Sometimes silly questions are the most interesting and the most instructive. This thread prompted me to go back to Chapter 3 of Capital on money, where there are some suggestive points about world money.
I hope some other subscribers could help check them out with me.
I think they give an explanation for David's hunch that US foreign debt could be expanded on an indefinite basis. However I do not think that capital is flowing abroad through the expansion of US foreign debt: I think wealth is flowing *into* the US to US consumers, on international credit. . But let's leave the implications of this until I can quote the passages in the hope others can comment.
The clues arise in a discussion of the similar but different roles of gold and silver which diverge from time to time because of changes in their conditions of production. In the course of this Marx uses in English the term of Sir James Steuart, as the overarching scientific term, "money of the world". The German edition gives the translation, Weltgeld.
Although most of the "money of the world" nowadays is US dollars I suggest, Marx describes the situation where it was essentially hoards of gold and silver:
(Capital Chapter 3, Section 3c, World Money):
"Just as every country needs a reserve fund for its internal circulation, so too it requires one for circulation in the world market. The function of hoards, therefore, arises in part out of the function of money as medium of payment and circulation internally, and in part out of its function as a world currency. In this latter role it is always the genuine money-commodity, gold and silver in their physical shape, which is required."
Nowdays many other countries try to keep a large proportion of their national hoards in the form of dollars. Indeed there has even been a move to demonetise gold. The US has therefore been in the position of a national bank to the whole world, issuing paper credit money on its promise to repay if that ever becomes necessary.
After the Asian financial crisis of 1998 there was a consensus among western countries that the US economy at least had to keep going. It could lower its interest rates and thereby devalue the dollar currency hoards of other countries and allow its trade deficit to widen.
What is now being tested out is how wide that gap can go and whether the bubble of internet stocks in the US will burst, and cause a contraction of economic activity in that country, and make dollars less secure for the world to hold, even if the interest rates go up further.
However just before the passage from Marx which I have just quoted, he says something that suggests that the hoards only matter during a disturbance in the equilibrium of international trade.
"Gold and silver serve essentially as international means of purchase when the customary equilibrium in the interchange of the products between nations in suddenly disturbed."
This suggests that "Money of the World" exists in a wider sense as the circulating medium throughout the world market. Its identity and the reserves to back it, only become a conscious problem when the pattern of reciprocal exchange of commodities is disrupted.
With a change of 10% in the relative value of the dollar and the yen, we are in such a volatile situation again now.
How far could the US currency crash?
I suggest *not* apocalytically, for reasons Marx also hints at.
In section 1 of Chapter 3, the fourth footnote discusses changes in the conditions of production and world supply of silver and gold [substitute mentally the availability and exchange value, of dollar, yen, and euro]
"In countries [compare the world] in which both metals are legally measures of value, and therefore both legal tender, so that everyone has the option of paying in either metal, the metal that rises in value is at a premium, and like every other commodity, measures its price in the over-estimated metal which alone serve in reality as the standard of value. All the experience of history in this area can be reduced simply to this fact, that where two commodiites perform by law the function of a measure of value, in practice only one maintains that position."
Thus the undervalued money commodity may be stored in preference to the overvalued commodity that may be pushed into circulation.
Of course traders can specify whatever money they like for their transactions and some may now wish to do so in yen or euro's depending on whether they are buying or selling. However Marx indicates in this passage that it is not necessarily a disadvantage for the unit of World Money to be overvalued, ie to be less valuable than it really is. It will not be driven out of circulation or as a unit of account for that reason. Perhaps even the reverse!
Now what does this mean in terms of practical economic politics?
The size of the US dollar foreign debt is too large for the possible instability in the US domestic economy. There may be a correction. But David, I suggest, is correct that so long as the US maintains its hegemonic political and economic status overall, it will continue to get the very subtantial privilege of printing the world currency.
The disturbance only requires a mild corrective until the balance of trade corrects itself.
If this application of Marx's ideas to the current situation is correct, what should leftists do (apart form contemplating the anxiety of the capitalists with superior amusement)?
I suggest we should not concentrate all our efforts on building cells for the world revolution that will occur in 18 months.
Nor should we do nothing.
The period of disturbance will be uncomfortable for capitalism. We should still rock the stool on which US hegemony is standing, even if there is not yet a noose around its neck.
What are our chances in face of certain US opposition? It is true that normally the US would not wish to reform a world financial system from which it benefits so much. But there are some disadvantages to being the issuer of the world currency, and some US capitalists may argue this more strongly than others, for their own capitalistic reasons. If a moderate contraction in the New York Stock Exchange precipitates a moderate domestic currency crisis, US capitalists, politicians, and proletarians, will not want this enormously amplified by panic on the world stage.
Now is the time for some reformatory articles arguing the existence of the reality of World Money. (All except Caroll Cox who conscientiously objects to trying to do anything). We should promote the idea that the system would not only be more democratic, and juster, but more stable, if a global authority issues the global certificates of credit that could increasingly back up the world currency.
The technicalities of such discussions could be handled in terms of a basket of currencies and rules for a ratio for issuing IMF special drawing rights. Once started, the more this is done, the less space for the US to have the luxury to run a large foreign trade deficit and enjoy rising consumption when the rest of the world is tightening its belts.
The credit should go to the poorest workers of the world, not to the US. Perhaps this can be an extension of the Jubilee 2000 debt relief campaign.
Or does anyone disagree with the above interpretation of the current relevance of the Marxian concept of World Money?
Chris Burford
London