Tuesday, October 2, 2007

Towards a Philosophy of Money-1

The introductory portion of this study is actually about revisiting the concept of currency itself. In an epistemological sense, it is a tool that carries certain distinctive features i.e. first, it governs the exchange of anything physical between the self and the other; second, only that thing can be exchanged one can part with; third, this exchange is perpetual, it never ends till the end; fourth, the first ever exchange anybody undertakes comes out of the initial credit that is done to one’s account by an external agency. This is a fundamental equation. Whatever happens between the self and the other in an existential sense is a replication of this equation. The moment this process starts, the normative value-system overtakes the entire range of this equation. ‘Anything physical[1]’ starts acquiring cultural definitions and moral limits. ‘Something to part’ is engulfed into the laws of marginal utility. The ‘perpetual’ becomes bondage, prison, dialectics and life itself. The ‘initial credit’ determines the external agency which can vary from a monotheistic conception of god, mother nature, kinship system, society and state to the most efficient banks of the world. Not just that, it even questions the terms and conditions of the initial credit by defining the nature of what has been mortgaged for availing it. Any discussion on currency may try consciously to avoid these fundamental issues yet it can’t proclaim to be free of their subconscious hinging.
The epistemological consensus is immediately disrupted after the defining of currency. On a political front, currency emerges as a contested notion. The most acceptable definition is the state-centric one where the central banks of respective nations issue a particular national currency, upholds its value and control its supply. Nobody generally doubts this definition because state-centricity is the most prevalent level of analysis in international politics. It assumes the finality of national control over the valuation standards of any currency but as we shift from the national to regional level of analysis, the definition of currency becomes a problematique. At this level, it produces multiple gaps in its own development e.g. when there is a whole tradition of political thought in support of free trade, there is not available a clean notion of international currency. A national currency does not automatically translate itself into an objective & bias-free trading currency without passing through certain fundamental constraints of political economy. Chinese cars are purchased in dollars by European vendors and then resold in Euro to european customers. There always work a political differential behind trading regimes of currencies and they are not generally very transparent. But if theory of free trade has to evolve, it has to be so only upon the foundation of transparent valuations of inter-currency exchange. Simplistically it can be said that something like “currency of currencies” or a ‘root currency’ is needed. Some experiments have been there. Gold, Oil, sterling pound, American dollar, Euro and SDRs of IMF are some of the quotable examples. But none has really been stable without disputes and complaints of hegemonic biases and power struggles. As we move a bit ahead and review the case at a global level of analysis, the notion of a global currency[2] is absent. It means that the way nations can measure their national wealth vis-à-vis internally developed standard, they cannot do the same with respect to the globally marked standard. It goes beyond proof that in last 30 years, around 100 financial crises[3] around the world essentially destroyed or damaged the currency regimes first and then the effect multiplied into all the sectors of economy and finally into politics. Thailand, Brazil, Argentina, Mexico and many more countries can be named in this list of victims. Even the present decline of sub-prime housing market in U.S. is visible in almost all the stock markets of the world. Not just that, the rising stock of financial capital does need reasoning. In the words of Walden Bello, “The amount of speculative capital sloshing around in global financial circuits is truly mind-boggling. According to the McKinsey Global Institute (MGI), the global stock of “core financial assets” stood at $140 trillion in 2005. Traditional commercial banks held a significant amount of global financial assets, but non-bank financial operators, which have become important intermediaries between savers and investors, accounted for $46 trillion in 2005, hedge funds for $1.6 trillion, and private equity investors about $600 billion.”[4]This whole capital stock is operating through certain currencies which do have fixed origin (mostly national) but enjoy unbridled dictatorships in money markets. Though precisely the nature of this set of accumulation and shocks cannot be zeroed down but the absence of any stable international currency is a close conceptual shortfall of contemporary financial regimes that triggers the panic button and opens the floodgates of bulls and bears through out global indices.

[1] The ‘physical’ involves digital and hence electronic properties, e.g. software, data records, financial derivatives, hedge funds, so online transactions are part of the same.
[2] Global currency is absent but definitely the idea has been proposed recently by famous economic theorist and mathematician John Nash. He proposes“asymptotically ideal money”, a kind of money with almost zero inflation. He also calls it good money because it shall retain its value over time, free people from the volatility of multiple-currency systems and will result in efficient transfer of utility among people. He assumes that free trade should result only in transfer of utility and not wealth. It shall be based upon a new standard that must be non-hegemonic unlike any politically defined earlier standards. He also proposes this new metric system to comprise a basket of industrial goods and it must be regularly upgraded and kept transparent. He even terms euro as an eventual development towards the ideal money.
[3] In a study by Brookings Institution
[4] Bello, Walden in an article “IMF in Crisis” in ‘The Frontline’, Volume 24 - Issue 16 :: Aug. 11-24, 2007

3 comments:

friend said...
This comment has been removed by the author.
friend said...

Global currency ???? Any economist can dream it but is it politically feasible???In my opinion this is good idea for producing some high quality intellectual property or ------------ but not a realitic economic goal specially on the planet earth

Sunil Aggarwal said...

Dear Friend
If you see the total number of countries and compare it with the total number of currencies, you will find that at present, not more than ten currencies comprise more than 90% of international trade. The trends towards regional redefining of currencies and towards dollarization of minor currencies are good signs of the scene that might not be perfectly callled a field of global currency but currencies definitely can merge and they do merge. The work of noble prize economist Robert Mundell and a good work on optimal currency area are another intellectual inputs into this exercise. The basic purpose is to save the humanity from unnecessary currency fluctuations. The way euro was a dream half a century back, the global currency can be called a dream today. As far as the political feasibility of this project is concerned,it is directly related with the change in the structure of power of nation-states. That area is at present not as theoretically sound as it should be. My work is towards the development of such models of currency and power that fit into changing paradigm of state systems. Of course, it means discussing politics, society and culture. That is what i am supposed to know and work diligently upon. Friends like you from foreign lands can be of real help. I shall look up to your future comments.