[OPE] IDEAs Conference on The Value of Money in Contemporary Capitalism, New Delhi.

IDEAs Conference on
‘The Value of Money in Contemporary Capitalism’ 12-13 September 2008,
World Wildlife Fund Auditorium, 172 B Lodi Road, New Delhi, India

International Development Economics Associates (IDEAs) organised a two day
conference on ‘The Value of Money in Contemporary Capitalism’ in New Delhi
on 12th and 13th of September.

The conference was meant to address issues around the role of money in
contemporary capitalism, in both national and international contexts. The
starting point was a new book by Prof. Prabhat Patnaik (Jawaharlal Nehru
University, New Delhi), a renowned Marxist macroeconomist, entitled “The
Value of Money” (Tulika Books and Columbia University Press 2008) which was
released around the same time. This book provides a logical critique of
monetarism, which has become the dominant stream of contemporary
macroeconomics. However, it is a critique along lines very different from
what is generally advanced. As against the monetarist view that the value of
money vis-à-vis commodities is determined by demand and supply of money, it
argues that the value of money is given from outside the realm of demand and
supply.

The first part of the conference focused on a consideration and assessment
of the arguments made in the book, at both theoretical and empirical levels.
The second part of the conference was devoted to analyses of recent
tendencies in money, finance and real economies in particular countries and
in the world economy.

About 170 participants from India and around the world took part in the
conference. The group included academicians, policymakers and students. Many
members of the civil society were also present. Apart from the formal
discussion, informal exchanges among the large number of participants during
the course of these two days were passionate and productive.

DAY 1, 12th September 2008

Opening Session

The two-day long conference begun with opening remarks from the Chair, Pasuk
Phongpaichit, Chairperson, IDEAs and Professor, Department of Economics,
Chulalongkorn University, Bangkok, Thailand. She opened the discussion
saying a few words about the network IDEAS and its growing reach among
heterogeneous economists from all over the world. Talking about the
conference Pasuk Phongpaichit said that the conference is about scrutinising
the role and determinants of money and capitalism with USA as a hegemonic
power.

Jayat Ghosh, Professor, Centre for Economic Studies and Planning, JNU, New
Delhi and Executive Secretary, IDEAs, introduced Prabhat Patnaik’s book ‘The
Value of Money’ by listing out the various challenges posed by the book to
existing mainstream economics. Jayati Ghosh pointed out that the central
theme of the book is to analyse the determinants of money and then it goes
on to critique the exogeneity aspect of the determinants. The book
challenges the different concepts of money, specifically the monetarist view
on money and discusses ‘money’ in the Marx-Keynes-Kalecki framework.

Prabhat Patnaik, Professor, Centre for Economic Studies and Planning, JNU,
India, outlined the main themes developed in this book. Prof. Patnaik
highlighted the difference between monetarist and ‘propertyist’ traditions
on the question of the determinants of value of money. In the monetarist
tradition, Prof. Patnaik argued, money is viewed as a medium of circulation
and its value is determined by its excess demand. In the propertyist
tradition, that includes the views of both Marx and Keynes, money is also
viewed as a form of property or a form of holding wealth. Prof. Patnaik
argued that the medium of circulation role of money cannot be separated from
its role as a form of holding wealth. Money cannot act as a medium of
circulation if it is also not a form of holding wealth. However, once the
role of money as a form in which wealth is held is recognised, the
possibility of realisation or effective demand problem also has to be
acknowledged.

Prof. Patnaik further argued that the propertyist tradition is incomplete
because it does not explain why, in spite of its inherent tendency towards
the realisation problem, capitalism has operated in a viable and stable
manner over long stretches of time. Patnaik contended that it is the
existence of a pre-capitalist sector, which provides both cheap inputs and
markets to the capitalist core that provides stability to the system. He
argued that the pre capitalist sector provides cheap inputs to ensure
stability of the value of the currency used internationally, namely dollars.
This theory of the value of money in capitalism therefore logically leads to
a theory of imperialism. This leads Patnaik to a discussion of the
international monetary system. He argues that even while the world economy
may appear to have done away with commodity money by de-linking the US
dollar from gold, in fact it can never actually do so. The value of money,
even paper/credit money, arises because of its link to commodities.
Stability in the international monetary system requires the persistence of
the confidence of the capitalist world’s wealth-holders in the leading
economy’s currency as a stable medium for holding wealth, and this depends
on the continued perception of global hegemony of the leading economy.
Patnaik refers to the current international monetary regime as the
oil-dollar standard, and provides an explanation for the Iraq war in terms
of the need to stabilise the oil-dollar standard. This explains the present
drive by the US to establish control over oil. The control over oil by US
instils confidence among international investors over the value of dollar.
Session 2: Responses 1

Chair: Utsa Patnaik, Professor, Centre for Economic Studies and Planning,
JNU, New Delhi, India

Speakers: Jan Kregel, Anjan Mukherjee, Robert Pollin
Opening remarks on his book by Prabhat Patnaik were followed by responses
from Jan Kregel, Anjan Mukherjee and Robert Pollin.

Jan Kregel, Senior Scholar, Levy Economics Institute of Bard College, USA,
in his note: “The Value of Money in Contemporary Capitalism: Draft of
Remarks” argued that while Patnaik’s book is presented as a book on monetary
theory, it is a book about economic policy as well. In this regard, he
highlighted the role of Employer of Last Resort (ELR) programmes. He argued
that such programmes, by offering employment to anyone who is willing and
able to work at a given wage, not only solve the problem of unemployment but
by fixing a base for the wage also set the base for the price system. Prof.
Kregel, however differed with Prof. Patnaik on the latter’s assertion that
at the international level we are still employing a commodity money standard
or what Patnaik called the oil-dollar standard. Prof. Kregel argued that the
recent increase in oil prices has been due to increased financial
speculation and not due to increase in demand caused by greater
industrialisation in parts of Asia. This, according to Kregel, suggested
that US financial interests, who should have a clear interest in supporting
the value of the US dollars and international currency, did not recognize
that their actions would eventually undermine their position according to
Prof. Patnaik's interpretation.

Prof Mukherji talked about chapter 2 and chapter 4 of Prof. Patnaik’s book.
He argued that in a single period three sector model, the important thing to
look at is the existence of the equilibrium rather than the stability of
equilibrium. He further argues that in such a model if equilibrium exists it
will in all likelihood be unique. Due to ambiguity in the sign of the excess
demand function, the assumption of gross substitution cannot be made. Prof
Patnaik makes this assumption. He contends that without this assumption
also, lot can be said about the stability of the equilibrium. Since the
trace of the matrix that one gets after double differentiating the excess
demand function is negative so the equilibrium will be locally stable. But
to study the global stability of the equilibrium, he argues, one needs to
study phase diagrams. He further argues that in all cases it can be shown
that if equilibrium exists then it is bounded and bounded away from zero. It
is true for the case of saddle point also. Therefore, according to him, the
endeavor should be to look for the existence of the equilibrium in this kind
of model. Suppose equilibrium does not exist then two possibilities arises,
one in which the prices converge to zero, that is the value of money goes to
infinity. The other is the value of money going to zero. These are the two
possible cases discussed by Prof Patnaik in his book. These cases arise
because of the non existence of the equilibrium so the question of stability
does not arise. If we want to study the value of money, Prof Patnaik’s model
in Chapter 2 is not appropriate; rather one should take an inter-temporal
model.

In his paper “Considerations on Interest Rate Exogeneity”, Robert Pollin,
Co-director, Department of Economics and Political Economy Research
Institute (PERI), University of Massachusetts-Amherst, said that he agreed
with most of the conclusions reached by Prabhat Patnaik. However, he also
had some points on which he differed with Patnaik. First, he pointed out
that the book ignores the role of central banks and financial innovation in
driving the money supply process. Second, he argued that the role of the
pre-capitalist sector in Prof. Patnaik’s book is perhaps exaggerated.
Processes internal to capitalism, such as the maintenance of the reserve
army of labour can keep prices stable. He also argued that aggregate demand
can be boosted through government expenditure, bourgeoisie’s consumption
etc. Hence, pre-capitalist sector is not a logical requirement for
capitalism to ensure stability and growth. Finally, he stressed the
importance of overcoming the realisation crisis through clean energy
investments, in the context of threats posed by climate change.
Session 3: Responses 2

Chair: Jan Kregel, Distinguished Research Professor, Centre for Full
Employment & Price Stability, University of Missouri, Kansas City, USA and
Senior Scholar, Levy Economics Institute of Bard College, USA

Amiya Bagchi, Director, Institute of Development Studies, Kolkata, India, in
his paper “Money under Capitalism: Domestic, Universal”, argued that much of
the theorizing of money under capitalism relates to a developed economy.
Thus, he argued that there is no history of finance and money from the point
of view of the poor. Even in systems where there is more than one type of
commodity money, the one used by the poor is the one which has the least
amount of acceptability. However that money cannot work beyond the domestic
sphere. One can have domestic money entirely based on trust but cannot have
a similar form of international money because an international money
requires an acceptance beyond the domestic circuits of trust. Therefore
throughout the period of development of capitalism, the competing capitalist
states have sought to control the form of money which has the largest degree
of acceptability in the arena of international exchange. The power seeking
hegemony has always sought to make its domestically acceptable currency the
hegemonic currency in the world. Therefore the money used by the weaker
economies has also been made the weaker currencies.
S. L. Shetty, Director, EPW Research Foundation, Mumbai, India, in his
response to the theme put across the point that finance capital is one of
the important ways of establishing strategic infringement of imperialism. In
the context of India his paper “India’s Economic Structure and Financial
Architecture: A Growing Mismatch” makes the point that over time the
financial infrastructure of the economy has not moved in consonance with the
changing economic structure of the economy. A comparative analysis of
pre-reform and post-reform periods in India shows that changing public
policies themselves have been the main source of stress in the financial
system.
In the discussion on his paper, “The Value of Money and the Theory of
Imperialism”, Dr. Prasenjit Bose, Convenor, Research Unit, CPI (M), New
Delhi, India, said that the book by Prof. Patnaik opens up new vistas for
understanding the nature of development of capitalism. At the same time, he
felt, the two main problem of Prof. Patnaik’s analysis was that, first, the
role of the state has been analyzed solely in terms of demand management and
second, military expenditure as an important expenditure of the state has
been glossed over in the book. Also, the theory of imperialism, as proposed
by Prof. Patnaik in the book, should be put to the test of praxis. For that,
Dr. Bose said, it is essential to explore the nature of the relationship
between different exploited classes.
Session 4: Panel Discussion

Chair: Anil Bhatti, Professor, Centre of German Studies, School of Language,
Literature and Culture Studies, Jawaharlal Nehru University
Speakers: Abhijit Sen, Charles Abugre, Chris Baker, Patan Khasnabis

Opening the discussion Abhijit Sen, Member, Central Planning Commission,
India and Professor, Centre for Economic Studies and Planning, JNU, New
Delhi raised three main issues. The first is a discomfort with the idea that
there cannot be a closed capitalist system, a discomfort that has been borne
out of the fact that we have been subjected to models of closed systems. A
great deal of money is used to finance wars, aid, etc. which is actually
state spending, signifying some kind of fiscal policy. As long as we can
allow the state to do these, there is no need for pre-capitalist economies.
Therefore the capitalist state can take care of its own crisis while working
as a closed system without any intervention from outside.

Second, seen in terms of the world economy today, the idea of money as
commodity money, specifically as oil money, though attractive, seems to be
somewhat inconsequential to the current behaviour of the world economy. The
approach taken by Prof. Patnaik therefore does not help in demystifying
things for the following three reasons:

(i) After the neoliberal takeover, a huge rise of finance capital happened
through successive bubbles in various assets. The relationship between money
and these asset markets need to be spelt out.

(ii) The present capitalist leader is in debt, predominantly to countries
that sell goods to it. It allows other countries to run current account
surpluses. In this context, it is important to consider the question of the
undervalued exchange rate of its trading partners, especially China, which
refuses to let its currency to appreciate.

(iii) The immediate past has seen a huge commodity boom, with finance moving
from one set of assets to another. The past 18 months’ events cannot be
termed as any long term tendency. Even as the oil-dollar pedestal is the
building block of Prof. Patnaik’s ideas, the US does not think of oil as
that important except on the supply side.

Third, he made some remarks about the Indian case:
The Raghuram Rajan Committee report on financial reforms talks about “growth
and inclusiveness”. Too many people are excluded from the financial system.
How do we bring them into the financial system? For the Indian capitalist
class, this could be thought of as necessary. But that’s not it. The
discourse within peripheral capitalism does not seem to recognize any
relationship on which Prof. Patnaik puts so much emphasis.

Is it not the case that governments have moved away from fiscal policy
management?
Moreover, today wages are very sticky. Real wages in the capitalist sector
have hardly increased. BPOs, etc cannot be seen as safety valves as Patnaik
would have it. These merely utilise existing reserve armies. In this
context, how should we blend the idea of imperialism to the idea of the
closed capitalist economy which is what capitalism is all about?

Charles Abugre, Head, Policy and Advocacy, Christian Aid, London, UK, was of
the opinion that Prabhat Patnaik’s argument that stability of the capitalist
economy lies in the degradation of the pre-capitalist economy that resides
together with capitalist economic structures was particularly interesting.
But he questioned whether and to what extent questions it is possible to
make a clear demarcation between capitalist and non-capitalist economy in
reality. Abugre pointed out that such a demarcation may be plausible in case
of a country like India, which has faced a rapid economic transformation.
This is, however, not true for countries in West and East Asia. Those
economies stand testimony to continuous decay and diffusion of new modes. As
a result, there arise intermediate class structures. Secondly, he argued
that Patnaik’s book has suggested socialism as the necessary solution to the
present problem but the solution does not emerge as an inevitable outcome of
the theorization of the same.

Chris Baker, Independent Researcher and Writer, Bangkok, Thailand, made the
point that it is not possible to talk about the global economy without
talking about practice. He raised the question whether it is realistic to
make a stark division between capitalist and pre-capitalist economy in today’s
world. Patnaik’s theory, Dr. Baker opined, does not incorporate the
diffusion of capitalism. Capitalism degrades the precapitalist economies,
but not till the point until the whole system fails. If we look at the
examples of economies in Latin America, Africa and Asia, both degradation
and diffusion have been going on in parallel.

Patnaik produces socialism out of the hat, as essential but not inevitable.
Does this ambitious re-casting of the ideas about world capitalism give us
any idea about the political organization required to put this into
practice?

Ratan Khasnabis, Professor, Department of Economics, and Dean, School of
Business and Management Studies, University of Kolkata, West Bengal, India,
began by saying that he agrees with Patnaik’s critique of neoliberal
economic theory. Patnaik’s world is the world of sticky prices of Marx,
Keynes and Kalecki. To Khasnabis, the Marxian stand is more convincing, as
it does not bind the model to the short term. It can be used to build a
model keeping in mind long term consequences.

Maintenance of a minimum rate of profit is required for the sustenance of
capitalism. For the viability of the system, pre-capitalist sectors are
needed to provide stimulus to investment and as a repository of labour
reserves.

But the stimulus to investment might come from within. The Schumpeterian
innovation ‘creative destruction’ fits well with the Marxian model of
capitalism. Marx had argued that competition among capitalists leads to
concentration and centralization of capital. The process is facilitated by
innovation. Innovators eliminate the competitors, which is achieved by
reducing the cost of production. Hence profitable lines of production can be
maintained to an extent.

Lenin had pointed out that underconsumption is a reality, and that it could
be the cause of crisis. The motive of capitalists is to increase the organic
composition of capital. A way out of crisis is to take up investment in
Department II, though it may lead to dis-proportionality crisis. There is a
big differential between wages of workers in capitalist economies and the
third world. Within a capitalist economy itself, there are low-valued
products (with low organic composition of capital, for instance,
agricultural products) and high-valued products (with high organic
composition of capital, such as infotech), which explains the wage
differentials within the capitalist system.

The welfare loss of the above-mentioned strategy will be high. But
interventions from the other side, namely labour, reset the agenda. The
system inflicts tremendous welfare loss on society. Socialism as such does
not come naturally from within.

DAY 2, 13th September 2008

Session 1: Money and Monetary Policies in Capitalist Economies

Chair: S K Thorat, Chairman, University Grants Commission, New Delhi, India.

Speakers: Erinc Yeldan, Sunanda Sen and Jyotirmoy Bhattacharya
Erinc Yeldan, Professor, Department of Economics, Bilkent University,
Ankara, Turkey, in his paper titled, “Beyond Inflation Targeting: Accessing
the Impacts and Policy Alternatives for Employment Creation and Economic
Development”, highlighted the effects of the orthodoxy’s obsession with
inflation targeting at the cost of macroeconomic variables such as
employment. The economics behind inflation targeting which explicitly
commits itself to attain price stability is in fact nothing but the
management of expectations, where the market participants are like Roman
gods and goddesses who need to be kept happy at all times.

The obsession with maintaining price stability in the absence of nominal
anchors has compelled the Central Bank to concern itself solely with
inflation targeting under the pretext that the latter cannot influence the
real side hence it would be best to return to monetary economics. Even while
the ILO statistics suggest that more than 186 million people across the
world are unemployed, 22 percent of the developing world’s workers earn less
than a dollar a day and 90 percent of the labour employed in merchandise
trade suffer from informalisation, the mainstream’s dogma of inflation
targeting has replaced employment creation on the direct agenda of almost
all countries.

The role of financial globalization which merely redistributes investible
funds rather than accelerate accumulation as a source of instability cannot
be ignored and merely targeting price stability will be insufficient. He
argued that what we really need is macroeconomic stability.

Yeldan pointed out that although inflation needs to be controlled we need to
focus on income redistribution. The focus on inflation targeting which is
primarily situated in a world where inflation is solely attributed to wage
push fails to take note of the phenomenon of imported inflation and takes
away powers from the powers of the Central Bank. When control over other
instruments such as exchange rates is taken away, targets then become
difficult to achieve.

Yeldan suggested alternatives such as the use of the Pasinetti Rule which
implies setting the interest rate to the rate of growth of labour
productivity. Taking from a study by Pollin and Zhu which found out that
higher inflation rates are associated with moderate gains in GDP growth upto
a roughly 10 to 15 percent inflation threshold, he stresses the need to have
case specific thresholds for different kinds of inflations.

In her paper titled “On Trade-Off and the Impossibility”, Sundanda Sen,
Professor Emeritus, Department of Economics, Jamia Millia Islamia and
Professor (retired), Centre for Economic Studies and Planning, JNU, India,
stated that in a globalized world, where there is capital account
convertibility and exchange rates are subject to market forces, monetary
policy which is subject to the changes in capital inflow and exchange rates
becomes an inffective instrument in the hands of the Central Bank.

To spell out the course of action, with CAC, the import of capital leads to
capital appreciation. Where the exchange rate is not allowed to appreciate
too much, there is some capital absorption which leads to a rise in prices
and increase in interest rates. As interest obligations have to be met and
fiscal deficit increases are not acceptable, the axe falls on the primary
deficit or in other words expenditure cuts are enforced. CAC is an integral
part of deregulated finance where the Bank of International Settlement Rules
makes it compulsory to comply with Capital Adequacy Ratio (CAR) and CRPR
which reduces lending to sectors like agriculture and small sectors. Where
financial securities are considered more profitable than industrial
securities in a world where a range of assets are available and corporates
prefer to invest in financial assets due to the presence of ESOPs and the
need to show better balance sheets, inflation targeting is resorted to only
to protect the interests of finance capital.

Jyotirmoy Bhattacharya, Assistant Professor, IIM, Kozhikode, in his paper on
“Oil Shocks: How Destabilising are they for a contemporary Capitalist
Economy?" begun by arguing that reaction of the world economy to oil shocks
has changed significantly in the last two decades. He pointed out that
inflation due to oil shocks in the seventies was higher and even led to
stagflation as compared to the nineties where the impact on inflation has
been more muted. Neo classical models do a very bad job of explaining this
differential response of inflation to oil shocks in the two different
decades.

At a time when money is not fiat and is linked to oil in what is called the
Oil-Dollar Price and it has been argued that oil price increases have been
mainly due to speculation, the relatively reduced impact of oil shocks in
the 90s on inflation in the developed world has been due to the availability
of cheap imports from China and the access to the cheap labour reserves of
the developing world. Notwithstanding the fact that imperialist powers have
a need to control oil to ensure price stability, Bhattacharya establishes
that price stability due to fluctuations in oil may not be as crisis causing
as before.

Session 2: Finance and the Real Economy

Chair: Robert Pollin, Co-director, Political Economy Research Institute at
the University of Massachusetts, Amherst, USA

Speakers: Esteban Perez Caldentey, Nirmal Chandra
Esteban Perez Caldentey, Economic Affairs Officer at ECLAC, Santiago, Chile,
began the presentation of his paper “Trade Openness, Financial
Liberalisation and Volatility” by discussing the limitations of neoclassical
economics in dealing with money. The neo-classical theory cannot function
with money as a medium of exchange. But it is difficult to conceive the
functioning of an economy of exchange with a great number of goods and of
private property owners, without an efficient exchange system. An exchange
economy presupposes ‘something’ to record and settle transactions with.
Intertemporal models made ‘that implicit something to settle transactions’
an explicit component of their models by introducing money as a medium of
exchange from ‘outside’. This was achieved by appending a quantity theory
equation to the ‘real equations’ of general equilibrium. While people
starting with Patinkin (1956), Clower (1965, 1967) and Wallace (1980) did
this, introducing money as a means of exchange negates the very purpose of
intertemporal equilibrium. Esteban then offered an analysis of the last part
of Prabhat Patnaik’s book by incorporating a discussion on the
inter-temporal approach to open economy macroeconomics. Intertemporal
approach in essence transfers the intertemporal utility maximisation of
households onto the sphere of countries. The current account balance is thus
‘a facet of the market for intertemporal trade in goods and services’. The
capital account exists to ‘support’ the gains from trade in goods and
services. The prediction of this theory is that capital should flow from
capital abundant developed countries to developing countries. However, based
on empirical evidence from the Latin American countries, Esteban Perez
showed that net resource flow is moving from the South to the North. He
argued that this has been happening due to repatriation of profits and
incomes. He concluded by arguing that it is not trade that drives finance as
in intertemporal models rather the causality is in the reverse direction.

Nirmal Chandra, Professor Emeritus, IIM, Kolkata, India, in his paper "Is
Inclusive Growth Feasible in Neoliberal India? Some Preliminary Notes on
Fiscal and Credit Policy", spoke on the changing fiscal situation In India
in recent years. He noted that there has been an improvement in tax to GDP
ratio in recent years. Prof. Chandra argued that improvement in the tax to
GDP ratio cannot be attributed to the fiscal policy stance adopted by the
government but has taken place due to sudden rise in world oil prices. He
also pointed out that there has been no increase in the ratio of tax to
non-agricultural GDP. He argued that the indirect taxes have fallen due to
reduction in import duties. The corporate income tax has increased
moderately, but at the same time because of a number of tax-exemption
provided to the corporate sector, the effective tax rate in the profit share
of the corporate sector has gone far below the statutory rate. He also drew
attention to large number of tax sops given to the corporate sector.
Different tax sops provided by the Centre and the States not only lead to a
loss in potential tax revenue but also give rise to high economic inequality
in the society. The low tax base of the government and its adherence to
neoliberal FRBM act has greatly reduced the scope of undertaking
developmental expenditure in the economy. The speaker ended his speech by
raising an important aspect of the recent high growth phase in India.
According to him, one of the main driving forces of achieving higher growth
rate is the increase in the luxury consumption by the high income groups and
different tax sops given by government to promote such consumption which
means that while this can work for a short time, there is a natural limit to
this process.

Session 3: Open Forum

Chair: C P Chandrasekhar, Professor, Centre for Economic Studies and
Planning, JNU, New Delhi and Member, IDEAs’ Executive Committee
In the open forum, Prof. Chandrasekhar summarized some of the issues that
came up for discussion in previous sessions. Prof. Chandrasekhar argued that
the issue that was intensely debated was the logical necessity of the
pre-capitalist sector in closing demand constrained capitalist system. In
this regard, he himself proposes that in recent times finance may also have
provided exogenous stimuli to the system. He draws attention to the credit
financed expenditure booms in stimulating aggregate demand. He also argued
that oil-dollar standard proposed by Prof. Patnaik was also much debated. He
argued that the fact that high rates of growth are experienced only by few
developing countries can be brought into the analysis in explaining the
continuing confidence in dollar. He argued that China was holding large idle
dollar reserves that it can use to stimulate domestic growth. But it is
holding these large reserves at rates of growth that are already very high.

Next, Prof. J. Kregel explained the Keynesian approach to money. According
to him, anything for which liquidity premium exceeds carrying cost can serve
the role of money. Money, in this approach does not have a concrete
referent; a worthless piece of paper can also serve the role of money.
Therefore, Prof. Kregel differs with Prof. Patnaik who pegs the value of
international money to a commodity viz oil. In explaining the current US
drive for gaining control over world’s oil resources, Prof. Kregel argued
that it was mainly driven by the personal interests of those who run the US
administration rather than by the desire to ensure stability to dollar. He
also argued that the recent increase in oil prices has been on account of
financial speculation. It is not clear why financial speculators in US will
undermine the stability of dollar by raising the price of oil.

Besides Prof Kregel, Prof. Bagchi and Prof. Pollin also made important
interventions. Prof. Bagchi reiterated the role of pre-capitalist markets in
ensuring stability and growth in capitalist world. Prof. Pollin highlighted
the importance of green investments. Such investments will not only insure
the world against threats posed by climate change but will also boost demand
in the economy.

In his response, Prof. Patnaik once again emphasized the role of pre
capitalist sector. He drew attention to the role played by colonies in
fostering growth in capitalism in the nineteenth century. He also argued
that demand supply conditions played an important role in determining the
price of oil. He contended that control over non-renewable resources is
essential for maintaining the value of dollar and in the present scenario,
oil is the most important non-renewable resource.

September 22, 2008.

© International Development Economics Associates 2008

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Received on Wed Mar 11 10:19:27 2009