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Posts Tagged ‘devaluation of the dollar’

In which Jehu finds G:D on a rainy Sunday morning, thanks to Andrew Kliman and @BrianGallaghe17

September 30, 2012 Leave a comment

Tweep @BrianGallaghe17 sent me this tweet the other day:

@ReThePeople Kliman interviewed about his new book in which he claims the profitability crisis is from the 70s

So I went to see what Kliman is up to now. In the interview, Kliman makes this statement:

So what we have is a major debt crisis. I don’t think it’s very likely that we’ll have a sustained boom unless and until the debt problem and the deeper, underlying problem – the profitability problem – are resolved. We may have a long period of very weak growth, as Japan has had ever since bubbles in its real-estate and stock markets burst at the start of the 1990s, or we may have something worse. Given the magnitude of the bust in the US construction industry and the magnitude of the recession in general, it would have taken a long time for production and employment to return to pre-recession levels in any case. It’s likely that the persistent debt problems and pessimism about the future have slowed down the recovery, and that they’ll continue to do so. Real gross domestic product in the UK and most other major European countries is still lower than before the recession. And even in countries where that’s not the case, like the US and Germany, GDP growth is still quite slow.

I wondered if in the US case GDP grew at all, much less growing slowly, since 2007. In 2007, GDP was estimated by the BEA at $14.028 trillion versus $15.075 trillion in 2011, an increase of $1 trillion or so in output. As far as Kliman is concerned, that pretty much settles it, because the fascist state says dollars are money, not tokens of money. We can, therefore, assume that these dollars measure “real” economic activity, without more inquiry.

However, Marx said money had to be a commodity — and no matter how much Kliman might trust Washington’s monetary policy, good analysis suggests we should at least check GDP using a commodity money to see if we can confirm Washington’s numbers. In 2007 one ounce of gold fetched a price in the market of $695.39, however by 2011, that same ounce of gold was priced at $1,571.52. So, during the same period that GDP rose 7.5% in nominal dollars, these same dollars depreciated to less than half their former purchasing power against gold.

Now before I read and compared Kurz to Postone, I would have suggested dollar denominated measures of GDP were completely bogus. But, no more — I am reformed, I have seen the light! Thank you Jesus! I have come to the conclusion that, in fact, both are right, Halleluiah!

Can I get an Amen?

Which means, quite oddly, that the US “economy” has both grown and shrunk during the same period 2007 to 2011. So things are a bit more complicated than simply stating the economy grew or shrank during some period of time. By one measure it has grown and this has implications, but by another measure it continues to shrink and this has other implications. If we say it grew, simply because dollar denominated values have increased, we miss that it shrunk in commodity money terms. On the other hand, if we say it shrunk in commodity money terms, we miss the fact that it grew in dollar denominated terms.

We end up dissing either Postone or Kurz, and I kind of like both of them.

It occurred to me while reading the Kliman interview that we need a measure that captured this relationship in terms of the historical trajectory of value. Something along the lines of Marx’s organic composition of value, c:v. This measure would reflect the dollar denominated value of output as a ratio to the commodity money value of this same output.

But how would it be structured as a ratio? Gold to dollars, or dollars to gold? Bourgeois economics places the relation as the dollar price of gold, i.e., the value of gold is measured in some quantity of dollars. This relationship can be expressed as dollars per ounce of gold. This is precisely the question I am interested to know when i am trying to stock my gulch with beans, guns and gold for the coming global apocalypse that threaten civilization itself.

However, Sam Williams and I have suggested the actual relationship is reversed: it is actually some physical quantity of gold per dollar; which is to say, dollars do not denominate the price of gold, gold denominates the price of dollars. I am proud to say I blatantly stole the idea from FOFOA, the Austrian school blogger, where he quotes his mentor, Another:

Another:
Gold! It is the only medium that currencies do not “move thru”. It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say “gold moves thru paper currencies”.

FOFOA:
Dollars bidding on MSFT stock set the value of that stock. If dollars are frantically bidding on MSFT (high velocity), the stock skyrockets. If dollars stop bidding for MSFT all at once (low velocity), the price falls to zero. This is true for everything in the world **except gold**.

Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero.

And he arrives at the conclusion that:

All Paper is STILL a short position on gold!

Which is to say, fiat currencies do not express the value of gold, but only symbolically represent some magnitude of value denominated in a physical quantity of gold. Employing this method, I think, but I am not sure, that the ratio should be set as G:D — which is a bizarrely pseudo-religious formulation. If we used this to measure the value content of a single dollar, this is how GDP has actually changed since 2000:

That is also the value content of US GDP over the same period. If we look at how the value content of the dollar has fallen since 1970, the results are even more starkly represented.

During this same period, 1970 until 2011, the nominal GDP of the United States has almost increased every year, but the value content of this GDP has fallen for most of that period. This graphically represents the relation between Postone’s and Kurz’s definitions of value as a relation between gold and the dollar. It confirms, I think, the argument of both that the value form, measured in dollar, and the content of this form, measured in gold, have become completely disconnected from one another.

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The Trouble with Marxism (Part Two)

January 28, 2012 Leave a comment

The portion of the labor day that is socially necessary as a percentage of GDP

So, I got feedback from three people who, in one way or another, say they don’t understand my last post on my conversation with Andrew Kliman. One person posting on Reddit, complained it was too dense; another wondered if I was advocating a return to the gold standard; a third person, who I asked to read it and give me feedback, began to have difficulty with it about halfway through it. Specifically that person had difficulty understanding my discussion of the “transformation problem”.

This is three more examples of my “tin-ear”, which expressed itself in my disagreement with Andrew. I have not been able to explain “my point” in a way that is not abstract, or explain the relevancy of the various statements I make to real events within society. Part of this is because I am a “Marxist” in the same way I could be considered a “Darwinist” — I am not an expert on either. The theory makes sense to me, and I accept it as a reasonable explanation for how the world works.

But, if someone argued a eugenics distortion of Darwin, I could not argue against that person by quoting Darwin. And, if someone argued a Keynesian distortion of Marx, I probably could not argue back using quotes from Marx. Until recently I was more a leninist than a “Marxist”; having read a lot of Lenin, but little more of Marx himself than the Communist Manifesto. And, neither of them had I read for more than two decades.

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The Trouble with Marxism (Part One)

January 27, 2012 2 comments

Well, I have just about had enough of my conversation with The Andrew Kliman, so I thought I would try to assess what it accomplished instead.

My ‘tin-ear’ with Andrew began after a conversation with @skepoet on twitter about the odd divergence between gold and dollar measures of economic activity since the Great Depression of the 1930s. The dollar measure of US GDP has risen almost uninterrupted since the end of the contraction phase of the Great Depression; while the gold measure of GDP rose from 1934 to 1971, then fell until 1980, rose again from 1980 to 2001, and has been falling since.

Interesting enough, the gold measure of GDP exhibits a classic pattern of boom and bust typical of the economy prior to the Great Depression, but the dollar measure of GDP shows an almost disturbingly smooth continuous upward sweep, until the most recent difficulties of 2008. What I find most interesting about the two measures of economic activity is that, until 1933, both gold and the dollar measures of GDP exhibited the same behavior. However, this identical pattern broke down in 1934.

What accounts for this sudden divergence?

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