the the amount of gold for which the GDP would exchange.

    Alan Freeman and I have written more on this here: http://nongae.gsnu.ac.kr/~issmarx/eng/article/22/Freeman&Kliman22.pdf . See especially pp. 202-210. Due to the way in which the editors formatted the table, it’s rather hard to read, but it can be figured out with patience.

    Having found the page numbers, I might as well also quote the following on pp. 198-99 that’s germane to our discussion here:

    “To serve as the standard of price, an instrument need not have intrinsic value; we can and do express the prices of things, including prices of produced commodities, in terms of other things ― dollars, euros, yen, sterling ― that lack intrinsic value. Moreover, in both Marx’s own theory and the TSSI, the real values of
    commodities (as distinct from the nominal expressions of these values) are determined exclusively by the amounts of labor that are socially necessary for their production. This means that the real values remain unchanged when the relationship between the real values and the standard of price changes. So it does not matter, insofar as the determination of any real value magnitude is concerned, whether the particular instrument that serves as the standard of price is “actually” money or not.

    “Does this mean that the intrinsic value of money has no bearing on Marx’s theory of money or capitalism? Not at all. A whole series of relations in capitalism act to limit the number of instruments that perform functions of money. Capitalism is not free to use whatever it likes as money, as the present crisis makes only too clear. This is because money cannot function as a mere instrument of circulation or a mere standard of price (see Freeman 2004). It also has to function as means of payment, store of value, and world money. These are connected as follows: in a credit crunch, sellers demand payment. They are not content to accept a promise of future payment which may never happen; instead, they want “real” money. But what is real? The “soundness” of what was previously thought to be “sound” money rests on a pyramid of promises. So it becomes a matter of urgency to convert debts that could previously be settled in Argentinean pesos, Irish punds or Greek drachmae into “hard” money, world money ― dollars, euros, yen, sterling.

    “But even these world currencies, in the last analysis, rest on political settlements that, in turn, are established on the basis of material realities. The United States has only a limited ability to make the world to trade in dollars.That ability rests on a fast-fading economic dominance. In consequence, sellers and their ultimate guarantors, the central banks, cast increasingly nervous glances at the composition of their reserves, the unstated question left hanging being “what if?”: What if dollar debts begin to fall in value, compared to yen debts or sterling debts? What if they continue to fall in value compared to commodities? And what if they continue to fall, as they so catastrophically have in recent years, compared to gold, since the rise in gold
    prices is merely the inverse expression of the fall in the value of the dollar? Most critically of all, what if clients emerge who are no longer prepared to accept dollars as payment? Non-Marxists such as Eichengreen (2004) have charted this process with considerable acumen and foresight.

    “All theories of “the age of electronic money” to the contrary, gold still functions as a reserve of banks and central banks. The world’s current monetary system is, in effect, an inverted pyramid based on the exchangeability of all commodities for the dollar, which in turn is based in a complex way on the latter’s exchangeability for gold, or for some basket of gold and other produced commodities. In the event of a full breakdown of the world monetary system, the ultimate commodity basis on which the system rests would
    re-emerge with great force. In the meantime, it lingers in the background ― in the consciousness of bankers and, in a very complex and mediated way, in the actual rates at which monetary instruments trade in the worlds’ currency and money markets.”

  19. Okay, I am now really confused by your argument:

    You state: “To serve as the standard of price, an instrument need not have intrinsic value; we can and do express the prices of things, including prices of produced commodities, in terms of other things ― dollars, euros, yen, sterling ― that lack intrinsic value. Moreover, in both Marx’s own theory and the TSSI, the real values of commodities (as distinct from the nominal expressions of these values) are determined exclusively by the amounts of labor that are socially necessary for their production. This means that the real values remain unchanged when the relationship between the real values and the standard of price changes. So it does not matter, insofar as the determination of any real value magnitude is concerned, whether the particular instrument that serves as the standard of price is “actually” money or not.”

    I just have to ask: To whom is it of no concern what object serves as the standard of price ? It certainly was of concern to Keynes. Keynes argues the money illusion could be used to confuse and disorganize working class opposition to wage reductions in a crisis:

    KEYNES: “Thus it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages, which are seldom or never of an all-round character, even though the existing real equivalent of these wages exceeds the marginal disutility of the existing employment; whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.”

    The argument posed by Keynes here seems to be that real wages can be reduced so long as nominal wages are unchanged. The working class will not strike every time inflation eats away at the value of their money wages.

    And what made this possible? Severing token currency from money. You seem to be overly focused on the narrow technical details of an artificial money system while ignoring the implications of political control of consumption through a valueless currency issued by the state. And, what is the measure of the effectiveness of this political regime? Most clearly it is commodity formerly serving as money prior to this covert act of class war.

    I am very confused now. I am in no way prepared to continue this conversation.

    Thanks for your input.

    Jehu

  20. If it doesn’t matter what serves as money, why did the capitalist state remove gold backing to the currency????

  21. @ Jehu: You ask, “To whom is it of no concern what object serves as the standard of price ?” But we didn’t suggest that it isn’t a matter of concern. We argued that “it does not matter, insofar as the determination of any real value magnitude is concerned, whether the particular instrument that serves as the standard of price is ‘actually’ money or not.”

    We also didn’t argue that “it doesn’t matter what serves as money.” We argued the opposite: “Capitalism is not free to use whatever it likes as money, as the present crisis makes only too clear.” Etc.

    You say, “You seem to be overly focused on the narrow technical details of an artificial money system while ignoring the implications of political control of consumption through a valueless currency issued by the state.” Please keep in mind that what we wrote was a response to someone else’s paper. His paper was about something different from what you’re interested in. So our paper likewise doesn’t discuss what you want to discuss in the way in which you want to discuss it. I don’t think this means that we’re overly focused on narrow technical details, etc. One can be concerned with more than one thing.

    I quoted this passage I quoted in order to show that I do think that gold remains important in *some* sense even though we don’t have a gold standard.

    You, skepoet, and I were discussing an issue that you raised: the measurement of GDP, rates of profit, and so on in terms of gold. I see no reason why your confusion about the passage I quoted should impede that discussion.

    The *main* point I made in my last comment concerned the measurement of GDP, rates of profit, and so on in terms of gold, and it’s not a narrow, technical detail but goes to the heart of the issue concerning the relationship between gold and value: “conversion of stuff like nominal GDP into an amount of gold … generally does not result in the amount of value *produced* in terms of gold. It results in the the amount of gold for which the GDP would exchange.”

  22. @ Jehu: Let me ask my question a different way. You say “In this crisis, labor power has been devalued to about 3% of 1971 levels.” This means that the average worker can now buy only 3 ozs of gold for every 100 ozs of gold an average worker could buy in 1971, yes?

    (Why) do you think this is a more meaningful measure of the value of labor-power than the measure Marx employed when he introduced the concept of the value of labor-power, namely the amount of time the worker needs to work in order to produce an amount of new value that replaces the value (as measured in terms of labor-time) that she’s received as wages? That certainly isn’t down to 3% of the 1971 level.

    Why is it so terribly important how much gold workers can buy with their wages, rather than how much food, clothing, shelter, etc. they can buy? After all, how much gold have they every bought? And is the 97% “devaluation of labor-power” a big boon to their employers? How many employers have ever paid wages in gold?

    When you say

    “by depression standards, the 1970s depression was longer and deeper than the contraction of the 1930s. The present depression, beginning in 2001, is now longer and likely deeper than the 1970s depression. Each succeeding depression is worse than the previous one”

    your measure of the length and depth of depressions is based EXCLUSIVELY on how much gold we could buy with our wages or with the GDP, yes? If so, why is this–and this ALONE–your preferred measure of depression length and depth? Why aren’t things like unemployment rates, the amounts of other goods and services we can buy with our wages, the magnitude of the decline in physical production, and bankruptcy rates relevant factors when assessing the length and depth of depressions?

  23. Good question. I want to state this is not about gold per se, but about a commodity reference for measure of value. Gold is only the best of a number of choices.

    Remember this equation:

    Value = socially necessary labor time

    and this one:

    Socially necessary labor time = the portion of the work day during which the worker produces the value of her wages

    This means:

    Value = SNLT = Wages

    Only a commodity money can measure this. It cannot measure use value (such as goods and services), magnitude of decline in production or bankruptcy rates, because all of these things can be affected by factors other than value, or socially necessary labor time.

    It is important to remember that in the capitalist mode of production the superfluous is made the condition of the necessary. So, it is altogether possible to employ productive capacity unproductively, including both labor power and means, if this employment helps to maintain profitability.

    Commodity money cannot register this unproductive employment of productive capacity. It can only register the socially necessary expenditure of human labor power — the portion of the total labor power that reenters production for the purpose of the expansion of the capital.

    Suppose, for example, a portion of the existing surplus product is expended unproductively as revenue spent on luxury items of capitalist consumption; this portion of capital is used up and does not reenter productive employment. Now, suppose, on the other hand, a portion of existing product takes the form of an aircraft carrier. This portion as well does not reenter capitalist production. However, it is possible to replace this lost real capital in circulation with tokens emitted by Washington. In this case, real capital has been used up unproductively, but the money capital been replaced in circulation by tokens of money.

    When might this occur? According to Marx, as I understand him, this might occur when no additional surplus value can be realized as profit — i.e., under conditions of absolute over-accumulation of capital. At this point, when the value of the capital can no longer expand under any circumstances within the constraints of the mode of production, profit can still be derived through expansion of the superfluous labor time, i.e., labor time that satisfies no human need via public debt and other means of issuing fictitious profits.

    This point is reached when the above equation (value = SNLT = wages) holds true not just relatively, but absolutely. It means the only value produced under the capitalist mode of production is strictly limited to the wages of working class. The reason why no other measure will do in identifying this point in the development of capital is that no other theory of money allows for the existence of totally superfluous labor time as the condition of profit making.

  24. I’d like to respond to this, but a response that focuses on why I disagree with all 3 equations (and don’t think they’re Marx’s theory either), and why I think that the last one doesn’t follow logically from the 1st 2, would be rather technical. I don’t know that this is how you’d like me to approach the matter.

    Maybe you can provide DIRECT answers to the questions I posed that don’t involve any interpretation of Marx’s theory? The ones that begin “Why is it so terribly important how much gold workers can buy with their wages” and “your measure of the length and depth of depressions is based EXCLUSIVELY on how much gold we could buy.”

    You seem to say that only a commodity money can measure wages. Is that what you mean? I assume that you don’t deny that if, in a given time and place, one worker’s wage is $20,000 and another’s is $60,000, that the 2d worker’s wage is 3 times as great. So in what sense do you deny that the dollar can measure wages? If your answer is that a dollar can represent different amounts of labor-time at different times, do you deny that an ounce of gold, or an ounce of silver, can represent different amounts of labor-time at different times? For instance, do you deny that 100 ounces of gold represent different amounts of labor-time at times 1 and 2 in the following example?:

    At time 1, an ounce of gold exchanges for $400. At time 2, an ounce of gold exchanges for $2000, five times as much. At both times, the average annual wage is $40,000. And, at both times, the average annual wage purchases goods and services that take x labor-hrs to produce. But at time 1, the average annual wage could purchase 100 ounces of gold, while at time 2, the average annual wage could purchase only 20 ounces of gold, one-fifth as much. So at time 1, 100 ounces of gold could purchase goods and services that take x labor-hrs to produce, while at time 2, 100 ounces of gold could purchase goods and services that take 5x labor-hrs to produce.

  25. If we were just dealing with two categories of labor time — socially necessary labor time and surplus socially necessary labor time — the problem of measuring socially necessary labor time would not be a problem. All labor time would be socially necessary, and the only distinction to be made is whether this socially necessary labor time appeared in the form of wages (socially necessary labor time) or profit (surplus socially necessary labor time).

    However, there is another concept that appears in Marx: superfluous labor time. According to Postone (Time, Labor and Social Domination) this labor time neither falls under the category of socially necessary labor time, nor surplus socially necessary labor time, i.e, value and surplus value, or wages and profit. Although, by definition, it is a portion of surplus value, it is superfluous both to the consumption of the worker and in excess of the portion of surplus value that can be realized in the form of profit.

    Postone in his book reconstructs this category and says of it:

    “My examination of the dialectic of the two dimensions of capitalism’s underlying social forms has shown, however, that a general reduction of socially necessary labor that would be fully commensurate with the productive capacities developed under capitalism cannot occur, according to Marx’s analysis, so long as value is the source of wealth. The difference between the total labor time determined as socially necessary by capital, on the one hand, and the amount of labor that would be necessary, given the development of socially general productive capacities, were material wealth the social form of wealth, on the other, is what Marx calls in the Grundrisse “superfluous” labor time. The category can be understood both quantitatively and qualitatively, as referring both to the duration of labor as well as to the structure of production and the very existence of much labor in capitalist society. As applied to social production in general, it is a new historical category, one generated by the trajectory of capitalist production.”

    So far as I know, no other Marxist theorist has employed this concept, nor identified a method for identifying it in economic data. I believe this is precisely what gold (commodity money) is showing us in the data. What the concept superfluous labor time implies is that an increasing portion of surplus labor time wrung from the worker cannot be realized as profit under any circumstances.

    This has echoes directly back to Marx in Capital, Volume Three and his notion of absolute over-accumulation of capital:

    “There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.

    “In reality, it would appear that a portion of the capital would lie completely or partially idle (because it would have to crowd out some of the active capital before it could expand its own value), and the other portion would produce values at a lower rate of profit, owing to the pressure of unemployed or but partly employed capital. It would be immaterial in this respect if a part of the additional capital were to take the place of the old capital, and the latter were to take its position in the additional capital. We should still always have the old sum of capital on one side, and the sum of additional capital on the other. The fall in the rate of profit would then be accompanied by an absolute decrease in the mass of profit, since the mass of employed labour-power could not be increased and the rate of surplus-value raised under the conditions we had assumed, so that the mass of surplus-value could not be increased either. And the reduced mass of profit would have to be calculated on an increased total capital. But even if it is assumed that the employed capital continues to self-expand at the old rate of profit, and the mass of profit hence remains the same, this mass would still he calculated on an increased total capital, this likewise implying a fall in the rate of profit. If a total capital of 1,000 yielded a profit of 100, and after being increased to 1,500 still yielded 100, then, in the second case, 1,000 would yield only 66⅔. Self-expansion of the old capital, in the absolute sense, would have been reduced. The capital = 1,000 would yield no more under the new circumstances than formerly a capital = 666⅔.”

    Marx’s argument suggests at a certain point the rate of profit falls to zero. He, of course, introduces a number of countervailing tendencies to offset this fall, but his logic suggests eventually even these counter tendencies prove insufficient. At some point the rate of profit falls to zero, and no countervailing tendency can offset this fall.

    But, there is a temporary solution to this problem: debasing the currency from commodity money and creating demand through state expenditures via a worthless token that can serve to artificially prop up the rate of profit for a period of time.

    This is the point where Postone’s argument comes into play: economic activity in the economy has a marked tendency toward superfluous activity entirely devoted not to satisfaction of human need, but undertaken solely to support the rate of profit. This activity consists entirely of consuming existing productive capacity unproductively, and replacing the consumed capital in circulation with state issued tokens of money.

    So why does gold (commodity money) serves as the better measure of this development than MELT? I really can’t say unreservedly it is better measure of this development, but, so far as i know, a commodity money like gold is the only way to measure this. I can only ask you if MELT also has a means of identifying the difference between socially necessary labor time and superfluous labor time? I know commodity money has this characteristic in theory, because Marx explicitly states the value of the commodity expressed in its price does not include all labor time, but only the portion of the labor time that is socially necessary.

    It is not at all sufficient to state MELT is the monetary expression of labor time; what has to be proven is that it is the monetary expression of socially necessary labor time.

    Gold does have its own flaws; its purchasing power varies over the course of the cycle of expansion and contraction. It is not a perfect money. However, despite these fluctuation in the circulation of commodities, commodity money has the ability to distinguish generally between socially necessary labor time (wages and profit) and superfluous labor time.

  26. I would add that for historical materialists this should be an interesting issue, since if gold is correct, it is indicating as much as 90 percent or more of present wage work is superfluous. Knowing what gold is indicating is an extremely important working class issue.

  27. Was this meant as a response to my reply of December 15, 2011, 5:19 am? If so, I don’t know what to say, because I don’t find it responsive at all. Can you provide DIRECT answers to my questions?

  28. 1. “Why is it so terribly important how much gold workers can buy with their wages”

    I’m sorry, but I did not suggest this was about how much of anything workers could buy with their wages. You suggested this. You suggested my argument comes down to “how much gold workers can buy with their wages”; or that it could be interpreted to mean “that the average worker can now buy only 3 ozs of gold for every 100 ozs of gold an average worker could buy in 1971″.

    I made no such argument, I said the wages of the average worker had been devalued to about 3% of what it was in 1971.

    You then imposed on me the conclusion that how much gold a worker could buy was a more meaningful measure of the value of labor power than the measure Marx employed. I made no such assertion. I made no assertion regarding what the worker could buy of any commodity or commodity money, whatsoever.

    My argument was that using gold as a measure of value, labor power had been devalued to 3 percent of what it was in 1971. Of course, other commodities have been devalued as well, although perhaps not to the same extent. (For instance, the price of a house, car, food ,etc). I am talking the devaluation of capital — which is also the devaluation of commodities but not limited to just this.

    I am referring, in other words, to the devaluation of >>socially necessary labor time<>total labor time<< of society.

    The value of labor power is exactly as Marx defines it in my opinion, the portion of the labor day during which the worker produces the value of her wages. Of course, I said this, but you dismissed the answer. So let me say it again: The value of wages is the portion of the labor day during which the worker produces the value of her wages.

    “your measure of the length and depth of depressions is based EXCLUSIVELY on how much gold we could buy.”

    My measure of the length and depth of depressions has nothing to do with how much of anything anyone can buy. Why do you keep phrasing my argument this way?

    Let's just be clear what my argument is: Gold as money in the function of a measure of value indicates GDP results which greatly differ with the official data since 1933, when the dollar was debased from gold. Before that period of time, in Marx's theory of money, the measure of value function of money depended not on the token of money (dollar) but the commodity serving as money (gold). The token serving as money had/has no capacity to measure the value of economic output. If you want to identify real trends in such data as wages and profit, you have to look at gold measures of economic activity since 1933 and compare them to dollar measures of the same activity.

    One trend to understand is the behavior of commodity money prices during expansions and contractions. Marx argues that the purchasing power of money tends to fall during an expansion, and its tends to rise during contractions. The purchasing power of commodity money is at it lowest point at the apex of the expansion and at it highest point at the nadir of the contraction.

    Is this correct? Am I making this up? Am I substituting my pet theories for Marx's argument?

    So, in a monetary regime where the token of money floats against a commodity money like gold (but not limited to just gold) what should we expect the nominal price of gold to do during an expansion, when its purchasing power in theory should be falling?

    We should expect the price to fall.

    And, what should we expect the nominal price of gold to do during a contraction, when its purchasing power in theory should be rising?

    We should expect the price of gold to rise, or course.

    So, when we actually look at the historical data and identify those points where large scale multiyear economic dislocations took place, and find the price of gold is also rising, what should we conclude from this?

  29. Moreover Andrew, you should know yourself that when a commodity money is used as an equivalent, it is wrong to say so much of an ordinary commodity can purchase this amount of the commodity money. The relationship is fixed so that the value of the relative form is expressed in the equivalent form. You cannot just turn the relationship around. We can speak of the value of labor power in so many ounces of gold, but not ounces of gold in such and such a quantity of labor power.

    Finally, you did not answer my question: can your MELT detect the presence of superfluous labor time in the economy? :)

  30. Jehu,

    You say that, when you wrote “the wages of the average worker had been devalued to about 3% of what it was in 1971,” you didn’t mean you didn’t mean “the average worker can now buy only 3 ozs of gold for every 100 ozs of gold an average worker could buy in 1971.″ Instead you meant that “the portion of the labor day during which the worker produces the value of her wages” is 3% of what it was in 1971, yes?

    How do you estimate the portion of the workday during which an equivalent of the wage is produced? Can you please explain the procedure you used to compute the 3% result? I want to see whether or not the result is equivalent to the statement that “the average worker can now buy only 3 ozs of gold for every 100 ozs of gold an average worker could buy in 1971.″

    I’ll have to return to the depression issue and the MELT issue later.

    Can you provide a direct answer to my question of December 15, 2011, 5:19 am about whether 100 ounces of gold represent different amounts of labor-time at times 1 and 2 in the example I gave?

  31. You asked:

    “You seem to say that only a commodity money can measure wages. Is that what you mean? I assume that you don’t deny that if, in a given time and place, one worker’s wage is $20,000 and another’s is $60,000, that the 2d worker’s wage is 3 times as great. So in what sense do you deny that the dollar can measure wages?

    Refresh my memory. I don’t think I said a dollar could not measure wages. I think I said a dollar cannot measure the value of wages (or, perhaps, more accurately, labor power). If there is some confusion about this, I want to clarify it. The dollar has no value, so it cannot measure the value of one labor power versus another labor power as values. It is true in the case where one person has 3 times the dollar wages of another, there is a quantitative difference in dollar denominated wages. But, this tells us nothing about the value of either wage. Since the dollar has no value, the value expressed in any dollar wage is zero, even if one wage is ten times or one hundred times the dollar amount of the other. Ten or one hundred times zero is still zero.

    Why is this important? Because it implies both workers are not being paid at all! It implies that their labor power is being handed over to the capitalist in return for the fiction of a worthless unit of paper or dancing electrons. While the distribution of this nothing appears uneven, it actually amounts to nothing in both cases.

    +++++++++++++++++++++++++

    You also asked:

    “If your answer is that a dollar can represent different amounts of labor-time at different times, do you deny that an ounce of gold, or an ounce of silver, can represent different amounts of labor-time at different times? For instance, do you deny that 100 ounces of gold represent different amounts of labor-time at times 1 and 2 in the following example?

    “At time 1, an ounce of gold exchanges for $400. At time 2, an ounce of gold exchanges for $2000, five times as much. At both times, the average annual wage is $40,000. And, at both times, the average annual wage purchases goods and services that take x labor-hrs to produce. But at time 1, the average annual wage could purchase 100 ounces of gold, while at time 2, the average annual wage could purchase only 20 ounces of gold, one-fifth as much. So at time 1, 100 ounces of gold could purchase goods and services that take x labor-hrs to produce, while at time 2, 100 ounces of gold could purchase goods and services that take 5x labor-hrs to produce.”

    My answer is not that the dollar can represent different amounts of labor time at different times; rather it is that dollars can never represent any labor time at all. This is quite different from gold or silver which can, in fact, express quite different labor times at different times. Any exchange of money for a commodity is, in fact, an arbitrary outcome of far more factors than simply the socially necessary labor time embodied in the commodity. There are factors that can affect the value of the money or the value of the commodity or both together or both in opposite directions. This is not a defect of money, but the way money works.

    Also a confession: I seem to have been looking at the wrong table when I made the statement about labor power in 1971 and at present. I actually quoted you a figure that was wildly off base. Give me a chance to fix the numbers I have been referencing and I will respond on that point as well.

  32. Me: “You seem to say that only a commodity money can measure wages. Is that what you mean?”

    You: “Refresh my memory. I don’t think I said a dollar could not measure wages. I think I said a dollar cannot measure the value of wages (or, perhaps, more accurately, labor power).”

    Me: You wrote, “Value = SNLT = Wages [line break] Only a commodity money can measure this.” This implies that a dollar can’t measure wages. And if “Value = Wages,” the “value of wages” is the value of value and the wages of wages.

    You: “Since the dollar has no value, the value expressed in any dollar wage is zero, even if one wage is ten times or one hundred times the dollar amount of the other. Ten or one hundred times zero is still zero. [line break] Why is this important? Because it implies both workers are not being paid at all! It implies that their labor power is being handed over to the capitalist in return for the fiction of a worthless unit of paper or dancing electrons.”

    Me: If this is what you think, don’t bother fixing the 3% estimate, because I know the answer. What you wrote here implies that the amount of time that U.S. workers work in order to replace the sum of value they receive as wages was 0 in 1971 and remains 0 now. So it has remained constant!

    And even when the gold standard prevailed, U.S. workers’ wages were paid in dollars that had no value. The wages were convertible into gold at a fixed rate, and convertible into other things that have value at a variable rate. The only difference now is that the wages are convertible into gold and other things that have value at a variable rate.

    I think the root of your difficulties here is the notion that A can’t express B if A itself isn’t (or doesn’t have) B. That’s an idiosyncratic use of “express.” Words aren’t thoughts and don’t have thoughts, but they still express thoughts. A painting expresses an artist’s emotions but isn’t emotions and doesn’t have emotions. Etc.

    I don’t know how to respond yet to your reply to my numerical example, because my response will depend on the procedure you use to compute the value of labor-power or the value of the average wage.

    You: “Finally, you did not answer my question: can your MELT detect the presence of superfluous labor time in the economy?”

    Me: First, it’s not my MELT. It’s a widely used concept, and it’s implicit in Marx. Second, the answer to your question is “non.” The MELT isn’t a diagnostic device. It’s the ratio of the total price of output measured in terms of money to the total value of output measured in terms of labor-time. To compute the MELT, you first need to know the total price and the total value. To estimate the MELT, you first need estimates of the total price and the total value.

    Before commenting on the method you use to measure the length and depth of depressions–”the 1970s depression was longer and deeper than the contraction of the 1930s”–I want to be sure that I understand it. Is this the procedure?

    (a) Assume that “[]he purchasing power of commodity money is at it lowest point at the apex of the expansion and at it highest point at the nadir of the contraction.”
    (b) Assume that this still holds true of the purchasing power of gold.
    (c) Find the low and high points of the purchasing power of gold.
    (d) Infer from these low and high points the apex of the expansion and the nadir of the contraction.

    I see how (given the 2 assumptions), this measures the length of depressions, but not how it measures their length. Can you explain that?

  33. In answer to your question regarding the value of labor power, my latest figures are for 1970 and 2010. Gold prices are taken from this website: http://www.usagold.com/reference/prices/2010.html. This site list the daily afternoon fix for gold in London. my data uses the annual average of the afternoon fix as the baseline for the price of gold. Once I strip out the dollars value of both labor power (average hourly wage per the Census times 8 hours) and an ounce of gold, I arrive at a labor power/gold equivalent:

    For 1970:

    Average annual afternoon fix of gold = 38.90
    Average hourly wage times 8 = 3.50 x 8 = 28
    Daily value of labor power = .72 ounce of gold

    For 2010:

    Average annual afternoon fix of gold = 1224.52
    Average hourly wage time 8 = 19 x 8 = 152
    Daily value of labor power = .12 ounce of gold

    Ratio of labor power value 2010/1970 = 17.25%

  34. Thanks for the computations.

    It’s clear (because my results match yours) that your procedure for computing “the portion of the labor day during which the worker produces the value of her wages” is the following: Take the average daily wage (in dollars), and divide it by the price of gold (in dollars).

    The result is supposedly “the portion of the labor day during which the worker produces the value of her wages.”

    But it isn’t. “.72 ounce of gold” isn’t a portion of the labor day. “.12 ounce of gold” isn’t a portion of the labor day.

    A portion of the workday is a number of labor-hrs (or minutes, etc.). But your computation results in a number of ounces of gold per workday (ounces of gold divided by workdays):

    Wage = ($ / workday)

    Price of gold = ($ / ozs of gold)

    Wage/Price of gold = ($ / workday) / ($ / ozs of gold)
    = ($ / workday) x (ozs of gold / $)
    = (ozs of gold / workday)

    So, by going to work for a day, an average worker obtained a wage that allowed her to buy 0.72 ozs of gold back in 1970, but only 0.12 ozs of gold in 2010. That’s what the 0.72 and 0.12 are — ozs of gold per workday. They’re not numbers of labor-hours; and they’re not fractions of an 8-hr workday.

    My question remains: Why is it so terribly important how much gold workers can buy with their wages?

  35. To Andrew Kliman @ December 16, 2011, 5:05 pm

    Are you always this disingenuous in your argumentation? :)

    How does my argument come down to how much gold a worker can buy with her wages? This is a complete distortion of Marx’s argument, and you should know this.

    I need to ask you this: If we remove dollars from the equation entirely does the worker use her labor power to buy gold, or does the owner of gold use his gold to buy her labor power? Since this is the antecedent to our present monetary system the answer to it is vital, I think, for purposes of determining where we differ. The answer to my question establishes which commodity serves in the relative position and which commodity serves in the equivalent position during the transaction. Is the owner of the labor power the buyer of gold, or is the owner of the gold the buyer of labor power?

    While we are at it, for purposes of clarification could you give me a quick yes or no to the following?

    1. Do you agree the following are the essential theoretical assumptions in Marx’s argument on money — not an “implicit” assumption, but very explicit?:

    The owner of gold is the buyer and the owner of labor power is the seller.

    2. Do you agree in the above example that gold expresses the value of labor power, and labor power does not express the value of gold?

    3. Do you agree that even with a token of money this essential assumption is not altered in any meaningful way:

    The owner of tokens of gold is the buyer and the owner of labor power is the seller

    4. Do you agree in the above example that, despite the token of money, the value of labor power is expressed in the token by virtue of its definite relation with gold?

    5. Do you agree that even if the token is inconvertible — as was the case for the dollar from 1933 to 1971 — it plays none other than a passive role in the value expression of the commodity?

    6. Do you agree that this passive role consists solely of it representing only the quantity of gold (or, another commodity money) that would replace it in actual circulation?

    7. Do you agree that this representative function is true only generally, i.e., for the total sum of values in circulation and is not true in the case of any particular commodity, e.g, a labor power, a pair of shoes, a house?

    8. Do you agree that, as a result of the former, we cannot use dollar prices for a commodity (such as wages for labor power) as a proxy for the value of labor power.

    9. Do you agree that once the dollar is severed from a state imposed relation with a definite quantity of gold, the only method to find the value of any commodity is to strip off the dollar price of the commodity so as to express the commodity directly in units of a commodity money?

    10. Do you agree that the role of the state in determining what is to serve as money in a transaction carries with it the problem of arbitrary political intervention?

    Thanks for your response.

  36. To Andrew Kliman @ December 16, 2011, 3:49 pm

    Me: “You seem to say that only a commodity money can measure wages. Is that what you mean?”

    You: “Refresh my memory. I don’t think I said a dollar could not measure wages. I think I said a dollar cannot measure the value of wages (or, perhaps, more accurately, labor power).”

    Me: You wrote, “Value = SNLT = Wages [line break] Only a commodity money can measure this.” This implies that a dollar can’t measure wages. And if “Value = Wages,” the “value of wages” is the value of value and the wages of wages.

    COMMENT

    It does not simply imply that a dollar can’t express the value of labor power, it explains why this thing that cannot express the value of labor power becomes the fictional money object in the economy. It is because at the point where value = wages, no further surplus value can be realized as profit. All value created in the act of production must take the form of wages. This fits the definition given by Marx of absolute over-accumulation of capital that I cited above:

    “There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour.”

    Which is to say, capital has reached the limits of its expansion, not just relatively, but absolutely; the existing employed labor power could not be expanded any further, the newly created surplus value could not be realized as profit. At this point, the total value created by the total capital of society would equal the value of wages (labor power), thus value = wages.

    After this point, the rate of profit can only be maintained by continuous devaluation of the existing stock of capital — both variable and constant (per Grossman). The introduction of a fictional money at this point enables the state to achieve this continuous devaluation via inflation, i.e., depreciation of the real purchasing power of wages.

    What Marxists have always needed to explain is not why the dollar is money, but why it is not money — and why, despite its obvious absence of any monetary qualities, it serves as money in the economy.

    +++++++++++++++++++++++++++++++

    You: “Since the dollar has no value, the value expressed in any dollar wage is zero, even if one wage is ten times or one hundred times the dollar amount of the other. Ten or one hundred times zero is still zero. [line break] Why is this important? Because it implies both workers are not being paid at all! It implies that their labor power is being handed over to the capitalist in return for the fiction of a worthless unit of paper or dancing electrons.”

    Me: If this is what you think, don’t bother fixing the 3% estimate, because I know the answer. What you wrote here implies that the amount of time that U.S. workers work in order to replace the sum of value they receive as wages was 0 in 1971 and remains 0 now. So it has remained constant!

    COMMENT

    That is not exactly accurate. In 1971 the dollar was still a token of gold money. It was not until Nixon actually severed the relationship that it became a worthless piece of paper. At that point, the average daily value of one labor power was equal to approximately .72 ounce of gold. Insofar as the dollar was a token of a commodity money, its quantity was tied to definite quantity of gold that served as a measure of the value contained in the labor power.

    However, it was not the dollar that performed this function, gold, to which it was pegged, performed the function — the dollar itself only denominated this value in units of the official currency. Once the peg was removed, denomination of prices and the function of measure of the value devolved on different objects, or, what is the same thing, prices had no standard.

    The error here is to treat the sum of wages as having the same functions both before and after debasement of the dollar. But, there is a larger error: if we accept the dollar as money, we are not forced, as historical materialists, to explain it.

    +++++++++++++++++++++++++++++++

    “And even when the gold standard prevailed, U.S. workers’ wages were paid in dollars that had no value. The wages were convertible into gold at a fixed rate, and convertible into other things that have value at a variable rate. The only difference now is that the wages are convertible into gold and other things that have value at a variable rate.”

    COMMENT

    That is not completely accurate. When the gold standard prevailed workers were paid in tokens of value. This is not the same thing as stating dollars had no value, I think. I also think it may not be correct to state, “The only difference now is that the wages are convertible into gold and other things that have value at a variable rate” for the following reasons:

    First, the difference is a matter of conflict between two classes over division of the social product. The worker is paid in a worthless scrip that has no real relation with any values. The variability of the relation between this worthless thing and the consumption of the working class is being determined by the economic policies of Washington, which has sided with capital to continuously devalue the wages of the working class.

    Second, the difference is a matter of conflict within the capitalist class itself over division of the spoils of the exploitation of the working class. Over-accumulation presupposes this conflict in which the struggle to expand any capital comes at the expense of all other capitals. Which capital will expand, and which capital must suffer to stand idled altogether or partially, is decided by political and material advantages.

    Third, the difference is a matter of conflict within the working class itself, as one section or another tries to displace the burden of continuous devaluation of labor power onto another section of the class, either here or abroad.

    Last, the difference is political. The replacement of commodity money with this fiction of money also replaces the natural function of a use value with the management of production and exchange by the state. The state increasingly enlarges itself at the expense of the rest of society, and become, in the words of Engels, the national capitalist.

    +++++++++++++++++++++++++++++++

    “I think the root of your difficulties here is the notion that A can’t express B if A itself isn’t (or doesn’t have) B. That’s an idiosyncratic use of “express.” Words aren’t thoughts and don’t have thoughts, but they still express thoughts. A painting expresses an artist’s emotions but isn’t emotions and doesn’t have emotions. Etc.”

    COMMENT

    I am not sure this is a legitimate argument, but I will consider it.

    +++++++++++++++++++++++++++++++

    “I don’t know how to respond yet to your reply to my numerical example, because my response will depend on the procedure you use to compute the value of labor-power or the value of the average wage.”

    COMMENT

    Okay.

    +++++++++++++++++++++++++++++++

    You: “Finally, you did not answer my question: can your MELT detect the presence of superfluous labor time in the economy?”

    Me: First, it’s not my MELT. It’s a widely used concept, and it’s implicit in Marx. Second, the answer to your question is “non.” The MELT isn’t a diagnostic device. It’s the ratio of the total price of output measured in terms of money to the total value of output measured in terms of labor-time. To compute the MELT, you first need to know the total price and the total value. To estimate the MELT, you first need estimates of the total price and the total value.

    COMMENT

    I think this is a fatal defect for MELT. To calculate the total value of output you must have a way of dividing the total labor time of society into socially necessary labor time and superfluous labor time. I can see no way to do this without employing a commodity money.

    ++++++++++++++++++++++++++++++

    “Before commenting on the method you use to measure the length and depth of depressions–”the 1970s depression was longer and deeper than the contraction of the 1930s”–I want to be sure that I understand it. Is this the procedure?

    (a) Assume that “[]he purchasing power of commodity money is at it lowest point at the apex of the expansion and at it highest point at the nadir of the contraction.”
    (b) Assume that this still holds true of the purchasing power of gold.
    (c) Find the low and high points of the purchasing power of gold.
    (d) Infer from these low and high points the apex of the expansion and the nadir of the contraction.

    I see how (given the 2 assumptions), this measures the length of depressions, but not how it measures their length. Can you explain that?

    COMMENT

    I am assuming you want me to explain how I arrive at the depth of a depression — not the length. In the data I am using, I simply divide the total output on an annual basis (NIPA) by the dollar denominated average annual price of gold, which gives me the total output in billions of ounces of gold. There are a number of problems I have with this method, including how to handle imports and exports, and the public sector. I have yet to address them theoretically. And this is a problem since a significant quantity of surplus value results from the US exorbitant privilege. Without a serious critique of NIPA itself, I can only be sure of the general tendency toward the accumulation of superfluous labor time in the economy, not its actual quantity. This tendency appears to to be increasing over time.

  37. As the risk of once again being called “one touchy bitch” by Jehu, I’m going to say that his comment, “Are you always this disingenuous in your argumentation?,” is OFFENSIVE and UNCALLED FOR. And UNTRUE. My argumentation isn’t disingenuous.

    Jehu claimed that the concept of the value of labor-power he employs is ““the portion of the labor day during which the worker produces the value of her wages.” I painstakingly demonstrated that this is false. AND THIS IS THE THANKS I GET?

    He writes, “How does my argument come down to how much gold a worker can buy with her wages? This is a complete distortion of Marx’s argument, and you should know this.” This makes NO SENSE AT ALL. I wasn’t dealing with MARX’s argument, and I wasn’t even dealing with Jehu’s argument. I was demonstrating that JEHU’s COMPUTATION of “the value of labor-power” is in fact a computation of the amount of gold an average worker can buy with her daily wages. AND THIS IS THE THANKS I GET?

    Despite Jehu’s protestations, the fact is that, if $152 is the average daily wage, a worker who receives the average wage can buy stuff that costs $152 with that wages. And if the price of gold is $1224.52, then 0.12 ozs of gold costs $152. So IT FOLLOWS AS THE NIGHT FOLLOWS THE DAY THAT 0.12 ozs of gold, which Jehu calls the “daily value of labor power,” is the amount of gold that the average worker can buy with her daily wages. This is not disingenuous. It’s a FACT.

    FACT, FACT, FACT.

    It’s NOT a fact that the 0.12 ozs of gold are used to purchase labor-power.

    Here are my answers to Jehu’s laundry list of questions. (Unless I agree with all aspects of the question, including embedded and unstated premises, I say no, I don’t agree): no, which example?, no, which example?, no, no, no, no, no, what’s the problem?

    When Jehu starts to act like a mensch, he’ll get fuller answers.

  38. Okay,

    I will stop. :)

    And, yes, I argued incorrectly that it measures the portion of the labor day during which the worker produces the value of her wages. You are correct I only demonstrated that it measures the value of those wages measured in gold. To demonstrate what portion the total work day this constitutes, I would have to provide additional information. I conflated the two things without realizing it.

    As to your argument that I rely on “how much gold a worker can buy with her wages?” I still think I am right about this, both logically (in following Marx’s argument) and historically in the antecedents to our present monetary system.

    As you note, even before the dollar was debased the worker was likely paid in dollars not gold. So, I ask you, when the worker took her dollar bills to the bank and demanded to redeem these tokens for gold, was this a transaction finishing the movement C===>M===>C? That is, a purchase of gold with dollars?

    Marx’s schematic of the circulation of commodity is thus: C===>M===>C; right? In this schematic did the conversion of the token into gold constitute a completed circuit of commodity to money to commodity, or did it merely constitute the movement C====>M. Did the worker buy the gold, or merely redeem a token for actual money?

    There are cases where such a purchase does, in fact, constitute the movement C===>M===>C; for instance, when a dentist buys gold to use in fillings. But, does the purchase in your argument constitute this? Or, does it constitute the worker placing her earnings in a money form that cannot be diminished through inflation?

  39. “Why is it so terribly important how much gold workers can buy with their wages, rather than how much food, clothing, shelter, etc. they can buy? After all, how much gold have they every bought? And is the 97% “devaluation of labor-power” a big boon to their employers? How many employers have ever paid wages in gold? ”

    Which is exactly the problem I have with goldbugs. Why privilege gold in this manner?

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