Gold and the standard of price

[Hinrich Kuhls <kls@xxxxxxxxxxxxxx>]

Date: Thu, 13 Jan 2000
From: Akira Matsumoto
Subject: Gold
http://ricardo.ecn.wfu.edu/~cottrell/OPE/archive/0001/0130.html :

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I argued in the previous letter that

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The purchasing power index of gold = the value index of a unit gold/the
commodity value index-----(D)

Consequently, if we abstract the alienation problem of the commodity price
from its value with the business cycle, what is the purchasing power index
of gold is the ratio between the fluctuation of the gold value and the
fluctuation of the ordinary commodity value.
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Roy W. Jastram calculated the purchasing power index of gold both for about
400 years (1560~1976) in England and for about 170 years (1800~1976) in the
USA (The Golden Constant, John Wiley & Sons,1977). According to it the long
term trend of  the purchasing power index of gold keep 100 stably during
the gold standard before 1930, however we can identify the fluctuation of
the purchasing power index of gold somewhat. This fact points out that the
fluctuation of gold value kept pace with the fluctuation of the commodity
value as the formula (D) mentioned.

We have to observe the problem of the unconvertible system in turn. Under
the unconvertible system the standard of price wasn't fixed. When a excess
currency circulate, the standard of price is devaluated virtually. Thereby
the price of the ordinary commodity should be the followings.

The price of the commodity = (the commodity value / the value of a unit of
gold )*the price of a unit of gold (as a reciprocal number of the de facto
standard of price)------------------------(E)

Moreover the market price of gold doesn't always consist with the de facto
standard of price. Therefore the purchasing power index of gold could be
the formula (F).

The purchasing power index of gold = the price (market price) index of a
unit gold/the commodity price index = the price (market price) index of a
unit gold/{(the commodity value index/the value index of a unit gold)*the
price index of a unit gold(as a reciprocal number of the de facto standard
of price)}---------------------(F)

Consequently we cannot identify "the price of a unit of gold" as the
denominator with "the price of a unit gold" as the numerator. Here we
should look at the relation between "the commodity value index/the value
index of a unit gold" under the unconvertible system. But we cannot confirm
this relation as such. So we try to compare the increasing rate of gold
productivity with the increasing rate of the productivity in the ordinary
commodity instead of it.

Socialism Study Group in West Germany (SOST; Sozialistischen
Studiengruppen) calculated the changing of the labor productivity in the
gold product department form the ratio between the outputs of gold and the
total labor volumes of gold production in the South Africa during 1940 and
1976 (Gold, Preise, Inflation, VSA Verlag,1979). When we compare these data
with the index of the labor productivity of the manufacturing industries in
West Germany and the USA, then we can see that both data kept pace with
each other in the long term  roughly. Eventually "the commodity value
index/the value ind ex of a unit gold" should be close to 1 in the rough.

According to the mentioned consideration, we can accept the following
formula under the unconvertible system.

The purchasing power index of gold = the price index of a unit gold(market
price)/the price index of a unit gold (as a reciprocal number of the de
facto standard of price)-----(G)

Moreover we have to proceed to the calculation of the de facto standard of
price and the problem of the cost price of gold. But I cannot afford any
time now.
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Date: Thu Jan 20 2000
From: Akira Matsumoto
Subject: Gold and the standard of price
http://ricardo.ecn.wfu.edu/~cottrell/OPE/archive/0001/0252.html  :

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The cost price of of gold is the price in gold volumes to represent the
total sum of values of both the constant capital and the valuable capital
which are invested in gold productions. We can show the price of ordinary
commodity in the following formula.

a commodity price = (the commodity value /the value of a unit gold)*the
price of a unit of gold -------(1)

Therefore the output cost of a unit of gold can be formularized in the
followings.

the output cost price of a unit of gold = {(values of the constant capital
/ values of a unit of gold)*the price of a unit of gold} + {(values of the
valuable capital / values of a unit of gold)*the price of a unit of
gold}={(values of the constant capital + values of the valuable capital)/
values of a unit of gold) * the price of a unit of gold ----(2)

Values of a unit of gold is an individual value in the marginal mine of
gold (C+V+M (=Surplus value)). Consequently, the output cost in the
marginal mine of gold is the followings.

the output cost price of a unit of gold = {(C+V)/(C+V+M)}* the price of a
unit of gold ---------------(3)

*The price of a unit of gold* in the formula (1) is the official gold price
(the reciprocal of the standard of price) under the convertible system and
the gold price as the reciprocal of the de facto standard of price under
the unconvertible system. Under the unconvertible system the de facto
standard of price depreciates with the deterioration of the currency
(proceeding of inflation). Then the price of a unit of gold rises up and so
does the output cost price of gold. Thus the the output cost  price of gold
become  an indicator of the de facto standard of price.

On the supposition that the ratio of {(C+V)/(C+V+M)} in the gold industry
is the letter r, the price of a unit of gold multiplied by *r* makes the
output cost price of gold. What is the price of a unit of gold is the money
name given to a unit of gold. Accordingly what is the output price of gold
is nothing except the money name given to *r* unit of gold. If we consider
the output cost of gold directly, it is the total amount of both the
capitalistic cost spent for the gold production, that is, the price of
means of gold production and the wage of labor in the gold industry. It
means the money name given to gold volumes corresponding to (C+V ) of a
unit of gold.

If we get both the output cost price of marginal gold mine and the official
gold price under the convertible system where there isn't any estrangement
between the official gold price and the de facto standard price of gold, we
could calculate the value of *r* by the formula (3).

For now I try to calculate the value of *r* as an approximate value with
the data before the double gold price system (1968) when the gpld market
price corresponded to the official gold price. However I cannot help using
the data of the average cost in the gold mine (though strictly it must be
the cost in the marginal mine).

The official gold price in South Africa was 25 Rand per a ounce during 1949
and 1971/12. That is, A ounce of gold =25 Rand = $35. When I calculate a
weight average of the output cost of gold according to IMF (Staff paper,
Vol. XV, No3,1968, p.483, Chart 6), it is about 17.1 Rand in 1961 and about
16.6 Rand in 1965. Eventually I got 0.68 in 1961 and 0.66 in 1965 as the
value of *r*. I try in turn the same calculation according to the data of
the Wirtwatersland Gold Vein in South Africa in 1967 (Rae Weston, Gold: A
World Survey, 1983, p.146) which said us that in the vein 30 million ounces
of gold were produced as a whole and its average cost was $21 per ounce.
Eventually we could get 0.6 as the value of *r*.

As we should put a couple of premises into this attempt, it is difficult to
get the exact value. But here I think the value of *r* is approximately
betweem 0.6 and 0.7. This value, that is the output cost of gold implicates
the important means as the indicator of the de facto standard of price.

the output cost orice of gold = 0.6 or 0.7 * the price of a unit of gold
(as the reciprocal of hte de facto standard of
price)---------------------------(4)

Btw, the value of *r*, that is, the value of (C+V)/(C+V+M) in the gold
industry should be stable if the organic composition of capital doesn't
change. SOST said about the organic composition of capital in the gold
industry of South Africa, *according to a rough estimate based on the
Annual Statistics of Business in the Gold Mines of South Africa, in the
considered period (1940~75), the ratio in the gold of the end product
between the died labor and the live labor didn't change so
much*(Sozialistischen Studiengruppen(Hrsg), Gold,Preise, Inflation, VSA
Verlag, 1979, S.24). Therefore, if the ratio between the died labor(C) and
the live labor(V+M) didn't fluctuate so much, the vale of *r* could be
stable in general.

We can estimate the de facto standard of price since 1968 by the above
observation and data. But it isn't the subject here.
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