[OPE-L:2096] Re: The Money Supply

From: Gerald Levy (glevy@PRATT.EDU)
Date: Tue Jan 11 2000 - 18:08:47 EST

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Re Chris's [OPE-L:2093]:

> It is clear that at a time of hyper-inflation (a permanent possibility
> with inconvertible paper - and NB only for paper) non-commodity money
> fails in one of its most essential functions, namely to serve as means
> of payment.

No, all it means is that during periods of hyper-inflation the particular
currency that is issued by the country experiencing the hyper-inflation
no longer can serve satisfactorily (at least, temporarily) as means of

In *every* case of hyper-inflation that I am aware of in recent decades,
sellers would accept the US dollar as means of payment (if the buyer, of
course, had access to dollars).

> The reason for failure as means of payment is that such paper
> fails as store; it cannot conserve value between sale and purchase of
> commodities. Even today in some countries it is advisable to change money
> into goods as soon as you get it or place it in high interest accounts.

Whether one changes money into goods, places it in a "high interest
account" (btw, a very poor choice in a real case of hyper-inflation since
if the hyper-inflation continues then the rate of interest offered by
private banks in "high yield" accounts will almost certainly be
significantly less than the rate of inflation), accumulates dollars, or
buys gold or pork rind futures, the operative principle here is
*speculation* (a form of legalized gambling).

> This proof that paper is not money is so clear and convincing it is really
> surprising non-commodity money theories are still advocated. This can only
> be explained by an empiricist prejudice: that hyper-inflation is rare and
> can be neglected.

As can be seen from the above, your proof in this regards is not entirely

> Value form theory can make a
> contribution here I'm sure, but it should always retain a theoretical leg
> in a real money base i.e. commodity money.

Well, this must be another instance of a dispute within value-form theory
since R/W in VFS don't have a commodity money theory and Mike W has argued
against such a theory in the past on this list.

In solidarity, Jerry

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