The German Currency Rent 2
Content
John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
The German Currency Rent
Rents are normally thought of as allowing the sale of commodities above their prices-ofproduction or even, in the cases of ‘monopoly rents’, their values. However, as explored above and below in this paper, a Marxist definition of rents as ‘deviations of (any form of) price from underlying value’ does not disallow the existence of rents which have the opposite effect, i.e. rents allowing and/or encouraging the sale of commodities below their value (yet still providing their producers, at least, the price-of-production, i.e. the normal or average profit). Indeed it has already been suggested in the above that for the sum total of positive rents, i.e. there must exist an equal and opposite amount of negative rents. Anomalies such as these can be observed in the cases of countries deliberately lowering the value of their currencies so as to make their commodity exports more attractive to the markets of foreign importing countries.1 One method of accomplishing this can be seen in the moves of central banks to sell its own currency. To accomplish this sale of its currency—beyond that normally exchanged in the currency markets—the ‘price’2 of the currency, i.e. the exchange ratio with other countries’ currencies, must be lowered thereby effectively lowering (in importing countries’ currencies) the prices of the devaluing country’s exports and thereby increasing demand for these in such foreign lands. Versus locally produced close substitute products these price-adulterated invaders ride this advantage into larger market-shares wedging their way in and crowding out domestic competitors. According to the line of thinking here, it is obvious that this price advantage—this deliberate lessening of commodities exchange-value via manipulation of the pricing system so as to undercut its rival’s position in its own locus—may be thought of as the result of the coming-into-existence of a rent, more specifically, a currency rent in Circulation 2, the commodities’ market. And as this advantage is not obvious as, say, a subsidy or tax, the rent is therefore a virtual one. And even more specifically, it is a virtual negative
1
E.g. “The Plaza Accord or Plaza Agreement was an agreement between the governments of France, West Germany, Japan, the United States, and the United Kingdom, to depreciate the U.S. dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets. The five governments signed the accord on September 22, 1985 at the Plaza Hotel in New York City…The justification for the dollar's devaluation was twofold: to reduce the U.S. current account deficit, which had reached 3.5% of the GDP, and to help the U.S. economy to emerge from a serious recession that began in the early 1980s… Devaluing the dollar made U.S. exports cheaper to its trading partners, which in turn meant that other countries bought more American-made goods and services.” http://en.wikipedia.org/wiki/Plaza_Accord
2
See above footnote 7. (7 “…this price of the waterfall on the whole is an irrational expression…The waterfall, like land in general, and like any natural force, has no value because it does not represent any materialised labour, and therefore, it has no price, which is normally no more than the expression of value in money terms. Where there is no value, there is also eo ipso nothing to be expressed in money.” “Vol 3.” Chap XXXVIII. Pp 647-8. http://marxists.org/archive/marx/works/1894-c3/ch38.htm Thus with fiat money, i.e. a money supply printed ‘at will’ by a nation’s central bank with nothing that backs it up, e.g. gold reserves, etc., the ‘price’ is as “irrational” as that of the waterfall, notwithstanding such a ‘price’ having ‘real-world’ consequences.
1
John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
currency rent that allows sale of its products below their value but equal to or perhaps even exceeding their price-of-production when combined with a more than compensating labor rent (a la China vis the US), i.e. where the costs-or-reproduction (r) of its workforce is lower than its competitor(s)—and thereby enhancing the bottom line. The process of capital accumulation in the lesser-developed country then can proceed as effectively or even more effectively than in its more developed trading partner in spite of the sale of its products below their value as the products are sold below their value but equal to or even surpassing their prices-of-production because of the compensating effects of the purported labor rent. Indeed the wedging into and the winnowing out of local competitors in the fight for market-share—the replacement of domestically-made goods and/or services by foreign-made items, i.e. the export of jobs through the import of products, with other things remaining the same—effects a lowering of the rate of profit; initially amongst the members of the close substitute sector and therewith a general tendency towards a lowered profit brought about by that now-forlorn sector’s lessened contribution to the surplus-value pool that is subject to the equalization process. The domestic market, it seems, has developed a leak with purchasing power (nee: work) whooshing out of it and transferred to the exporting country. The currency rent imposed on the members of the Euro zone through the imposition of a single currency, however, is of a different color and it affects diverse member countries in dissimilar manners. For the German exporters whose shipments to other Euro zone countries, as under a gold standard or even with the old deutsche mark, would bring back monies that would tend to increase the rate of inflation and thereby raise the prices of their export products in the importing countries local currency, reducing their competitiveness3 in production cycles going forward; while, on the other hand, the outflow of funds from the importing countries would bring about a decline in prices there and, hence, increasing their attractiveness to Germany and other countries. Hence a balancing act would be achieved. However, the what-would-be-gold-remitting-countries in the Eurozone are now forbidden to undertake a lessening of the values of their currency, the Euro, the same currency sported by what-would-be-gold-remitted-tocountries are thus prevented from lessening the burden of their debt—through payment with inflated currencies—acquired with the purchase of German products, by this inability to devalue as they have ceded control over their currency to the governing European Central Bank; while Germany, itself, neither has nor would like—on this point —to have the facility to create and/or to revalue its currency4
3
“If Germany still had its old currency, the deutsche mark would doubtless be stronger than it is now, crimping its competitiveness against other European states. So inside Europe, Germany is in effect working with a currency that is undervalued and thus supercompetitive..” Peter Coy. Business Week. “Germany's Merkel: She's Got the Whole Euro in Her Hands.” http://www.businessweek.com/magazine/content/10_09/b4168024506794_page_2.htm
4
“Any hint that a weak country was about to leave would lead to runs on deposits, further weakening troubled banks…The calculation would be only slightly better if the euro escapee were Germany. Again, there would be bank runs in Europe as depositors fled weaker countries…Even if German banks gained deposits, their large euro-zone assets would be marked down: Germany, remember, is the system’s biggest creditor…German exporters, having been big beneficiaries of a more stable single currency, would howl at
2
John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
The extent of the rent is shown in this chart from The Economist:
5
Other articles providing citations implicitly remarking upon this German currency rent will be found in Appendix VII “The German Currency Rent in the Press”. These quotations will attest to the unique advantage held by Germany vis their lesser developed fraternal competitors but competitors nonetheless. There is one selection that however demands a bit of a closer look:
“If Germany still had its old currency, the deutsche mark would doubtless be stronger than it is now, crimping its competitiveness against other European states. So inside Europe, Germany is in effect working with a currency that is undervalued and thus supercompetitive. That makes the country a lot like China..."6
“That makes the country a lot like China...” I don't think so. China's negative currency rent, i.e. a currency rent which keeps the price of its currency in foreign exchange at a lower level than would be under a gold standard and even under conditions of open unfettered exchange, is imposed by their Central Bank’s selling of yuan and purchase of dollars and dollar-denominated financial assets—as well as other foreign currencies and/or financial assets—tending to raise the ‘price’ of the latters relative to the yuan. Europe's Jean-Claude Trichet does not have to resort to such
being landed once again with a sharply rising D-mark.”
5
“Breaking up the euro area.” Dec 2nd 2010. http://www.economist.com/node/17629757/print Peter Coy. Ibid.
6
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
monetary legerdemain. The single currency itself imposes a rent upon the more backward (less-developed) entities in the EU causing their products to be more expensive than they would normally be (if they were able to inflate their currencies); and, causing the more developed (esp Germany) to be able to take advantage of this 'currency rent' with products that (if the importers were able to inflate their currencies) ought to nominally cost more in the local currencies hindering their competitiveness. Another difference is that China's rent is bi-national (vis the US as it holds to its implicit ‘peg’ with the dollar) and to a certain extent international relative to the rest of the world (as its vast reserves of Euros attest). Germany's negative rent is intra-national (i.e. within the bounds of the EU). Additionally, while both China and Germany are using their respective ‘currency rents’ to gain market-share by under-pricing their respective exports the former’s currency rent is complimented by a labor-rent, a labor wage-rent 7 predicated upon a lower cost of reproduction of semi-skilled labor as compared to the workers of the richer countries that they are in competition with; while the latter’s labor rent is accompanied and supplemented by a capital rent8. However, a la China (but operating at a much higher level of wage) there does seem to exist a labor rent, a labor skill-rent, in Germany as reflected in its wages and wage growth:
“Wages have risen less in Germany over the past 10 years than anywhere else in the European Union…Gross wages in the first quarter of 2010 were 21.8 percent higher on average than in 2000, while other labour costs were 18.9 percent…The figures were the lowest rate of 21 countries. The European Union posted an average wage increase of 35.5 percent over the same period…Wage moderation has helped Germany remain the biggest European economy and has contributed to strong growth seen in the first half of 2010.”9
This is graphically demonstrated by the left side of the chart below:
10
7
See above P64.
8
See above beginning P9. And below in this section. “German wage rises lowest in Europe.” The Local. Sep 8th, 2010. http://www.thelocal.de/money/20100908-29701.html
9
10
“All pain, no gain.” The Economist. Dec 9th 2010. http://www.economist.com/node/17673268
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
With the chart not only reflective of the relative paucity of German workers wage gains versus those of other EU workforces, but also the higher productivity of its skilled labor workers leading to less labor, i.e. value, i.e. costs, being added to their products in competition with the products of other Eurozone members. What is interesting about the right side of the chart is that implicitly it states that, on the world market, Germany’s products lean more heavily towards being skill-intensive as compared with China’s more labor-intensive outputs. These exports thus avoid competition with the wage labour-rents enjoyed by China in its competitions.
The German Currency Rent versus the Classical Gold Standard
“To be on the gold standard, a nation must maintain a fixed ratio between its gold stock and its money supply. That way, when the gold stock rises, so does the money supply. Should gold leave the country, the money supply declines.”11
Accepting the labor theory of value, the classical gold standard can be interpreted as assuming that the currency of a country on this standard—limited by and equal to the amount of gold it holds—has a value that is equal to the cost of producing the amount of gold represented by it.12 All other commodities are thus implicitly measured against it in terms of their embodied abstract human gold labor-time. 13 Consider a universe of two
11
Steven L. Slavin. “Macroeconomics.” 7th Edition. McGraw-Hill Irwin. 2005. Boston, MA. P467.
12
“…that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour time socially necessary for its production.” “Vol 1.” Chap I. P39.
13
“Commodities with definite prices present themselves under the form; a commodity A = x gold; b commodity B = z gold; c commodity C = y gold, &c., where a, b, c, represent definite quantities of the commodities A, B, C and x, z, y, definite quantities of gold. The values of these commodities are, therefore, changed in imagination into so many different quantities of gold.” “Vol 1.” Chap III. P97.
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
countries A and B who each have gold stocks used as currency equal to 50 and therefore a universe of 100. A is avaricious while B is parsimonious. They each produce products with value equal to 50 and are composed of 50 units each and thus a total value of 100 and a total amount of 100 units. At the end of their concurrent production cycles they exchange. We will say that A hands over 30 units of goods and services and 10 in gold while B tenders back 40 in goods and services. Here are the countries: Before Exchange: Production Currency Currency/Goods Ratio And, After Exchange: Total Goods, Services Currency Currency/Goods Ratio A 60 40 .667 B 40 60 1.5 A 50 50 1.0 B 50 50 1.0
A experiences deflation while B encounters inflation. According to the currency/goods ratio what used to sell for 1 in A’s currency now only commands purchasing power equal to only 2/3 of its former value. Quite the opposite is going on in B as her goods formerly
http://marxists.org/archive/marx/works/1867-c1/ch03.htm A rather amusing muse on the value of gold comes with Walter Huston’s explanation in “The Treasure of the Sierra Madre” in whish he, a grizzled old veteran prospector enlightens Bogart and Tim Holt in a miner’s flop house in Mexico: “Real bonanzas are few and far between. They take a lot of finding. Answer me this one, will ya, ‘Why is gold worth some 20 bucks an ounce?” “I don’t know…because it’s scarce?” “A thousand men, say, go searching for gold. After 6 months, one of ‘ems lucky. One out of a thousand. This one represents not only his own labor but that of the other 999 others to boot. That’s, er, 6000 months, that’s 500years scrabbling over a mountain, going hungry and thirsty. An ounce of gold, Mister, is worth what it is because of the human labor that went into the finding of it and the getting of it.” “I never thought of it just like that.” “There’s no other explanation, Mister.” Mister, there’s no other explanation. Video: http://www.youtube.com/watch?v=boUD5eG9Bf4
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John A Imani Towards a Marxist General Theory of Rents
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The German Currency Rent
purchased by 1 of its currency units now are priced at 1.5 as the supply of currency equalizes itself to the amount of goods. Relative to the par exchange-rate existing ante exchange A’s country—due to the export of value in the form of gold—finds its currency devalued; while that of B—in inverse proportion—is revalued upward. Changes in the prices of their goods then follow: the commodities for sale in A. formerly worth 50 (bolstered up with an additional 10 in good/services net from the exchange), is now confronted by only 40 in purchasing power. Its prices are reduced by a third. In B, however, the net 40 goods/services available for purchase now finds 60 confronting it and its prices are raised 50%. Obviously, these new price ratios strongly indicate that A will find itself importing less of B’s higher-priced goods; while B will snap up as bargains the commodities A has placed into their commerce.14 With every sale to B the gold flow ebbs back towards A leveling, ideally, the price ratios back towards unity. At least that is the way it is supposed to work. Today, there is no such natural, i.e. having value, consumption-leveling mechanism to equalize these monetary terms of the trade. Where there is room for currency manipulation it is a test of iron wills not of golden weight. Yet that is another story. What is of concern here is that that natural leveling mechanism no longer applies when economically disparate areas are inter-connected in exchange-relations with each other—Frankenstein-stitched—sewn together with strands woven of the lucre of the single currency. The lesser-developed countries are unable to devalue their currencies—and thereby diminish the real prices of their export goods—so as to reflect the reduced purchasing power available as a result of the inequality of the initial exchange. The currency rent existing within and threatening the financial and fiscal stability of the European Union: Allows repayment of debt (as heavy industrial exports (a sizable portion of German exports) are rarely paid for up-front) in a currency that is stable in value (to itself within the Euro Zone); and, No charges are necessitated by the need to convert debt payments into German currency (the agio); nor any need to go to the expense of hedging foreign currencies in an attempt to maintain the value of debt repayments. 15
Why the German Rent
14
“Suppose the United States had to ship 1 million ounces of gold to other countries. This would lower our gold stock and, consequently, our money supply, When our money supply declined, so would our price level. This would make our goods cheaper relative to foreign goods. Our imports would decline and our exports rise because foreigners would find American goods cheaper…” Ibid.
15
“The euro provides German companies other advantages as well. Says Frank Asbeck, chief executive of Bonn-based SolarWorld, a major maker of solar products: "We do two-thirds of our business in euro land. The currency makes things easier—no hedging, it's transparent, the business formalities are the same.”http://www.businessweek.com/magazine/content/10_50/b4207011595263.htm
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
Imports are an export of work as exports are an import of work. The benefit derived from the sale of Germany’s exports at lower prices than if there were no rent, lies partly in the fact that additional jobs and additional profits are brought into play by the export wedge driven by its currency rent The effect of this rent may find itself augmented in the notion that Germany’s exports, being to a large extent goods made by capital-intensive industries, thus benefit from the ‘capital rents’ that developed capitalism bestows when goods of higher organic compositions are exchanged with those which are less capital intensive. 16 It should also be noted, that in exceptional cases, eg. German machine tools, watches, etc, it is even possible that the exporting countries goods could be priced above their prices-of production—or even their value—if the lesser-developed nation is producing the output matching the invader’s price-of-production—or if the lesserdeveloped is incapable of producing the output at any price. This would add a monopoly rent as sleight-of-hand to the capital rent’s prestidigitation and the currency rent’s legerdemain. Lastly on German rents, and this on the labor skill-rent: in spite of relatively high wages and benefits, a skill-intensive (AHL+) and highly productive workforce contributes a high rate of production of relative surplus-value (s/v). Unit labor-costs are an index of this. To sum, the German currency rent profits Germany in that it allows the sale of German exports at a price that, if the rent did not exist, could be subjected to importing county’s devaluation—and thus priced higher in the purchaser’s local currency—and thus becoming less competitive. Debts subject to this devaluation process are thus turned less onerous on the debtor and less lucrative for the lender as this latter is paid back the face value of his loan in units of currency commanding less value than before. Under the single Euro Zone currency, the debtor has no recourse to debasing its currency as a means of easing its debts.
16
“Capitals invested in foreign trade can yield a higher rate of profit, because, in the first place, there is competition with commodities produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value even though cheaper than the competing countries.” “Vol 3.” Chap XIV. P238. http://marxists.org/archive/marx/works/1894-c3/ch14.htm
8
and
The German Currency Rent
The German Currency Rent
Rents are normally thought of as allowing the sale of commodities above their prices-ofproduction or even, in the cases of ‘monopoly rents’, their values. However, as explored above and below in this paper, a Marxist definition of rents as ‘deviations of (any form of) price from underlying value’ does not disallow the existence of rents which have the opposite effect, i.e. rents allowing and/or encouraging the sale of commodities below their value (yet still providing their producers, at least, the price-of-production, i.e. the normal or average profit). Indeed it has already been suggested in the above that for the sum total of positive rents, i.e. there must exist an equal and opposite amount of negative rents. Anomalies such as these can be observed in the cases of countries deliberately lowering the value of their currencies so as to make their commodity exports more attractive to the markets of foreign importing countries.1 One method of accomplishing this can be seen in the moves of central banks to sell its own currency. To accomplish this sale of its currency—beyond that normally exchanged in the currency markets—the ‘price’2 of the currency, i.e. the exchange ratio with other countries’ currencies, must be lowered thereby effectively lowering (in importing countries’ currencies) the prices of the devaluing country’s exports and thereby increasing demand for these in such foreign lands. Versus locally produced close substitute products these price-adulterated invaders ride this advantage into larger market-shares wedging their way in and crowding out domestic competitors. According to the line of thinking here, it is obvious that this price advantage—this deliberate lessening of commodities exchange-value via manipulation of the pricing system so as to undercut its rival’s position in its own locus—may be thought of as the result of the coming-into-existence of a rent, more specifically, a currency rent in Circulation 2, the commodities’ market. And as this advantage is not obvious as, say, a subsidy or tax, the rent is therefore a virtual one. And even more specifically, it is a virtual negative
1
E.g. “The Plaza Accord or Plaza Agreement was an agreement between the governments of France, West Germany, Japan, the United States, and the United Kingdom, to depreciate the U.S. dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets. The five governments signed the accord on September 22, 1985 at the Plaza Hotel in New York City…The justification for the dollar's devaluation was twofold: to reduce the U.S. current account deficit, which had reached 3.5% of the GDP, and to help the U.S. economy to emerge from a serious recession that began in the early 1980s… Devaluing the dollar made U.S. exports cheaper to its trading partners, which in turn meant that other countries bought more American-made goods and services.” http://en.wikipedia.org/wiki/Plaza_Accord
2
See above footnote 7. (7 “…this price of the waterfall on the whole is an irrational expression…The waterfall, like land in general, and like any natural force, has no value because it does not represent any materialised labour, and therefore, it has no price, which is normally no more than the expression of value in money terms. Where there is no value, there is also eo ipso nothing to be expressed in money.” “Vol 3.” Chap XXXVIII. Pp 647-8. http://marxists.org/archive/marx/works/1894-c3/ch38.htm Thus with fiat money, i.e. a money supply printed ‘at will’ by a nation’s central bank with nothing that backs it up, e.g. gold reserves, etc., the ‘price’ is as “irrational” as that of the waterfall, notwithstanding such a ‘price’ having ‘real-world’ consequences.
1
John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
currency rent that allows sale of its products below their value but equal to or perhaps even exceeding their price-of-production when combined with a more than compensating labor rent (a la China vis the US), i.e. where the costs-or-reproduction (r) of its workforce is lower than its competitor(s)—and thereby enhancing the bottom line. The process of capital accumulation in the lesser-developed country then can proceed as effectively or even more effectively than in its more developed trading partner in spite of the sale of its products below their value as the products are sold below their value but equal to or even surpassing their prices-of-production because of the compensating effects of the purported labor rent. Indeed the wedging into and the winnowing out of local competitors in the fight for market-share—the replacement of domestically-made goods and/or services by foreign-made items, i.e. the export of jobs through the import of products, with other things remaining the same—effects a lowering of the rate of profit; initially amongst the members of the close substitute sector and therewith a general tendency towards a lowered profit brought about by that now-forlorn sector’s lessened contribution to the surplus-value pool that is subject to the equalization process. The domestic market, it seems, has developed a leak with purchasing power (nee: work) whooshing out of it and transferred to the exporting country. The currency rent imposed on the members of the Euro zone through the imposition of a single currency, however, is of a different color and it affects diverse member countries in dissimilar manners. For the German exporters whose shipments to other Euro zone countries, as under a gold standard or even with the old deutsche mark, would bring back monies that would tend to increase the rate of inflation and thereby raise the prices of their export products in the importing countries local currency, reducing their competitiveness3 in production cycles going forward; while, on the other hand, the outflow of funds from the importing countries would bring about a decline in prices there and, hence, increasing their attractiveness to Germany and other countries. Hence a balancing act would be achieved. However, the what-would-be-gold-remitting-countries in the Eurozone are now forbidden to undertake a lessening of the values of their currency, the Euro, the same currency sported by what-would-be-gold-remitted-tocountries are thus prevented from lessening the burden of their debt—through payment with inflated currencies—acquired with the purchase of German products, by this inability to devalue as they have ceded control over their currency to the governing European Central Bank; while Germany, itself, neither has nor would like—on this point —to have the facility to create and/or to revalue its currency4
3
“If Germany still had its old currency, the deutsche mark would doubtless be stronger than it is now, crimping its competitiveness against other European states. So inside Europe, Germany is in effect working with a currency that is undervalued and thus supercompetitive..” Peter Coy. Business Week. “Germany's Merkel: She's Got the Whole Euro in Her Hands.” http://www.businessweek.com/magazine/content/10_09/b4168024506794_page_2.htm
4
“Any hint that a weak country was about to leave would lead to runs on deposits, further weakening troubled banks…The calculation would be only slightly better if the euro escapee were Germany. Again, there would be bank runs in Europe as depositors fled weaker countries…Even if German banks gained deposits, their large euro-zone assets would be marked down: Germany, remember, is the system’s biggest creditor…German exporters, having been big beneficiaries of a more stable single currency, would howl at
2
John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
The extent of the rent is shown in this chart from The Economist:
5
Other articles providing citations implicitly remarking upon this German currency rent will be found in Appendix VII “The German Currency Rent in the Press”. These quotations will attest to the unique advantage held by Germany vis their lesser developed fraternal competitors but competitors nonetheless. There is one selection that however demands a bit of a closer look:
“If Germany still had its old currency, the deutsche mark would doubtless be stronger than it is now, crimping its competitiveness against other European states. So inside Europe, Germany is in effect working with a currency that is undervalued and thus supercompetitive. That makes the country a lot like China..."6
“That makes the country a lot like China...” I don't think so. China's negative currency rent, i.e. a currency rent which keeps the price of its currency in foreign exchange at a lower level than would be under a gold standard and even under conditions of open unfettered exchange, is imposed by their Central Bank’s selling of yuan and purchase of dollars and dollar-denominated financial assets—as well as other foreign currencies and/or financial assets—tending to raise the ‘price’ of the latters relative to the yuan. Europe's Jean-Claude Trichet does not have to resort to such
being landed once again with a sharply rising D-mark.”
5
“Breaking up the euro area.” Dec 2nd 2010. http://www.economist.com/node/17629757/print Peter Coy. Ibid.
6
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
monetary legerdemain. The single currency itself imposes a rent upon the more backward (less-developed) entities in the EU causing their products to be more expensive than they would normally be (if they were able to inflate their currencies); and, causing the more developed (esp Germany) to be able to take advantage of this 'currency rent' with products that (if the importers were able to inflate their currencies) ought to nominally cost more in the local currencies hindering their competitiveness. Another difference is that China's rent is bi-national (vis the US as it holds to its implicit ‘peg’ with the dollar) and to a certain extent international relative to the rest of the world (as its vast reserves of Euros attest). Germany's negative rent is intra-national (i.e. within the bounds of the EU). Additionally, while both China and Germany are using their respective ‘currency rents’ to gain market-share by under-pricing their respective exports the former’s currency rent is complimented by a labor-rent, a labor wage-rent 7 predicated upon a lower cost of reproduction of semi-skilled labor as compared to the workers of the richer countries that they are in competition with; while the latter’s labor rent is accompanied and supplemented by a capital rent8. However, a la China (but operating at a much higher level of wage) there does seem to exist a labor rent, a labor skill-rent, in Germany as reflected in its wages and wage growth:
“Wages have risen less in Germany over the past 10 years than anywhere else in the European Union…Gross wages in the first quarter of 2010 were 21.8 percent higher on average than in 2000, while other labour costs were 18.9 percent…The figures were the lowest rate of 21 countries. The European Union posted an average wage increase of 35.5 percent over the same period…Wage moderation has helped Germany remain the biggest European economy and has contributed to strong growth seen in the first half of 2010.”9
This is graphically demonstrated by the left side of the chart below:
10
7
See above P64.
8
See above beginning P9. And below in this section. “German wage rises lowest in Europe.” The Local. Sep 8th, 2010. http://www.thelocal.de/money/20100908-29701.html
9
10
“All pain, no gain.” The Economist. Dec 9th 2010. http://www.economist.com/node/17673268
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
With the chart not only reflective of the relative paucity of German workers wage gains versus those of other EU workforces, but also the higher productivity of its skilled labor workers leading to less labor, i.e. value, i.e. costs, being added to their products in competition with the products of other Eurozone members. What is interesting about the right side of the chart is that implicitly it states that, on the world market, Germany’s products lean more heavily towards being skill-intensive as compared with China’s more labor-intensive outputs. These exports thus avoid competition with the wage labour-rents enjoyed by China in its competitions.
The German Currency Rent versus the Classical Gold Standard
“To be on the gold standard, a nation must maintain a fixed ratio between its gold stock and its money supply. That way, when the gold stock rises, so does the money supply. Should gold leave the country, the money supply declines.”11
Accepting the labor theory of value, the classical gold standard can be interpreted as assuming that the currency of a country on this standard—limited by and equal to the amount of gold it holds—has a value that is equal to the cost of producing the amount of gold represented by it.12 All other commodities are thus implicitly measured against it in terms of their embodied abstract human gold labor-time. 13 Consider a universe of two
11
Steven L. Slavin. “Macroeconomics.” 7th Edition. McGraw-Hill Irwin. 2005. Boston, MA. P467.
12
“…that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour time socially necessary for its production.” “Vol 1.” Chap I. P39.
13
“Commodities with definite prices present themselves under the form; a commodity A = x gold; b commodity B = z gold; c commodity C = y gold, &c., where a, b, c, represent definite quantities of the commodities A, B, C and x, z, y, definite quantities of gold. The values of these commodities are, therefore, changed in imagination into so many different quantities of gold.” “Vol 1.” Chap III. P97.
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
countries A and B who each have gold stocks used as currency equal to 50 and therefore a universe of 100. A is avaricious while B is parsimonious. They each produce products with value equal to 50 and are composed of 50 units each and thus a total value of 100 and a total amount of 100 units. At the end of their concurrent production cycles they exchange. We will say that A hands over 30 units of goods and services and 10 in gold while B tenders back 40 in goods and services. Here are the countries: Before Exchange: Production Currency Currency/Goods Ratio And, After Exchange: Total Goods, Services Currency Currency/Goods Ratio A 60 40 .667 B 40 60 1.5 A 50 50 1.0 B 50 50 1.0
A experiences deflation while B encounters inflation. According to the currency/goods ratio what used to sell for 1 in A’s currency now only commands purchasing power equal to only 2/3 of its former value. Quite the opposite is going on in B as her goods formerly
http://marxists.org/archive/marx/works/1867-c1/ch03.htm A rather amusing muse on the value of gold comes with Walter Huston’s explanation in “The Treasure of the Sierra Madre” in whish he, a grizzled old veteran prospector enlightens Bogart and Tim Holt in a miner’s flop house in Mexico: “Real bonanzas are few and far between. They take a lot of finding. Answer me this one, will ya, ‘Why is gold worth some 20 bucks an ounce?” “I don’t know…because it’s scarce?” “A thousand men, say, go searching for gold. After 6 months, one of ‘ems lucky. One out of a thousand. This one represents not only his own labor but that of the other 999 others to boot. That’s, er, 6000 months, that’s 500years scrabbling over a mountain, going hungry and thirsty. An ounce of gold, Mister, is worth what it is because of the human labor that went into the finding of it and the getting of it.” “I never thought of it just like that.” “There’s no other explanation, Mister.” Mister, there’s no other explanation. Video: http://www.youtube.com/watch?v=boUD5eG9Bf4
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
purchased by 1 of its currency units now are priced at 1.5 as the supply of currency equalizes itself to the amount of goods. Relative to the par exchange-rate existing ante exchange A’s country—due to the export of value in the form of gold—finds its currency devalued; while that of B—in inverse proportion—is revalued upward. Changes in the prices of their goods then follow: the commodities for sale in A. formerly worth 50 (bolstered up with an additional 10 in good/services net from the exchange), is now confronted by only 40 in purchasing power. Its prices are reduced by a third. In B, however, the net 40 goods/services available for purchase now finds 60 confronting it and its prices are raised 50%. Obviously, these new price ratios strongly indicate that A will find itself importing less of B’s higher-priced goods; while B will snap up as bargains the commodities A has placed into their commerce.14 With every sale to B the gold flow ebbs back towards A leveling, ideally, the price ratios back towards unity. At least that is the way it is supposed to work. Today, there is no such natural, i.e. having value, consumption-leveling mechanism to equalize these monetary terms of the trade. Where there is room for currency manipulation it is a test of iron wills not of golden weight. Yet that is another story. What is of concern here is that that natural leveling mechanism no longer applies when economically disparate areas are inter-connected in exchange-relations with each other—Frankenstein-stitched—sewn together with strands woven of the lucre of the single currency. The lesser-developed countries are unable to devalue their currencies—and thereby diminish the real prices of their export goods—so as to reflect the reduced purchasing power available as a result of the inequality of the initial exchange. The currency rent existing within and threatening the financial and fiscal stability of the European Union: Allows repayment of debt (as heavy industrial exports (a sizable portion of German exports) are rarely paid for up-front) in a currency that is stable in value (to itself within the Euro Zone); and, No charges are necessitated by the need to convert debt payments into German currency (the agio); nor any need to go to the expense of hedging foreign currencies in an attempt to maintain the value of debt repayments. 15
Why the German Rent
14
“Suppose the United States had to ship 1 million ounces of gold to other countries. This would lower our gold stock and, consequently, our money supply, When our money supply declined, so would our price level. This would make our goods cheaper relative to foreign goods. Our imports would decline and our exports rise because foreigners would find American goods cheaper…” Ibid.
15
“The euro provides German companies other advantages as well. Says Frank Asbeck, chief executive of Bonn-based SolarWorld, a major maker of solar products: "We do two-thirds of our business in euro land. The currency makes things easier—no hedging, it's transparent, the business formalities are the same.”http://www.businessweek.com/magazine/content/10_50/b4207011595263.htm
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John A Imani Towards a Marxist General Theory of Rents
and
The German Currency Rent
Imports are an export of work as exports are an import of work. The benefit derived from the sale of Germany’s exports at lower prices than if there were no rent, lies partly in the fact that additional jobs and additional profits are brought into play by the export wedge driven by its currency rent The effect of this rent may find itself augmented in the notion that Germany’s exports, being to a large extent goods made by capital-intensive industries, thus benefit from the ‘capital rents’ that developed capitalism bestows when goods of higher organic compositions are exchanged with those which are less capital intensive. 16 It should also be noted, that in exceptional cases, eg. German machine tools, watches, etc, it is even possible that the exporting countries goods could be priced above their prices-of production—or even their value—if the lesser-developed nation is producing the output matching the invader’s price-of-production—or if the lesserdeveloped is incapable of producing the output at any price. This would add a monopoly rent as sleight-of-hand to the capital rent’s prestidigitation and the currency rent’s legerdemain. Lastly on German rents, and this on the labor skill-rent: in spite of relatively high wages and benefits, a skill-intensive (AHL+) and highly productive workforce contributes a high rate of production of relative surplus-value (s/v). Unit labor-costs are an index of this. To sum, the German currency rent profits Germany in that it allows the sale of German exports at a price that, if the rent did not exist, could be subjected to importing county’s devaluation—and thus priced higher in the purchaser’s local currency—and thus becoming less competitive. Debts subject to this devaluation process are thus turned less onerous on the debtor and less lucrative for the lender as this latter is paid back the face value of his loan in units of currency commanding less value than before. Under the single Euro Zone currency, the debtor has no recourse to debasing its currency as a means of easing its debts.
16
“Capitals invested in foreign trade can yield a higher rate of profit, because, in the first place, there is competition with commodities produced in other countries with inferior production facilities, so that the more advanced country sells its goods above their value even though cheaper than the competing countries.” “Vol 3.” Chap XIV. P238. http://marxists.org/archive/marx/works/1894-c3/ch14.htm
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