exchange rate fluctuations and Marx's theory of money

I don't care what you say.

Well, actually I think you generally add useful stuff to the conversation.

Just avoid the turn of phrase that imputes to others opinions that they don't actually have (or at least avoid with regard to me). Then no one will complain.

Simple?

The question of applying Marx's theory of money to today's reality, possible only for those who already share the common ground that it was valid before the end of Bretton-Woods, is relatively easy, compared to having to completely revise/reject his labor theory of value, yes. On the other hand, I claim that it's not easy for us to think through Marx's theory of money even during the gold standard. Didn't currencies fluctuate with each other back then as well? Did governments directly exchange gold with each other? There are lots of questions (e.g. why aren't hamburgers money). It's difficult to formulate a good question. Achieving this will be a step forward. I think it's your and my responsibility.

Ignoring everything I just wrote, fact-hunting is fun. Did you know that the Bank of International Settlements used the ounce of gold as its unit of account even until 2003?

Does gold still get moved from the vault of one country to another in NY federal reserve?

Graeber mentions there is 5000 tons of gold from central banks all over the world:
http://sduk.us/silvia_george_david/graeber_debt_chapter_12.pdf

What do we count as monetary base; only the paper money and coins in circulation? More in general, during the gold standard were currencies 100% backed by gold? Until the present crisis the dollar was about 50% backed I reckon by gold.

http://goldnews.bullionvault.com/US_gold_reserves_01120092

Do central banks today in fact hold much more gold compared to the pre-world war 1 era, and why is that or how did this come about?

I have posted additional comments on Weeks' paper to my blog. This post demonstrates how inflation is used as a covert tool of class warfare to compel the working class to work longer and harder than is socially necessary. It dissects the neoclassical theory of money to show why this is true. My conclusion is that fiat money is not money, nor is it intended to be money. Rather, it is intended to be a weapon in class warfare.

Here: http://wp.me/pgA5p-2Er

Just as a shout from the sidelines, I think the Big Mac Index has some value in analyzing purchasing power parity which is helpful in analyzing the 'value of labor' in a given nation.

Basically Marx's money commodity theory packed in two nasty buns and a slab of dead meat.

Noah,

I followed your link to the Fed the last time you posted. My calculations were: yes they hold gold, no they don't hold enough to support the US dollar.

Perhaps if you offered some calculations based on the Fed's figures, it would clarify your argument.

It's just a guess (1 trillion $ CiC/(1600$ .261 million ounce), not an argument (and confusing because gold is the denominator - Marx dealt with this; for the US treasury 1/42.222 ounce of gold counts as 1 dollar; and what do we take as monetary base). The graph shows that before the 1920s the dollar was less than 50% backed by gold. I think a gold standard doesn't have be 100% backed by gold and if you'd look in history my guess it's an exception.

In 1927 Kautsky wrote a chapter on money where he says that sitting on a large mountain of gold does not have the same significance for the US as it did for the Incas.

Max Schippel, Die Währungsfrage und die Sozialdemokratie. Eine gemeinfaßliche Darstellung der währungspolitischen Zustände und Kämpfe. Berlin, Vorwärts. 64 S.
reviewed by Kautsky. I'll summarize it later. The following articles from Schippel are online;

Die Interessenten der Währungsfrage
Indien und die Silberkrisis
review of Ludwig Bamberger, Die Stichworte der Siberleute.
Das Silber in den Vereinigten Staaten

The currency-question was given little attention in the party (it's rather abstract), so Schippel's brochure (1896) is welcome. Schippel gives a clear presentation with lots of material, though he doesn't discuss the nature and different functions of money. The brochure responds to proponents (such as Otto Arendt) of bimetallism, which found adherents among farmers (to wit, simple commodity producers) especially in America, but even among proletarians with the highest class consciousness. Their illusion was that devaluation of money (in the form of silver paper money) was a way out of the crisis. The gold standard is in fact a progressive step according to Schippel (if a side should be taken in this at all). He explains how with devaluation the prices of products rise faster than the wages, there is an increase of exploitation, but this goes unnoticed by workers (initially); and if they win a raise, this is only nominal; a gold standard at least reflects the situation more honestly.

It's not so much their class interests (because bimetallism only serves to increase uncertainty and crises) as lack of understanding of the nature of money by a part of the capitalists. But also by workers in America, who haven't escaped the influence yet of the ideas of farmers. They develop a "currency-socialism" (WährungsSozialismus). On the one hand they consider money as a mere worthless sign, on the other they equate money with capital and regard capital-interest as the price of money. The more money, the more competition, the less the interest-rate, the less exploitation, the easier for non-capitalists to acquire means of production. The overflow with worthless money-signs is thus the best way to break the capitalist monopoly of means of production and end exploitation.
This illusion caused Anglo-American workers during the 1860s and 70s to have great enthusiasm for a paper money economy. This illusion in the miracles of bad money finds a new life with the devaluation of silver.

As difficult as a theoretical exposition is, clarity on the currency-question is of great practical interest and so Kautsky expressed his hope that Schippel would add a chapter on the nature of money in a second edition (which sadly didn't happen).

Thanks for that synopsis.

http://nestormachno.blogsport.de/2012/06/09/das-eigenleben-des-wertmasses/

Interesting.

If I understand this argument, the writer is stating each currency is to another currency as both relative AND as equivalent forms of value. So that the value of the dollar is so many euros and the value of the euro is so many dollars.

Then the writer argues each owner looks at his currency in the equivalent position and the other currency in the relative position. So each owner of a currency sees his/her currency as the sun around which the earth (all other currencies) revolves. This contradicts the first assertion that each currency alternately occupies both the relative and equivalent position.

Then the writer argues exchange rates are a practical judgement made by international finance capital of the economy of one country relative to another.

So, now we have three different explanations of exchange rates? However, two things about currencies defy all of these explanations:

1. All currencies are worthless scraps of paper and cannot stand either in the relative or equivalent position in Marx's theory of money, which requires a commodity money.

2. Since all currencies are worthless they cannot express the state of their economies. Since each currency is worthless, it has no relationship to the production and circulation of commodities in its respective economy, nor the values of those commodities.

First of all, apologies as my German is not good enough to read the original so I had to make do with the google trans.

But in response to your headline statement that there is no third entity, or fixed point, to which currencies can refer to, externally as it were, I don't entirely agree.

I agree there are no longer any "fixed" points of reference, but I am a follower of the Bryan and Rafferty thesis that the web of derivatives creates a kind of network of "drag anchors" of commensureability that hold the "floating world" together. So in fact there are two commodity-related anchors in the system.

The first are the derivative equivalents of Keynes' original Bancor idea - the Commodity Price Indexes. Through a composite index on futures on a basket of base commodities (in the conventional capitalist sense) the value of currencies can, in fact be related to something other than other currencies.

That is, if for a moment we assumed the value of oil remained steady. Then if say $100 = €100 at the start. The $ devalues to $105 = €100. The oil vendor still has the option of selling oil at €100, so they're not going to now sell it for any less than $105. Next if the € then devalues back to match the $, the oil vendor is not going to sell the oil for any less than €105. So, effectively the competitive devaluation of the two currencies, results in the appreciation of the commodity price. Of course the initial assumption - that the value of oil is fixed - is unrealistic. The price of oil will move around endogenously to the rest of the economy. If the reason for the competitive devaluation between the $ and the € is due to economic recession in both blocs, then the price of oil and other production input commodities will fall as well - nothing is independently fixed.

The second, of course, is the various Consumer Price Indexes which measure the value of the currency by relating it to what is effectively a measure of the value of labour (that is, after all, what the basket of goods and services representing the expenditure of the ordinary worker, amounts to).

So even if we are unable to find a "fixed point" to answer Archimedes call of "give me somewhere to stand, and I will move the earth", or a single unit in terms of which everything else can be measured, absolutely (we live in the era of General Relativity in value terms, as well as cosmological ones). Yet we cannot say that the movement of currency values, relative to each other, has no external consequences or relations to objectively measurable things - be they Big Macs, or GCSIs.

"That is, if for a moment we assumed the value of oil remained steady. Then if say $100 = €100 at the start. The $ devalues to $105 = €100. The oil vendor still has the option of selling oil at €100, so they're not going to now sell it for any less than $105."

Ha! Pardon me for laughing, but I would like to see the day a vendor has "the option" of selling oil denominated in euros. I think Saddam was the last one who announced that intention. What serves as money is not decided in a "free market".

http://seekingalpha.com/article/267058-should-oil-be-priced-in-euros

"The second, of course, is the various Consumer Price Indexes which measure the value of the currency by relating it to what is effectively a measure of the value of labour (that is, after all, what the basket of goods and services representing the expenditure of the ordinary worker, amounts to)."

The CPi is not a measure of value, but a measure of "utility" -- whatever that means. Here is what the BLS says about it:

"The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. BLS has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would constitute a complete cost-of-living framework."

To accept the results of the CPI one must accepts the concept of utility -- in opposition to value.

woah woah i didnt write this, i merely linked.

Well pardon me for yawning, but the seekingalpha article you link to supports my argument that currencies do not just appreciate and depreciate relative to each other, but relative to base commodities as well. When you've finished laughing, perhaps you could tell us whether you accept the point, or actually have an argument against it.

Yes, the example given is over-simplistic. But them, so for that matter are the ones given in the seekingalpha post, as they assume oil traded in the spot market, whereas everyone knows that oil prices are actually set in the futures market (and currency risk hedged with currency swaps). However navigating the complexities of the actual mechanisms does not affect the basic point - currency values are not simply relative to each other, but are tied into a web of commensuration, via forwards, futures, options and swaps. Some of which are anchored in real world commodities (just mostly not gold).

Always wise to include a sentence after a link, explaining why you linked it (esp. whether you agree with it or not).

Rubbish. That BLS BS is just an apologia for them fiddling the figures. The fact remains that in conventional bourgeois economics, the measure of the value of the currency, and the basis for calculating inflation, deflation and the difference between real and nominal prices, is the CPI (or whatever it's local equivalent is called in your locality). It has no other function. The basket of goods is roughly taken to reflect the price of labour-power's self-reproduction. And as we know, in Marxist terms, the cost of the (re)production of labour power, is its value. The fact that you don't seem to see any significance in the identity between the bourgeois measure of value and the cost of reproducing labour power, just reinforces my impression that your self-identification as Marxist is delusional.

the reason for linking is the use value. you shouldnt care if i agree or not, it is of no consequence. you are actually enforcing the point about unanchored currencies by pointing at the relation currency - commodity, not disputing it. the substance of a currency is still exchange value so what else did you think is even possible?

"currencies do not just appreciate and depreciate relative to each other, but relative to base commodities as well"

so just oh really! how would that go if they are just toying with each other but you still get a bigmac for 4 dollarz and 3 euro every time, what would they be appeciating and depreciating, their non-substance? logic fail imho, you abstracted the essence out of a currency to then bring it back as an argument and discovery when its not possible to have a currency representing anything but exchange value in the first place. well tbh i have difficulties understanding your post and prolly got it all wrong but this is what i got out of it.

Yes, but which use value? If you link it there has to be a reason you thought it was interesting or relevant. It wouldn't kill you to say what that is.

Or, alternatively, you could continue to behave the way you are behaving if you think that makes you look big and clever.

Well if you got something out of my post, then good. But I'm afraid I can't make head nor tail of what you're on about here. This may be a language barrier, I don't know.

Just to reiterate my basic point. If the dollar devalues against the euro and then the euro devalues, in turn, against the dollar to return to the previous exchange rate, this does not necessarily mean that we have returned to the status quo ante, because there are external "third party" references, even if not "fixed", by which their actual buying power, the change in the exchange value the currency represents, can be assessed.

It's a simple observation. But speaking of value, I increasingly get the feeling that the value of this interchange has diminished below the point worth bothering with.

"The fact that you don't seem to see any significance in the identity between the bourgeois measure of value and the cost of reproducing labour power, just reinforces my impression that your self-identification as Marxist is delusional."

Well the reason is simple: a measurement of the value of labor power requires a commodity money. As Marx emphasized his entire career. This is what makes me a "Marxist" whatever that useless term means anymore.

Utility is not value and has nothing to do with value. To accept it as a measure of value -- even indirectly -- as you seem to insist is not permitted in Marx's theory. It is neoclassical theory. Weeks ran into the same problem once he accepted fascist state fiat currency as "money".

Jesus dude! The man spent his entire career arguing against nominalism. And now you are going to accept it as within the bounds of "Marxism"?

"Well pardon me for yawning, but the seekingalpha article you link to supports my argument that currencies do not just appreciate and depreciate relative to each other, but relative to base commodities as well."

Ha! I included it to show how your argument FOLLOWS mainstream thinking -- not as an example of reality. It stands in sharp contrast to one dead Saddam, who thought what serves as money is a matter of free choice of vendors within the global market.

How can any worthless fiat currency express the value of a commodity it cannot be used to purchase? (edit)

Jehu, Adolph Sorge reported (1892) to the Neue Zeit on the program of the US money-reformers (which is what Kautsky must have referred to as "currency-socialism"). People like Campbell, Hine, De Wolfe, Sylvis were inspired by Edward Kellogg and his

Labor and other capital: the rights of each secured and the wrongs of both eradicated; Or an exposition of the cause why few are wealthy and many poor, and the delineation of a system, which, without infringing the rights of property, will give to labor its just reward (1849)

Sorge gives a summary of the following book:

Labor and capital : a new monetary system : the only means of securing the respective rights of labor and property and of protecting the public from financial revulsions (1861 - edited by his Kellogg's daughter)

Sorge then gives the 25 September 1868 program of the national workers union (I don't know how the exact name is in English, but they were clearly prior to and separate from the Greenback Party).

Sorge in his previous articles on the US labor movement in the period 1866-1876 also frequently mentioned the money reformers.

Some references on rate of exchange Marx gives in a letter to Engels (1 March 1869)

@Noa Rodman Jun 26 2012 13:58

I think with modern fiat money we are not dealing with monetary reform in any fashion. Fiat currencies are not money, and they are not meant to be money. They are designed to impose the management of the fascist state on a national economic activity. Bernanke et al, do not have a theory of money but a theory of management of the total social capital through state policy.

What folks tend to overlook in this discussion is that how the present monetary system works is not a theoretical problem, but the reality of how economic activity is regulated here and now. It is necessary to understand how this system works in reality, and not merely how it is supposed to work in theory.

But probably a lot of false arguments can be avoided by properly understanding the theory (of Marx), in all its implications, in the time when gold was still used to settle international balance of payments. So since you have in the US a history where this was a political question, I think you should research further into the mentioned authors (Campbell, Hine, De Wolfe, Sylvis, Kellogg) and whether anyone served them of a good reply (perhaps Adolph Sorge himself, if he had a good understanding of Marx).

Anyway, I wanted to link to the first section of this article which shows that determining the value of gold is not a simple matter (or at least as complicated as establishing the value of shoes is) but perhaps it can help us arrive to formulate a better grasp of today's reality: http://libcom.org/library/international-exchange-law-value-conclusion-isaak-dashkovskij
The other sections deal with geographical topics.

As it was touched upon, here's a critique of the quantity theory of money, though from a Marxist point of view: http://libcom.org/library/quantity-theory-money-s-legezo

The translation still could use a proofread. I'm afraid that in the original conversion into microfilm of the journal Under the Banner of Marxism, two pages got lost.

Is there an interest into other articles from this journal (particular topics, but preferably, particular titles)? Or comments on the translated texts?

I think on the thread a central theme is the issue of theorizing "organised capitalism" (what Jehu names the fascist state), so perhaps some other articles on Hilferding, or is it better to translate some "non-economic" articles? Btw, the dispute on socially necessary labour, which was carried out on another thread, has also been had in this journal (technical vs. 'usefulness' interpretation).

So for you, "effective monetary demand combined with technologically average productivity" is a synonym for "usefulness"?

No, the 'usefulness' interpretation is what Jehu adheres to. I merely report on a a summary of the debates on SNLT (OZNT in Russian) in the journal held in the early 1920s which I found in an excerpt from
УПРАВЛЕНИЕ РЫНОЧНЫМИ МЕХАНИЗМАМИ В ИНВЕСТИЦИОННОМ ПРОЦЕССЕ, and here is agoogle translation (all this is a side-point; I would like a response to my invitation to mention titles that are interesting to translate):

So, back to the topic of the thread. Some points from the article got me thinking. For example Marx says that coin becomes money when it stops circulating, and stresses its function of hoards. But what are the functions of money as reserves exactly (he doesn't elaborate much + he warns not to confuse them with "reserve funds")? But nowadays, securities are included as reserves, so are they really even reserves? Keep in mind China's "reserves" here with this contradiction:

That later sounds wrong, because genuine world money still is gold (just a side-note, I wonder what gold percentage you get without all the securities held in central banks).