Some topics lie dormant in our minds for several years, and we do not attribute immediate importance to many of them until the day arrives when the reality that surrounds us makes the solution to these issues preeminent. This happened during the deployment of the Real Plan.
This plan had a touch of geniality, represented by the creation of the URV (Unidade Real de Valor – a daily unit of account) which allowed the elimination of the price lag that contributed to the failure of previous stabilization plans, such as the Cruzado. Every change of currency involves a crucial issue for which we require a answer.
Which exchange rate level should the new currency start off with? (we assume here the existence of a hegemonic currency, the dollar, and the need to define only an essential/primordial exchange rate).
Brazil began the Real Plan with a ratio of one to one, which, instead of increasing (indicating devaluation, by the dimensional conception of the exchange rate in reais by dollar) decreased, causing problems in the trade balance.
Some economists consider that the initial rate is not a relevant issue, arguing that with time we would recognize that it is not the “rate of equilibrium”, and would alter it. However, this is not an easy task, because the occurrence of imbalance in the trade balance can be eliminated gradually (exchange mini-devaluation) or abruptly (exchange devaluation) with different results on national / domestic prices (maxi-devaluation can imply an increase in inflation).
In a previous article (BASSO, 1995), we had already criticized the parity of one to one, which was the initial parity of the Real Plan.
Franco (1995) did not attribute any importance to the lag concept in the situation described. The criticism made by Franco (Franco, 1998) to my macroeconomic argument for the determination of the exchange rate fueled my conviction that I didn’t explain myself quite well, since his argument is structured on a microeconomic framework.
The reading of an article by Tobin (Tobin, 1998) increased my conviction to formalize the theory, since contrary to the Nobel prize winner, I believe it is possible to present a theory for the exchange rate based on an objective measure that does not depend on the referential of subjective utility of each individual.
As we will be evidencing, this theory is based on an alternative concept for the value of currency as explored by us in Basso (1987) and Basso (1988), and was inspired on the work of Rudolf Hilferding (1982).
The objective of the study is to serve as a contribution towards the preparation of a Marxist theory for exchange rate determination. Marxist because as we will see the theoretical paradigm that sustains it is the theory of labor value (Marx, 1998). Since it is a contribution to the Marxist theory, we are not interested at this initial stage in comparing it with other paradigms that utilize physical productivity to draw up a theory about the exchange rate, like Samuelson (1964) and Balassa (1984) (the arguments were reproduced in Isard (1999)), in view of the fact that these authors did not attribute any importance to the theory of labor value as the centerpiece to explain the creation of value in capitalist societies. Furthermore, the construction of a concept of productivity where what matters is the sum of hours of work, can be transformed into a concept of physical productivity, by multiplying the number of workers by an average amount of hours of work by worker (the argument will be explained in detail in the theoretical referential).
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An Alternative Theory for Exchange Rate Determination
