Re: Help Sought

[Daniel Davies <dsquared@xxxxxxxxxxxxxxxx>]

Jim, I've never understood this point:

-----Original Message-----
> I, for one, think of (fiat) money as political, so that the strength
of a currency reflects the power of the state (where a state that is
falling apart suffers from hyperinflation).
--------------------------

I've seen it made a few times, but never really got it.  For one thing, one
of the things we know from the various experiences of free banking, is that
non-state fiat currencies (Scottish banknotes, etc) are typically "harder"
money than state-backed currencies.  For another, although hyperinflations
seem to be empirically associated with failing states, I'm not sure that you
can generalise a whole relationship from this.  A priori, I would tend to
assume that a moderate-to-high inflation tax would be a sign of state
strength; effectively, the state is asserting that it can renege on a
proportion of the implicit promise made in its currency, and get away with
it.

More generally on Domhnal's question, I don't see the link between any
particular view on the transformation problem[1] and the empirical question
of whether currencies are backed by oil and what it means for US hegemony if
they are.

Oil is important stuff, sure enough, but the reason why so many
non-Americans are happy to hold US dollar liquidity is much more likely
that:

1) something has to be the global reserve currency and
2) the US is the biggest economy in the world, so it makes sense to have US
dollars be the reserve currency in exactly the same way that it wouldn't
make sense to have Belgian francs.

In other words, the US is the most important global economy because of its
overall control over economic goods and workers, not because of any
particular position with respect to any particular commodity.

I'd also caution against overestimating the importance of dollar reserve
status; the seignorage is worth about a percent of GDP per year.  We could
probably profitably combine this element of the discussion with the CPI
thread to look at the IMO underanalysed question of "how much is a lot?".



dd


[1]FWIW, I tend toward the view that the "transformation problem" is
actually the whole problem of value theory - that of attempting to comeasure
incommensurables - and that any solution to it is likely to be a compromise,
as with the construction of any index number.  Various types of index number
are useful for thinking about different problems, and it is possible to
construct index numbers which are more useful than others to illustrate
problems related to alienated labour, but the tendency to fetishise one
particular kind of index number and regard it as the Big Thing by which
Marxian economics stands or falls, looks like chasing rainbows to me.  NB
that the comparable problem for neoclassical economists is the Cambridge
Capital Question, and they don't bother themselves overmuch about it.