Gold and Exchange Rates (Random thoughts)
This is very geeky, sorry. I posting it because I intend to revisit it sometime in the near future in the context of a review of the Euro-zone crisis.
My post on Moseley’s MELT paper (pdf) argues the so-called “price of gold” is actually the standard of price for a currency. I argued in the paper that dollars do not buy gold, gold buys dollars. Dollars are “sort of” a commodity necessary to convert gold into capital. I said “sort of”, because I really cannot describe it, except along the line of Marx’s argument on loaned capital:
M ==> M ==> C.
Where the first M is the bank’s money to be loaned, and the second M is the actual conversion of this loaned money into industrial capital. We could think of the movement of gold similarly as:
Mg ===> Mc ===> C.
Where Mg is a quantity of gold, Mc is a quantity of a particular currency, and C is the commodity.
The owners of gold, however, have a choice of currencies whose bodily form their gold can assume: euros, dollars, yen, yuan, reals, pesos, etc. And, each of these currencies have their own standard of price, i.e., their own specific exchange rate with gold. Each of these standards of price is an expression of the quantity of a given currency in domestic circulation to the quantity of domestic socially necessary labor time. Since, in each country, the relation between the total currency in circulation and total socially necessary labor time is different, the standard of price for each country currency must necessarily be different.It would seem to follow from this that the relation between currencies, their relative exchange rates, should be determined by the above. For instance, if country A has a standard of price with gold of 10 currency A units per ounce of gold, while country B has a standard of price of 20 currency B units per ounce of gold, the relation between the two should be:
one unit of currency A = 2 units of currency B
However, just as different industries have different composition of capital, so different nations have different compositions. The composition of capital in the US is far higher than that of the People’s Republic of China, or Zimbabwe. The movement of gold between currencies, I think, is determined much like the movement of capital between industries. On the one hand, the standard of prices in various countries arise from the domestic quantitative relation between the currencies and socially necessary labor time. On the other hand, for the owners of gold, these currencies are no more than forms gold must take if it is to become capital — and capital is self-expanding value, the production of surplus value through the consumption of labor power.
This suggests that although the standard of price of a currency is determined solely by the relation between the mass of currency and the mass of socially necessary labor time; it is also being determined by the rate of surplus value within each country as determined by their varying compositions of capital.
I think we are again face to face with Marx’s transformation problem, where the law of value confronts the law of average rate of profit. One law suggests the standard of price of a currency is determined solely by the relation between the total quantity of currency in circulation domestically and the total quantity of socially necessary labor time; the other law suggest the relative exchange rates among all currencies is determined by the law of the average rate of profit. The latter law suggests currencies are exchanging in the world market above or below their actual domestically determined standard of prices.
What use might this argument have?
- This might just offer an idea how, without violating Marx’s labor theory of value, imperialist super-profits are obtained.
- It could offer a way of modeling the emergence of world market prices, and the dollar as world reserve currency.
- It could also explain the empirical data, which shows neoliberal free trade policies produced a US expansion in the 1980s and 1990s.
- Finally, it explains why China’s currency appears undervalued on the world market and the US dollar overvalued against what we would expect.