Tuesday, June 15, 2010

Rise in the price of gold and Marx's commodity money theory

Last week all news media were crazy about the gold price skyrocketing over $1,250 per ounce, the highest price ever. Since the collapse of the Bretton Woods system, the connection between money and gold has officially disappeared. However, the demand for gold as a storage of value continued to exist; especially so at the time of crisis. And we have observed the price of gold soaring during the last couple of years marked by consecutive blows of financial crisis and sovereign crisis with tumbling of euro and stagnating dollar. Does this lend support to Marx's commodity money theory, as presented in the first three chapters, to any meaningful extent?

As we know, there are largely two responses to Schumpeterian critique of Marx's money theory as metallist: 1) Entirely reject Marx's money theory as being outdated in the contemporary capitalism where gold does not function as money anymore. 2) Explain that within Marx's theory non-commodity - e.g. fiat money anchored on government credibility not on material, metalic ground - can also function as money.

In this debate of 'commodity vs. non-commodity money theory,' the core controversy would be whether money itself necessarily has to have an intrinsic value or not within Marx's theoretical system. And some implications from the recent soaring of gold price seem to be the following: First, an artificial situation, where valueless non-commodity is assigned an essential function of money such as measure of value and storage of value, cannot be sustained especially during the time of (sovereign) crisis. Second, as commodity money theorists argue, if the circulation of non-commodity money is a transitory and unusual phenomenon relying upon the government credibility, which can possibly be subject to question and finally collapse, then something like the recent rise in the demand for gold at the expense of government-printed money or government bond may be repeated in a much more violent way anytime in the future.

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