Shane Mage wrote: > I don't agree that it is "scarcity" that determines. The value of money is > not based on its cost of production but on its essence--its function as > "legal tender for all debts."
I agree that the price of (fiat) money (its ability to be used to purchase other commodities) is not based on its cost of production (though I said this in a different way). If its price is not determined by the cost, it's determined by its scarcity. I don't think we disagree here, either. What's needed, however, is an explanation of what I meant by "scarcity." The scarcity of fiat money has two sides: on the supply side, the Central Bank artificially restricts the amount of fiat money in circulation. However, that wouldn't matter if there were no demand for fiat money. On the demand side, people want it because it's useful for paying debts, purchasing products, etc. However, I think that the supply side (the CB's monopolistic restriction of the amount in circulation) is most crucial. It's because money is scarce (along with being standardized, portable, durable, acceptable (safe and or nontoxic), and divisible) that it becomes generally acceptable for paying debts, etc. In ch. 3 of volume 1, Marx writes: >... in this process which continually makes money pass from hand to hand, the mere symbolical existence of money suffices. Its functional existence absorbs, so to say, its material existence. Being a transient and objective reflex of the prices of commodities, it serves only as a symbol of itself, and is therefore capable of being replaced by a token. One thing is, however, requisite; this token must have an objective social validity of its own, and this the paper symbol acquires by its forced currency. This compulsory action of the State can take effect only within that inner sphere of circulation which is coterminous with the territories of the community ... (http://marxists.org/archive/marx/works/1867-c1/ch03.htm) < It's the "compulsory action of the State" which makes "the mere symbolical existence of money" (fiat money) suffice. Marx says that this works only "coterminous with the territories of the community" (within the country). However, with the US being the hegemonic power, its state can force the circulation of its fiat money in a larger area. (Of course, the current crisis may end that state of affairs.) > When the quasi-monetary certificates that now > constitute the monetary base are no longer acceptable as debt payment (when > monetary swaps unravel) their price falls dramatically > relative to the parts of the monetary base (aka cash) that continue to > function as legal tender. Except for issues of terminology, we agree here. In money and banking lingo, the phrase "monetary base" (a.k.a. "high-powered money") refers to the sum of bank reserves (vault cash and bank deposits in the Fed) and currency in circulation outside banks. So far, that type of money is not losing its acceptability. In fact, hard currency is usually in great demand during a financial panic. It's more acceptable than credit ("quasi-monetary certificates"). The price of these types of bank money is falling relative to that of cash, as you say. -- Jim Devine / "Nobody told me there'd be days like these / Strange days indeed -- most peculiar, mama." -- JL. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
