Danby seminar: Nowell comments

[Doug Henwood <dhenwood@xxxxxxxxx>]

Gregoire de Nowell (ci-devant) wrote:

>The core countries "work" not because they have hit upon
>a magic set of institutions which makes the fiat currency bulletproof but
>rather because the power prerogatives of being at the core are conducive to
>making the fiat currency "believable."  So at the "core" of the analysis
>of the "logical workings" of the core countries' currencies is the belief
>that they, like the once great Empire of Rome was once thought to be, are
>immutable historical structures.  But they are not.  Consequently we must
>wonder what underlies the "success" of fiat currencies in the countries
>which are currently at the top of the heap.

The core countries also "work" because you can buy good stuff with their
currencies, or park your cash in their securities with a reasonable degree
of certainty. Not so the baht, ringitt, or the various pesos.

Anwar Shaikh has a very convincing analysis that relative currency values
are determined fundamentally by differential productivity growth rates,
though financial flows often inspire great gyrations around that central
tendency. "Believability" certainly helps, but that believability is based
on something firmer than faith in the Holy Trinity.


>What I'm driving at is that the money supply has pretty much
>ALWAYS been "endogenous" in the sense that demand conditions
>spurred the creation of monetary instruments to facilitate capitalist
>development.  So called "backing" and gold standard arrangements
>were crisis prone precisely because endogenous money creation
>outflanked restrictions designed, rather cartelistically, to keep
>credit available to the worthy and make it more difficult to
>obtain for the unworthy.  Not necessarily anything wrong with
>that except the failsafes of the system made it crisis prone and
>slowed rather than truly contained credit expansion.

But the modern, post-gold bailout-rich system is actually more crisis prone
than was the 19th century, in scope and frequency [once again citing my
pals at the BIS - Morris Goldstein and Philip Turner, "Banking Crises in
Emerging Economies," BIS Economic Papers No. 46, October 1996].


Doug

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Doug Henwood
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