Re: Help Sought

["Devine, James" <jdevine@xxxxxxx>]

Dsquared writes:
> Jim, I've never understood this point:

what I said:
> > 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).

Dsquared continues:
> 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. 

I don't know the history of non-state fiat currencies, but I grant that it's quite possible for a non-state to issue currencies that don't suffer from rapid depreciation (inflation). If the currency is kept scarce, there's no problem. The problem, however, is in the long run. Non-state issuers of currency (i.e., banks) have a much harder time spreading the risk (while avoiding the temptation of corruption and/or over-leveraging). That's why banks need deposit insurance, regulation, and the lender of the last resort.

In any event, my point was that the current monetary system wasn't based on oil or gold but on the power of the state, specifically the US state.

>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.

My point was more that failing state --> hyperinflation (though the fall of the USSR was an exception here) rather than that all hyperinflations arise from failing states.

 

I wasn't talking about a moderate-to-high inflation (tax). From the state managers' point of view, there is likely some optimal rate of inflation. However one defines "hyperinflation," it's a faster rate than that optimum.

I generally agree with what D says  below:

> 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 add the role of US military might and financial power.

 

> [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.

the problem is exactly the same: while the neoclassicals face an impossible aggregation problem to get an aggregate production function and the associated neoclassical theory of distribution, the standard "transformation problem" is a disaggregation problem to get from values (a social concept) to prices (individual phenomena). The math problem is the same. (Bhaduri, Amit. 1969. "On the Significance of Recent Controversies on Capital Theory: A Marxian View." Economic Journal. 79(315) September: 532-9.)

JD