Well, I have just about had enough of my conversation with The Andrew Kliman, so I thought I would try to assess what it accomplished, instead.
My ‘tin-ear’ with Andrew began after a conversation with @skepoet on twitter about the odd divergence between gold and dollar measures of economic activity since the Great Depression of the 1930s. The dollar measure of US GDP has risen almost uninterrupted since the end of the contraction phase of the Great Depression; while the gold measure of GDP rose from 1934 to 1971, then fell until 1980, rose again from 1980 to 2001, and has been falling since.
Interesting enough, the gold measure of GDP exhibits a classic pattern of boom and bust typical of the economy prior to the Great Depression, but the dollar measure of GDP shows an almost disturbingly smooth continuous upward sweep, until the most recent difficulties of 2008. What I find most interesting about the two measures of economic activity is that, until 1933, both gold and the dollar measures of GDP exhibited the same behavior. However, this identical pattern broke down in 1934.
What accounts for this sudden divergence?
I assumed the cause of this divergence was Executive Order 6102 — one of the first acts of the Roosevelt Administration in 1933 — which established state monopoly over ownership of gold. The imposition of this monopoly was accompanied by a devaluation of the dollar by 70% against gold. This devaluation, which, interestingly enough, is never discussed by bourgeois economists when they talk about the history of the Great Depression is, I think, far more important than the actual monopoly imposed on the ownership of gold by the state, because with it Washington, after forcing owners of gold to hide their stocks in Switzerland, reduced the value represented by a single dollar.
As might be expected, history suggests the owners of gold and the owners of capital were pretty much the same people — not many workers had vaults full of the yellow metal; so the devaluation of the dollar amounted to a 70% across the board devaluation of wages. With this forcible devaluation of wages, it appears the bottom was put in on the contraction phase of the Great Depression; the economy began to grow again.
Perhaps, but it does seem rather odd that precisely what Marx suggested was the necessary result of crises, devaluation of wages and capital, manages to put the bottom in on the Great Depression. So, this odd coincidence has been rolling around in my head for about three years or so now.
There are two additional odd correlations: the so-called Great Stagflation of the 1970s, and our own Great Financial Crisis. Both of these massive events has been accompanied by a rapid depreciation of the purchasing power of dollars against gold of a magnitude equal to or greater than the devaluation of the dollar in the 1930s. And, when you measure the official GDP in ounces of gold, both periods exhibit classic signs of economic depression lasting at least a decade.
In fact, I think they are depressions — but, what has to be explained is why unemployment did not reach depression levels and why prices did not deflate as is typical of classical depressions. Mind you, I am not talking about a recession — recessions occur both during these massive contractionary periods and during periods that look like expansions. Recessions and depressions are two different animals — depressions are a collapse of real activity, while recessions are monetary — I think.
Most recessions were engineered by the Federal Reserve, which is why they have the typical sharp vee-like shape — the Fed cuts off credit to the economy and it tanks; when they release the credit again, the economy rebounds. Not so depressions, which are ugly extended contractions — like the present one.
Anyways, I digress.
My point is that gold was sending information about the economy very different than the information given by dollars; and, those two different signals trace all the way back to 1933-34.
Which got me to asking myself: “What is money?”
It is a question I have been trying to wrap my head around for three years now. I have been trying to wrap my head around it because when dollars were tokens of gold, economic activity look much like it does today when measured in quantities of gold. But, once the standard of price was no longer gold, but worthless dollars, the “money” measure of economic activity looks very unlike gold.
Frankly, dollars don’t behave anything like Marx’s theory of money says they should; but, oddly enough, they behave exactly like neoclassical economics says they should. So, dollars are very odd as money for anyone working with Marx’s theory, because the behavior of dollars say Marx theory of money is full of shit. Now, Marxists come up with all sorts of silly reason why dollars don’t refute Marx – but it is total bullshit. For Marx money is a commodity, but dollars have no commodity backing at all and freely fluctuate in purchasing power against gold.
So, either (a) dollars are money, and Marx is full of shit; or (b) dollars are not money, and Marx is right. (I am copying Andrew in giving my readers two unpalatable choices.)
I did not know it at first, but Andrew is one of those people who want to have it both ways: Marx is right and dollars are money.
I thought, in fact, I was giving him ammunition for his thesis on the rate of profit by telling him to investigate gold. This was my first mistake, because he is an academic with a long career and established well argued theories. Oh yeah, and books. By asking him to look at gold, I was unknowingly asking him to renounce all that shit, AND the books. Because, pretty much, it is all based on the thesis that dollars are money in the Marxian sense.
So, that was mistake number one — too much shit to unpack, leave it alone, Jehu.
All I wanted to talk about was the odd behavior of gold versus money, but Andrew wanted to talk about sources of surplus value and expanded reproduction schemes. My only experience with expanded reproduction is best left undiscussed — and it has nothing to do with capital. But, fine. Andrew wants to talk “monetary expression of labor time” and “transformation problem” and “Temporal single-system interpretation”
None of which I have studied. I want to talk dollars versus gold, which I have studied.
I figured, well maybe I should study this transformation thingy and find out what the hell he is talking about; so, I went off and did that. Of course, I avoid the math, since if you have to make an argument using math you are either autistic or severely emotionally disturbed. And, the one person who could make an argument without math was Bohm-Bawerk, the Austrian critic of Marx. He turns out to be the only one, in my opinion, who actually got what Marx was saying, and could explain it using actual words not a meaningless jumble of dense mathematics.
He argued, essentially, Marx’s law of value and law of average rate of profit contained a contradiction — a position that was initially off putting for me, since I rate Marx right up there with Einstein and Darwin. I do not need to know Darwin’s theory as well as biologists, to understand the world was not created in 6 days. Similarly, I do not need to know the intricate details of Marx’s reproduction schemes to realize capitalism has a rather dim historical trajectory.
But, think about this for a minute: you have two fundamentally opposed forms of production facing each other and interacting. One is based on individual labor, where all cooperation is mediated by exchange; while the other is directly social and based on an admittedly despotic version of cooperative labor. Does anyone else see a sharp contradiction between two different modes of production here? Two diametrically opposed forms of social production — each operating according to its own law — and the nexus between them is money. I thought Bohm-Bawerk had a good argument for his opinion.
Now, here is the rub — and I only realized it yesterday: in the opinion of both bourgeois economists and Marxist economists once currency was debased, the transformation problem disappeared. Samuelson had already called a truce in 1971; and yesterday I found out from reading one of his paper’s Fred Moseley up in Mount Holyoke College agreed:
NON-COMMODITY MONEY AND THE TRANSFORMATION PROBLEM
My paper assumes commodity money throughout, as did Marx and Bortkiewicz-Sweezy. However, I argue that Marx’s theory does not require that money be a commodity. Instead, what is required in Marx’s theory is that there be some expression of abstract labor (i.e. a measure of value) that satisfies the following conditions: it must be (1) observable, (2) homogeneous, (3) quantitative, and (4) socially valid (i.e. generally accepted by all commodity owners).
At the high level of abstraction of Capital, money has to be a commodity, because Capital presents a theory of a “pure” capitalist economy, without state intervention. And in the 19th century laissez-faire capitalism (without state intervention) that Marx was analyzing, money was a commodity and money had to be a commodity in its functions of measure of value and store of value. However, in the post-1973 contemporary capitalism, money is no longer a commodity (i.e. is no longer convertible into gold at a fixed exchange rate), and money does not have to be a commodity in Marx’s theory. The state-guaranteed fiat money serves the same purpose as gold under the gold standard – it provides an observable, homogeneous, quantitative, and socially valid expression of abstract labor.
What are the implications of non-commodity money for the transformation problem? Strikingly, the Bortkiewicz-Sweezy problem disappears altogether. Bortkiewicz-Sweezy’s critique was that the equalization of the profit rate in the gold industry affects the total prices of commodities, and in general makes total prices of production total value-prices. However, with non-commodity fiat money, prices are no longer exchange-values with the commodity gold. Therefore, the equalization of the profit rate in the gold industry (if there is an equalization, now that gold is no longer money) could not affect the prices of commodities, and thus could not affect the total price of commodities, which continues to be identically equal to the total value-price of commodities.
Briefly, What Fred Moseley is arguing in this passage is that once the fascist state removed gold as the standard of prices, differences between bourgeois economists and Marxists over the transformation problem disappeared. Fred Moseley is another person who believes the dollar is money, like Andrew Kliman. So, when money was gold, Bohm-Bawerk was right: there was a contradiction; now that the currency is debased, there is no contradiction — everybody, Marxist and bourgeois economist alike, agree Marx does not contradict himself.
It’s all “Kumbayah” in academia! Bravo.
So, what events led up to this sudden and uncharacteristic agreement between two hostile economic world views? In another paper on the replacement of gold as standard of prices by worthless debased dollars, Moseley says:
I argued in Moseley (2005a) that money does not have to be a commodity in Marx’s theory, even in its function of measure of value. The measure of value does not itself have to possess value. Inconvertible paper money (not backed by gold in any way) can also function as the measure of value. In order to function as the measure of value, a particular thing must be accepted by commodity-owners as the general equivalent, i.e. as directly exchangeable with all other commodities. Until the 1930s, capitalists required that the general equivalent (and hence the measure of value) had to be a commodity, or at least convertible into a commodity at legally defined rates. However, in the Great Depression it became impossible to maintain the convertibility of paper money into commodity money. Convertibility required tight monetary policy, which was making the depression worse. In order to escape this “cross of gold”, governments ended convertibility, and made credit money, without gold backing, the general equivalent. Capitalists had no choice but to accept inconvertible paper money by itself as the general equivalent, and hence as the measure of value.
Now, I know I am not as well read as Moseley and Kliman, but I am pretty sure that explanation doesn’t come from Marx — Moseley is accepting on face value the typical Keynesian explanation for a discontinuity in the fundamental economic relations of society resulting from the intervention of a political actor.
What serves as money is determined by the laws governing a political entity; but here I see no explanation for why the state debased money. The reason can’t be monetary policy, because monetary policy as such did not exist until money was debased. So, we have to explain the action of the state in debasing money — and that means we have to explain politics.
Debasing the currency was not a simple thing: up to the 1930s, economic activity was mediated through an independent commodity money over which the state had no control for thousands of years. Now, economic activity would be mediated by states through an instrument they exclusively controlled. At a minimum, this suggests state control of exchange between individuals; between production and consumption; and distribution of the social product between various classes.
Moreover, the need for the state to intervene suggests a sort of unusual circumstance, which, in Roman times, might be called dictatorship — not a pejorative term in this context, but one denoting an attempt by society to bring its own conflicts under control by giving unrestrained power to someone or some institution — I am using the term in the very narrow sense of someone like Cincinnatus of Rome; someone given extraordinary power for extraordinary circumstances.
Anyway, the debasement of the currency does not appear to be a thing that can be dismissed as a mere demand for looser monetary policy! Something happened, and it was so big the centuries long free circulation of gold through the economy halted — and, it never restarted again. Moreover, the only way to get currency moving was to detach it from gold. Gold, in other words, refused to circulate in the economy as money, and never again circulated as money in the economy.
Now, you tell me how the fuck that happens.
Gold has served as money for thousands of years in every culture on the planet — but suddenly within five years every nation abandons it; but, this is only because they needed a looser monetary policy?
NOTE: @modern1st wrote “Odd to see this gold = money claim being made here. Gold has not functioned as money in wvery civilisation for thousands of years – that is an economist’s fiction that historians and anthropologists have disproven over and over for over a hundred years. Money has – for most of human history – been non-metallic and based on credit not coin or bullion…
After considering his argument I think it is badly worded. I would change the formulation as follows: “The role of gold as store of wealth and as money has evolved over several thousand years…”
Tags: Andrew Kliman, Bohm-Bawerk, boom and bust, contraction phase, Depression, devaluation of the dollar, Executive Order 6102, Federal Reserve Bank, Fred Moseley, gold measure, great depression, history of the great depression, monetary policy, Paul Samuelson, recession, roosevelt administration, state monopoly