Monthly Archives: April 2013

Currency War: An Extremely Short Introduction

Manhattan Nights, by Jeremy Mann

John Maynard Keynes once wrote that “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.”[1] Bretton Woods, hyperinflation, and stagflation have increased this view’s sway, and some would argue that Keynes’ own economic theories have given his statement a veracity that it would not possess otherwise. Nevertheless, this statement is capable of being combined in a fruitful way with the notion that “the way a society makes war reflects the way it makes wealth.”[2] These two theses become crystallized in the concept of a currency war, the implications of which will first be outlined historically, then contextualized within contemporary discourse on international politics, and discussed in terms of how it problematizes typical discussions of security.

Prior to Bretton Woods, the value of money was pegged to the price of gold, i.e. the gold standard. This led to phenomena such as ‘Gresham’s Law’, where if the price of bullion was higher than the value of a coin made of a precious metal, people would melt down the coin and sell the bullion, pocketing the difference; this tendency can be observed even today with respect to the penny. More importantly, as Lyotard argues, this structured international trade into a zero-sum game. As he comments:

[T]he quantity of metallic money which is ‘circulating in all Europe’ being constant, and this gold being wealth itself, in order that the king grow richer he must seize the maximum of this gold. This is to condemn the partner to die, in the long or short term. It is to count the time of trade not up to infinity, but by limiting it to the moment when all the gold in Europe is in Versailles.[3]

This was not, however, a currency war per se, but rather a ‘wealth war’—the difference will shortly be made clear. In 1933, facing the Great Depression, the United States finally abandoned the gold standard, and soon after devalued its currency 40 percent, which greatly boosted the US economy as well as that of the rest of the world.[4] Deprived of a ‘universal’ numeraire, the currencies of the world subsequently became valued relative to each other, creating a competitive atmosphere of an entirely different kind. The lower a state’s currency is valued, the more businesses in other countries will be incentivized to import their products, and this fact (particularly in the case of Japan) is explicitly taken into account in monetary policy. The picture is complicated further when it is considered how the US dollar is a reserve currency—i.e. the ‘default’ currency which states use to allow for current account surpluses (i.e. countries importing more than they export) or to purposively modify exchange rates (particularly in the case of currencies pegged to another currency, such as China’s yuan to the dollar). As one article[5] describes: “the effect of a devaluation of a non-reserve currency…is implicitly to put upward buying pressure on the USD,” and conversely,[6] “every time the Fed debases the US Dollar it forces the Euro and other currencies higher, hurting those countries’ exports.”

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Alessandro Bellini on Sraffa and The ‘Capital-World’


{The following is excerpted from Bellini’s dissertation (supervised by François Laruelle), entitled “Suspension of the Capital-World for the Production of Jouissance” (pp. 35-41; abstract here), shittily translated from the French by moi. I’m interested to hear what philosophers (e.g. Lyotard) have to say about Sraffa, but although Bellini’s description is initially quite interesting it eventually resorts to shameless straw man arguments, as well as rejecting Sraffa’s position purely on the basis of metaphysical preferences. I’ve added a couple of translator’s notes specifying the most egregious distortions of Sraffa’s work, and my more lengthy criticisms can be found at the bottom of the post, above the endnotes.}

§ 3. Production of commodities by means of commodities

The interpretation that the Italian economist Claudio Napoleoni has given of Piero Sraffa’s Production of Commodities by Means of Commodities[20] is a very radical interpretation, in disagreement with both the apologists of the Cambridge economist and their neoclassical adversaries, and it is rooted in a vision of political economy as critical knowledge that seeks always to emphasize the philosophical issues that relate to the theory and that constantly pushes its way forward with inexhaustible political authority.[21]

What should first be noted is the way in which Piero Sraffa places himself in the classical tradition of the history of economic thought, which follows from the perfect circularity of his model, and unfolds through the role played by surplus; yet “the fact that the image of the economic process based on the concept of surplus is presented in the classics in a way logically untenable but historically significant, whereas in Sraffa it is presented in a way that is logically rigorous but historically silent” was for Claudio Napoleoni one of the fundamental features of the theoretical context in which the 1960 Production of Commodities by Means of Commodities appeared.[22] A solution such as Sraffa’s must therefore be interpreted as a break with the Marxian structure – in its Classical sense – rather than as its extension.

Let us try then to go a bit into details of the book, despite its level of abstraction, paying very specific attention to its use of the language of classical economic theory, of which we have already given an overview [in §2]. According to Claudio Napoleoni, what the Sraffa model presupposes is a given configuration of production – that is to say, a system of algebraic equations which represent the contributions that each branch of the productive system provides to the aggregate of economic processes, without including demand for goods – through which we may define a “net product” or a surplus in physiocratic and Ricardian terms. Sraffa’s theoretical aim is to show that if one separates the determination of price from the general problem of equilibrium one performs an operation endowed with meaning, because it is precisely by this link that prices are determinable.[23]

Indeed, the operation performed by Sraffa is a revival – through its definition of surplus – of Ricardian theory, though abandoning the pretension to link price-formation to quantities of labor objectified in commodities. It consequently eliminates any circular reasoning, thanks to the simultaneous determination of the rate of profit and of prices.

In particular, according to Claudio Napoleoni, the Sraffian “reduction to dated quantities of labor” can be used as a critique of the labor theory of value, although Sraffa does not make explicit his criticisms of Böhm-Bawerk’s theory of capital. From the ‘reduction equation’ used by Sraffa, it seems clear that in fact the price of a commodity depends not only on the amount of labor contained in it, but it also depends on the distribution of labor between direct and indirect labor: therefore, if there is a change in the distribution, the reasons for exchange between commodities vary, even if the quantities of work contained in the commodities does not change.[24]

It is then possible to state that “Sraffa’s system is the first theory of price that is formulated entirely outside of a theory of value, or at least the two theories of value that had previously been presented in the history of economic thought.”[25] In this way, the possibility of developing a theory of economic foundations vanishes. From this there arises, in fact, a definitive fracture between scientific analysis and the philosophical dimension, in the sense that Sraffa’s model no longer refers to any philosophical position; it simply adapts to the reality of capital to explain its pure functionality.

§ 4. Economic science

In the beginning of the century, in fact, Gustav Cassel had posed the problem of breaking free from the metaphysics which, in both theoretical traditions, sought a foundation in value as separate from price.[26] Sraffa was not the only one to realize the goal of Cassel, since at the same time a rigorous formulation of the theory of general economic equilibrium was achieved by Debreu.[27] The latter, through the explicit assumption of an axiomatic method, also obtained results leading to “a perfect conceptual identity, or a nullification of value by price.”[28] That’s why, starting from Gustav Cassel, both Sraffa and Debreu “seek to construct a non-founded economic theory—that is to say, one which does not require a foundation outside itself.”[29]

Consequently the idea that with Sraffa there is a definitive solution to the problem of a stable measure of value as the basis of relative prices – which according to Claudio Napoleoni takes the form of a suppression and not a solution to the question of value – represents unequivocally the final term in the history of political economy, as a science founded precisely on its decision as regards the problem of value: if we recognize that Sraffa’s theoretical proposal overcomes all non-empirical or purely metaphysical presuppositions so as to obtain full formal coherence, one is forced to recognize at the same time the end of political economy.

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Laruelle Bibliography (English & French)


[Someone needed to compile this, so I did. Let me know if I missed anything. I took two French bibliographies (1, 2) and put the English versions in bullets, adding links to online material (whole or partial). Essays with English translations are bolded. Some repeated publications were omitted. My own citations are in APA style, but French citations are not.]

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