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From International Press Correspondence, Vol. 3 No. 7, 18 January 1923, pp. 60–61.
From International Press Correspondence (weekly), Vol. 3 No. 2, 18 January 1923, pp. 20–21.
Transcribed & marked up by Einde O’Callaghan for the Marxists’ Internet Archive.
Public Domain: Marxists Internet Archive (2021). You may freely copy, distribute, display and perform this work; as well as make derivative and commercial works. Please credit “Marxists Internet Archive” as your source.
For the second time the Soviet government has struck off a few naughts from the figures of its paper money, that is, it has carried out a denomination. That we may be clear as to the significance of this proceeding, let us first ask the question: What is the difference between a denomination and an actual devaluation or depreciation of a currency.
Devaluation means a financial measure by which the state transforms the depreciated currency of the country, according to the rate of exchange, into new securities of fixed or gold value, the state actually buys, up the old monetary mediums at their market value, paying the owner either in gold, or in paper securities of fixed or gold value. The bourgeois slate which undertakes such a devaluation thus declares its bankruptcy, for bourgeois financial law considers the constant issue of fresh paper money for its budget requirements as a form of internal loan. Furthermore, a serious devaluation implies that no further issue of paper money will be made to cover deficits, and assumes as a prerequisite, – conditions in the state itself, favorable to a stable valuta.
Denomination, on the other hand, is purely a measure of convenience. At the first denomination in Soviet Russia last year, for instance, 100,000 roubles of the old type were rendered equal to one new rouble of the 1922 issue; 4 noughts were thus struck off. At this year’s denomination a new rouble becomes equal to a million old roubles, or to 100 roubles of the 1922; 2 further naughts are thus struck off. “One rouble” is written and spoken instead of “one million”; the rouble of 1922 is worth the hundredth part of the new rouble; it is equal to a kopek.
Denomination is thus simply a reduction of the gold nominals; it does not alter the purchasing power in any way, for this purchasing power is determined by the laws regulating traffic in goods and money in the country. The sole significance of a denomination is a simplification of calculation. The denomination of 1923 has thus struck off 6 noughts at one time from the old money as it was before 1922. But this was not done until the actual value had been struck off by the process of depreciation by the market itself, indeed to a much greater extent.
Neither does a denomination by any means signify the transition to a fixed rate of exchange. The currency may continue to depreciate In a country which has been forced to resort to the issue of paper money for many years, a yearly denomination is very well possible. Such a yearly denomination would be very inconvenient for various reasons, and would not be a measure influencing the financial position of the country in any essential manner.
The bourgeois states have of late been showing much interest in the Russian denomination, but without comprehending its real significance. Denomination is frequently regarded as a method of expropriating the owners of paper money. What has been said above suffices to show that such an idea can only be held by the naive philistine. The owner of paper capital is expropriated by the actual depreciation of paper money in the market. This depreciation may take place under two conditions; it is either the result of a tremendous issue of paper money resulting from the decay of economics (as in the Western countries with depreciating Currencies); or it is the result of a large issue of paper money attendant on the circumstance that, where economics are being reconstituted, the factor of issue outweighs all other factors in the improvement of the currency (as in Russia to-day). But neither in the one case nor in the other is there any expropriation of a part of money capital as a result of the denomination, which is nothing more than a very limited resume of what has already happened. The false idea of denomination also bears witness to a prejudice of bourgeois financial science. This science invariably regards state issue of paper money, accompanying sinking monetary standards, not as a particular kind of tax, but as a certain form of credit operation at the expense of the money circulation of the country, though in actual fact this is only the case when issues are made in the interests of traffic, and the rate of exchange is fixed, that is, under quite different financial conditions. Another naive conception results from this: the expectation that a government which has occupied itself for some years with the issue of paper money could reimburse the population by raising the rate of exchange to pre-war value. Quite apart from the fact that the values depreciated by the issues do not permit of reimbursement, it is totally impossible from a financial view point to replace precisely those values which have been lost by the fall in the rate of exchange. Let the German or the French government make an attempt at compensating their citizens for the losses they have suffered since the war through the depreciation of the mark or the franc!
It may be said of the latest Russian denomination that it has passed off quite painlessly. The new rouble has already banished the old “million”, or, as it has been colloquially expressed, the “limone” (lemon); and it will not be long before every one will have become accustomed to this new and much more convenient method of counting money. But as soon as conditions permit to undertake a real financial reform, that is, conditions permitting a fixed rate of exchange, the question of outward form will be of secondary importance. The actual question is the liquidation of the budget deficit.
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