Why the working class is not effectively defending itself actually is not a question posed by this crisis. Rather the question is:
“So what else did you expect?”
No matter how the working classes of Europe responded to this crisis politically, they were already effectively rendered politically defenseless before the crisis by the very structure of the euro-zone, which stripped the fascist states of Europe of their monetary sovereignty. So even before this crisis erupted into the open, the member states with their overwhelming proletarian majorities were already effectively kneecapped and rendered toothless. The very structure of the EU was nothing more than an attempt to rob the working class of any means to defend itself in a crisis. With monetary policy centralized in the European Central Bank the member states must follow procyclical policies during economic downturns. Essentially, they have no choice but to reduce their expenditures when the euro-zone experiences a depression.
Based on what I have described of Bernanke’s policy failure so far, is it possible to predict anything about the future results of an open ended purchase of financial assets under QE3? I think so, and I share why in this last part of this series.
Tags: Bailout, Ben Bernanke, deflation, Depression, economic collapse, economic policy, economy, exchange rates, Federal Reserve, Federal Reserve Bank, financial crisis, great depression, immiseration thesis, inflation, international financial system, International Monetary Fund, Jens Weidmann, Karl Marx, monetary policy, Money, overproduction, recession, Robert Kurz, stupid economist tricks, stupid Washington tricks, The Economy, Wall Street Crisis
I stopped my examination of Bernanke’s approach to this crisis and the problem of deflation after looking at his 1991 paper and his speech in 2002. I now want to return to that series, examining two of his speeches this to discuss the problems confronting bourgeois monetary policy in the crisis that began in 2007-8.
Tags: Bailout, Ben Bernanke, deflation, Depression, economic collapse, economic policy, economy, Federal Reserve, Federal Reserve Bank, financial crisis, great depression, Henryk Grossman, inflation, international financial system, International Monetary Fund, Karl Marx, Moishe Postone, monetary policy, Money, national economists club, overproduction, recession, Robert Kurz, stupid economist tricks, stupid Washington tricks, The Economy, Wall Street Crisis
The world market had been shaken by a series of financial crises, and the economy of Japan had fallen into a persistent deflationary state, When Ben Bernanke gave his 2002 speech before the National Economists Club, “Deflation: Making Sure “It” Doesn’t Happen Here”. Bernanke was going to explain to his audience filled with some of the most important economists in the nation why, despite the empirical data to the contrary, the US was not going to end up like Japan.
Tags: Bailout, Ben Bernanke, deflation, Depression, economic collapse, economic policy, economy, Federal Reserve, Federal Reserve Bank, financial crisis, gold, Gold Reserve Act of 1934, gold standard, Gold standard dollars, great depression, Henryk Grossman, inflation, international financial system, International Monetary Fund, Karl Marx, Milton Friedman, Moishe Postone, monetary policy, Money, National Bureau of Economic Research, overproduction, Presidential Executive Order 6102, recession, Robert Kurz, stupid economist tricks, stupid Washington tricks, The Economy, Wall Street Crisis, william white
So I am spending a week or so trying to understand Ben Bernanke’s approach to this crisis based on three sources from his works.
In this part, the source is an essay published in 1991: “The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison”. In this 1991 paper, Bernanke tries to explain the causes of the Great Depression employing the “quantity theory of money” fallacy. So we get a chance to see this argument in an historical perspective and compare it with a real time application of Marx’s argument on the causes of capitalist crisis as understood by Henryk Grossman in his work, The Law of Accumulation and Breakdown.
In the second part, the source is Bernanke’s 2002 speech before the National Economists Club: “Deflation: Making Sure “It” Doesn’t Happen Here”. In this 2002 speech, Bernanke is directly addressing the real time threat of deflation produced by the 2001 onset of the present depression. So we get to compare it with the argument made by Robert Kurz in his 1995 essay, “The Apotheosis of Money”.
In part three, the source will be Bernanke’s recent speech before the International Monetary Fund meeting in Tokyo, Japan earlier this month, “U.S. Monetary Policy and International Implications”, in which Bernanke looks back on several years of managing global capitalism through the period beginning with the financial crisis, and tries to explain his results.
To provide historical context for my examination, I am assuming Bernanke’s discussion generally coincides with the period beginning with capitalist breakdown in the 1930s until its final collapse (hopefully) in the not too distant future. We are, therefore, looking at the period of capitalism decline and collapse through the ideas of an academic. Which is to say we get the chance to see how deflation appears in the eyes of someone who sees capitalist relations of production, “in a purely economic way — i.e., from the bourgeois point of view, within the limitations of capitalist understanding, from the standpoint of capitalist production itself…”
This perspective is necessary, because the analysis Bernanke brings to this discussion exhibits all the signs of fundamental misapprehension of the way capitalism works — a quite astonishing conclusion given that he is tasked presently with managing the monetary policy of a global empire.
Tags: Bailout, Ben Bernanke, deflation, Depression, economic collapse, economic policy, Federal Reserve, Federal Reserve Bank, financial crisis, gold, Gold Reserve Act of 1934, gold standard, Gold standard dollars, great depression, Henryk Grossman, inflation, international financial system, International Monetary Fund, Karl Marx, Milton Friedman, monetary policy, Money, National Bureau of Economic Research, overproduction, Presidential Executive Order 6102, recession, stupid economist tricks, stupid Washington tricks, The Economy, Wall Street Crisis
As a contribution to Occupy Wall Street’s efforts against debt, I am continuing my reading of William White’s “Ultra Easy Monetary Policy and the Law of Unintended Consequences” (PDF). I have covered sections A and B. In this last section I am looking at to section C of White’s paper and his conclusion.
Back to the Future
It is interesting how White sets all of his predictions about the consequences of the present monetary policies in the future tense as if he is speaking of events that have not, as yet, occurred. For instance, White argues,
“Researchers at the Bank for International Settlements have suggested that a much broader spectrum of credit driven “imbalances”, financial as well as real, could potentially lead to boom/bust processes that might threaten both price stability and financial stability. This BIS way of thinking about economic and financial crises, treating them as systemic breakdowns that could be triggered anywhere in an overstretched system, also has much in common with insights provided by interdisciplinary work on complex adaptive systems. This work indicates that such systems, built up as a result of cumulative processes, can have highly unpredictable dynamics and can demonstrate significant non linearities.”
It is as though White never got the memo about the catastrophic financial meltdown that happened in 2008. If his focus is on the “medium run” consequences of easy money that has been practiced since the 1980s, isn’t this crisis the “medium run” result of those policies? Why does White insist on redirecting our attention to an event in the future, when this crisis clearly is the event produced by his analysis.
Tags: Bailout, debt, Depression, economic collapse, economics, fascist state economic policy, Federal Reserve, Finance, financial crisis, Hyman Minsky, inflation, international financial system, Krugman, monetary policy, political-economy, qe3, qu, quantitative easing, Quantitative easing and debt, stupid economist tricks, Wall Street Crisis, william white
Since Occupy Wall Street appears to be undertaking a concerted push toward addressing the growing debt servitude of the mass of working families to Wall Street banksters, I thought it might be interesting to understand how the Federal Reserve is now doubling down on a policy of manufacturing an even greater debt burden for working families under the guise of stimulating the economy.
Comments and suggestions for improvement to this post are welcomed.
Tags: Bailout, debt, Depression, economic collapse, economics, fascist state economic policy, Federal Reserve, Finance, financial crisis, Hyman Minsky, inflation, international financial system, Krugman, monetary policy, political-economy, qe3, quantitative easing, Quantitative easing and debt, stupid economist tricks, Wall Street Crisis, william white
I am adding additional comments to my reading of Weeks’ paper, “The theoretical and empirical credibility of commodity money” (PDF). In my first reading, I identified a problem with Weeks’ presentation of what he asserts is empirical evidence supporting a link between commodity-money and price. In my second reading I explained how Weeks’ real contribution to my understanding is his analysis of the neoclassical theory of money. In this reading, I am trying, based on Weeks’ argument to define exactly what the dollar and other fiat currencies are; and their relation both to commodity money and the circulation of commodities.
The problem posed by most Marxist attempts to analyze fiat currency is that state issued fiat is treated as if it is money when it is not; and prices denominated in a fiat currency are treated as if these prices express the value of commodities, which they do not. For years now Marxists have been asking if money can be a valueless piece of paper in Marx’s theory — the answer is no. This answer is unpalatable to many Marxists because they think it suggests Marx’s theory of money is invalid for purposes of analysis. My assumption in this post is that Marx’s theory is and remains valid AND this valueless currency is not money.
So if the dollar is not money, what is it? Why is it used for transactions? To answer these questions, we have to begin by understanding exactly how the currency works according to neoclassical theory.
Tags: commodity money, economic policy, ex nihilo money, fascist state economic policy, Federal Reserve, inflation, international financial system, john weeks, Karl Marx, labor time, MELT, monetary policy, neoclassical money theory, otma, stupid economist tricks, stupid Washington tricks
I want to recommend everyone read John Weeks’ paper, “The theoretical and empirical credibility of commodity money“, because he presents a key to the analysis of neoclassical economic theory that unlocks its inner logic. I missed the juicy goodness of his argument in my first read because I have an aversion to mixing math with social criticism. However, in his math Weeks uncover why money is not a commodity-money in neoclassical theory, and why it cannot be a commodity-money.
Weeks tries to make sense of a troubling rejection by neoclassical economic theory to admit to the obvious internal consistency of Marx’s commodity-money theory:
Th[e] theoretical superiority of commodity-based monetary theory has had little practical impact because of a perceived empirical absurdity of the commodity money hypothesis.
I came to my understanding of fascist state issued fiat money based on one closely held idea that neoclassical economics is not irrational, capitalism is. Yes, capitalism is as irrational as it has been declared by Marxists to be, however no one but an idiot would buy into the neoclassical argument unless it made sense in the context of fascist state economic policy. Since capitalism itself is irrational, a rational person looks like an idiot when he buys into its propositions; on the other hand, accepting the irrationality of capitalist relations of production as the basis for formulating fascist state economic policy is rational.
Tags: Andrew Kliman, Bailout, commodity money, Depression, economic collapse, economic policy, ex nihilo currency, ex nihilo money creation, Federal Reserve, financial crisis, Fred Moseley, Frederick Engels, Henry Paulson, Jonh Weeks, Karl Marx, Marxism, MELT, monetary policy, neoclassical economics, noeclassical money theory, otma, stupid economist tricks, The Commune, Wall Street Crisis
So, I got feedback from three people who, in one way or another, say they don’t understand my last post on my conversation with Andrew Kliman. One person posting on Reddit, complained it was too dense; another wondered if I was advocating a return to the gold standard; a third person, who I asked to read it and give me feedback, began to have difficulty with it about halfway through it. Specifically that person had difficulty understanding my discussion of the “transformation problem”.
This is three more examples of my “tin-ear”, which expressed itself in my disagreement with Andrew. I have not been able to explain “my point” in a way that is not abstract, or explain the relevancy of the various statements I make to real events within society. Part of this is because I am a “Marxist” in the same way I could be considered a “Darwinist” — I am not an expert on either. The theory makes sense to me, and I accept it as a reasonable explanation for how the world works.
But, if someone argued a eugenics distortion of Darwin, I could not argue against that person by quoting Darwin. And, if someone argued a Keynesian distortion of Marx, I probably could not argue back using quotes from Marx. Until recently I was more a leninist than a “Marxist”; having read a lot of Lenin, but little more of Marx himself than the Communist Manifesto. And, neither of them had I read for more than two decades.
What got me interested in Marx again was my interest in reducing hours of work, and being handed a copy of Moishe Postone’s, “Time, Labor and Social Domination“. (PDF) Until I read that book, I considered reduced hours of work a nice idea for relieving the stresses of overwork and providing a little more vacation time, but not much else.
By the time I got to the end of it, I realized everything I had understood about communism was complete garbage.
To this day, I’ll bet I understand less than 25 percent of Postone’s argument; but it was enough to convince me getting rid of labor was not just a neat idea, but the entire point of the social revolution. I never knew this before I read Postone’s book — and it was very difficult for me to understand it even after I read it. But once armed with the idea when I returned to reading Marx again (really for the first time), evidence of this idea was all over his writings.
So, when I made the rather innocent suggestion to Andrew Kliman that he take a look at gold, I was pushing an agenda. And, that agenda can be framed by the question:
“Is the dollar really money?”
However, behind the innocent question is the entire point of the social revolution: the abolition of labor — in Marx’s sense of the term, that is, productive activity that creates value.
For several years now Fred Moseley, who I mentioned in my last post, has sponsored as small gathering of Marxists to discuss what money is. The question is typically framed as,
“Can the dollar do what gold does?”
Within Marx’s theory, of course, the dollar can do some of the things gold or another commodity money can do. For instance, it can serve as medium for circulation of commodities, for the purchase of the commodities we use every day. And, according to Marx, even when gold serves as money in an exchange, it is just like the dollar — a mere token of money.
Everyone at these gatherings seems to agree on that dollars can work just as well as money to buy groceries, but the controversy is whether it can act as measure or store of value;
and, thus, whether it can serve as the standard of prices of groceries.
But, framing the question this way is backward. It is not whether dollars can do what gold can do, but can gold do what dollars can do? The real question here is:
“What can dollars do that gold can’t do?”
The answer to that question is staggering: gold cannot under any normal circumstance represent a quantity of labor time that is not socially necessary.
Gold, in other words, cannot represent labor time that is wasted, unproductive, and does not create value. Marx insists on this limitation in his theory:
As materialised labour-time gold is a pledge for its own magnitude of value, and, since it is the embodiment of universal labour-time, its continuous function as exchange-value is vouched for by the process of circulation.
The limitation on gold is that it cannot express labor time expended by society that is materially unnecessary to the satisfaction of its needs. Marx’s theory does not work if this argument is thrown out. If dollars were a pledge for their own value in stead of completely worthless scrip, dollars would be money — but they do not have value and cannot stand as a pledge for the value of anything else. So, what does this mean for society?
It means gold cannot serve as money in a society where there is a lot of unnecessary, wasteful, and unproductive work. Eventually, the circulation of gold in such an economy will halt, and a credit crisis will ensue. I believe this is exactly what happened in the Great Depression, and is why the dollar was debased from gold.
Fred Moseley disagrees and argues dollars can represent socially necessary labor time. As I quoted Moseley previously, he states:
…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.
I want to state for the record that Moseley’s argument is neoclassical economics masquerading as Marx’s theory. I want to call Fred Moseley out on this, because it is not Marx’s theory. To assume worthless dollars can serve as measure of value, is to assume the value of a good is its price. As the Wikipedia states:
In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market. This is determined primarily by the demand for the object relative to supply. Many neoclassical economic theories equate the value of a commodity with its price, whether the market is competitive or not. As such, everything is seen as a commodity and if there is no market to set a price then there is no economic value.
In Marx’s theory, the price of a commodity expresses the value of the commodity but is not identical with it. In neoclassical economics price and value are the same thing. However, this is not just a geeky debate over the interpretation of something a dead guy wrote 150 years ago. It has real world consequences: the neoclassical identity of the value of a commodity with its price basically states everything with a price tag is socially necessary! So, if you want to recruit Guatemalan teenagers under the DREAM Act to kill Afghan mothers, the labor time required to do this is necessary because it has a price. Marx’s theory, on the other hand, states the purchasing power of gold can only reflect labor time that is actually socially necessary and killing Afghan mothers is not socially necessary by any stretch of the imagination!
The difference in the quantity of labor time dollars can represent and the quantity of socially necessary labor time gold can express is the sum total of superfluous labor time of society, that Postone deduced from Marx’s theory. Postone writes:
The difference between the total labor time determined as socially necessary by capital, on the one hand, and the amount of labor that would be necessary, given the development of socially general productive capacities, were material wealth the social form of wealth, on the other, is what Marx calls in the Grundrisse “superfluous” labor time. The category can be understood both quantitatively and qualitatively, as referring both to the duration of labor as well as to the structure of production and the very existence of much labor in capitalist society. As applied to social production in general, it is a new historical category, one generated by the trajectory of capitalist production.
Until this historical stage of capitalism, according to Marx’s analysis, socially necessary labor time in its two determinations defined and filled the time of the laboring masses, allowing nonlabor time for the few. With advanced industrial capitalist production, the productive potential developed becomes so enormous that a new historical category of “extra” time for the many emerges, allowing for a drastic reduction in both aspects of socially necessary labor time, and a transformation of the structure of labor and the relation of work to other aspects of social life. But this extra time emerges only as potential: as structured by the dialectic of transformation and reconstitution, it exists in the form of “superfluous” labor time. The term reflects the contradiction: as determined by the old relations of production it remains labor time; as judged in terms of the potential of the new forces of production it is, in its old determination, superfluous.
I did not invent this; Postone deduced it from Marx’s discussion of superfluity of labor time. It is on page 374 of his book.
What this implies, as I stated to Andrew, is that eventually the price of every single commodity in our society is far higher than its value! Or, to put this another way: the labor time exchanged for every single good in dollars must be greater than the socially necessary labor time required to produce it in gold. Although, on the surface, I appear to violate Marx’s law of value, in fact this “violation” is necessary to posit the existence of superfluous labor time. I have, in fact, no more violated Marx’s law of value, than he does by saying capitalism is doomed — a declaration that requires the actual, and not simply theoretical, overcoming of the law of value.
It is true, Marx states the value of a commodity expresses the labor time socially necessary for its production. And, it is true to state there is an equalization of the rate of profit. But, to imagine these two laws sit together tanning themselves under a bright Caribbean sun, in loving embrace is a fantasy. They are antagonistic forces, each seeking to overthrow the other, and engaged in a life or death struggle within Marx’s theory. Marx declares, the law of the average rate of profit must win out, and thus destroy itself along with the law of value. Social labor in the form of capital, wins out over the market, only to destroy the very premise of its own existence.
What practical bearing does this have on the struggle today?
The practical bearing is that it makes the rift between Marxism and anarchism moot. If, my reasoning here can stand up to challenge, almost all labor time in our society is unnecessary. But, the entire difference between Marx and Bakunin consisted of the necessity for labor owing to the relatively low development of the capitalist mode of production in the late 19th Century and does not apply to us today. Marx’s criticism of the Gotha program was all about necessary labor time, as well. However, if, as gold measure of GDP suggests, at present almost all labor time expended in our society is superfluous, the higher stage of communism is immediately or almost immediately attainable. Which, itself implies the state can be done away with in its entirety. The state is, and has always been, nothing more than the necessity for labor imposed by one section of society on another. Even the proletarian dictatorship is nothing more than making necessary labor a compulsory requirement for everyone in society — including the former owners of property.
If labor at this point is almost entirely superfluous, so is compulsory labor for any and all.
For this reason, it is obvious why creating work has become the over-riding preoccupation of the fascist state. Without more hours of labor in ever increasing quantities, the entire edifice of class society must collapse. Without fascist state economic policy to “promote job growth”, the state itself cannot exist. In the final analysis, directly or indirectly, the growth of the state is the only means to keep capitalism alive. The fight against the state, on the one hand, and the fight against capital, on the other, comes down to the fight against overwork. It comes down to freeing society forever from the burden of labor, and the stultifying impact of being treated as draft animals.
Superfluous labor time is the expenditure of human labor that does not create value; that does not, directly or indirectly, satisfies human needs. Unnecessary labor neither produces things that satisfy real human needs or the things necessary to produce those things. We can, as an example, point to military expenditures, subsidies for agribusiness (to be really concrete). But, superfluous labor is far more nuanced than just these gross and obvious examples: the entire state apparatus — more than 50% of GDP — falls in this category. As does the entire financial industry.
My list cannot be exhaustive, since the point is that what is necessary must be decided in association by the members of society together. And this association has an incentive to minimize necessary labor to its smallest amount since absolute freedom only begins where necessary labor time ends.
In association, there is altogether different incentives with regards to hours of labor: instead of finding work to do, people have incentive to minimize labor. A communist political program, I think, would call for an immediate reduction of hours of work by some definite amount — say, 20 percent — and would encourage people to figure out what expenditures of labor time beyond this are also not necessary, in order to further reduce hours. Because the incentive of society is to end all necessary labor and enjoy free time to pursue whatever interest we want.
Unlike bourgeois politicians, communists can genuinely run on a platform of really smaller government and mean it. Communists are the only politicians who can really get elected promising a government that does less, and spends less — and can actually realize this promise in practice. This turns the entire debate on government spending and deficits on its head in a way that is unexpected by the two fascist parties. Moreover, it is a demand that cannot be duplicated or co-opted by bourgeois politicians in either party.
Now, if you cannot make a communist program out of that, and appeal to the mass of society, you just don’t deserve to call yourself a communist. Anarchists and Marxists can continue playing their silly little sectarian games with each other, or they can actually accomplish something. If you are not focused on getting rid of the state, capital and wage labor, you might as well shut the fuck up, stop writing your useless books, and get the fuck out of the way.
Because, frankly, you’re just using up precious oxygen.
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, Moishe Postone, monetary policy, Paul Samuelson, recession, roosevelt administration, state monopoly, transformation problem
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?
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
(Or, more importantly, why should anarchists, libertarians and Marxists be as well)
So, has any reader of this blog heard that economists have conceded Marx was right after all? Have you at any time during the past 40 years heard an economist admit that Marx was correct in his transformation argument? I am really confused by this, because although Paul A. Samuelson declared Marx’s labor theory of value irrelevant in 1971, it is still being studied by BIS economists today. If I told you Marx’s theory was being studied by economists because Samuelson was a bald-face liar and a practiced dissembler, you would probably just yawn.
Of course, he was lying — he’s an economist. Economists are paid to lie and distort reality. They are employed by Washington not to explain economic processes, but to obscure them. To call an economist a bald-face liar, is simply to state he is breathing — nothing more.
But, to understand why Samuelson was lying, and why it was necessary that his lie stand unchallenged for forty years, we have to figure out the problem posed by Marx’s so-called “transformation problem”.
Marx’s transformation problem could be called the “paradox of capitalist price”, and we could state it thus:
Simple commodity price is an expression of the value of the commodity, but capitalist profit is the expression of surplus value wrung from labor power. To realize the surplus value wrung from the worker, the realized price of the commodity in the market has to include both the quantity of value created when it was produced plus a quantity of surplus value wrung from the unpaid labor time of the worker — capitalist price is the cost of producing the commodity plus the capitalist’s profit.
However, in the classical labor theory of value, the price of the commodity can only express the value of the commodity alone, not surplus value. Thus, for the price of the commodity to include both its value and a quantity of surplus value wrung from the worker, the capitalist price of the commodity must, of necessity, exceed the value of the commodity. The law of value is thus violated by the realization of capitalist surplus value — capitalist prices of commodities must always exceed the socially necessary labor time required to produce them.
The realization of capitalist profit violates the basic rule of classical economic theory: equal exchange of values in the market — but, as we shall see, this is far from a merely theoretical violation.
Now, Marx provides a number of caveats that work to stabilize the capitalist process of production — he called them “countervailing tendencies”, and they include things like the export of capital, etc. If we ignore all of these countervailing tendencies, however, the result is that prices of commodities must rise above their values, or alternatively money must exchange for these commodities below its value. (By money, I mean here only commodity money, i.e., gold or some other metal.)
What must occur when this happens is that money fails to circulate — the economy experiences a so-called credit, or financial, crisis. So, Marx’s labor theory of value explains why the dollar was debased in 1933 by the Roosevelt administration. It explains why your currency today is worthless pieces of paper or dancing electrons on a computer terminal. Marx’s transformation predicts and explains the debasement of the dollar and all other currencies on the planet.
Given this, how does Samuelson say Marx’s theory has no market predictive power? Because he was an economist — not a scientist, but a propagandist on behalf of the fascist state. I thought we already answered this — are you paying attention?
Eventually, Marx’s labor theory of value stated, gold could no longer serve as money because its function as measure of value conflicted with realization of the surplus value wrung from you — the unpaid labor time you work in addition to the value of your wages. At a certain point, the realization of surplus value — converting this surplus labor into profits — becomes incompatible with commodity money. Prices can only increase to reflect the average rate of profit if the currency is removed from the gold standard.
Samuelson once famously declared Marx’s theory could not explain the American and European economies between 1937 and 1971 — but, I just did, so fuck Samuelson!
Moreover, Marx’s transformation states you now work as many as 36 more hours per week than is necessary. The labor theory of value shows 90 percent of the current work week is being performed solely to maintain the rate of profit. Another way to understand this: essentially the labor time that is necessary under a regime of capitalist prices is about ten-fold that needed if capitalism is abolished.
On the other hand, maintaining such a long work week is the sole cause of inflation in our economy — it is labor wasted on a vast scale. This is why in this crisis the sole concern of Washington has been to maintain or increase the rate of inflation. The conversion of surplus value into profits demands the constant increase in the total hours of labor by the working class. While the unpaid labor time of the working class is the sole source of surplus value, the realization of this surplus requires still more unpaid labor time.
Based on the above, we can make four general statements — which can be empirically substantiated — about the implications of Marx’s labor theory of value and the paradox of capitalist prices. If these turn out to be true, Marx’s theory is vindicated and anti-statists have a weapon with which to change the terms of political debate.
If Marx is right, we should be able to prove:
- prices have generally increased faster than value for the past 40 years — this implies not simply that there was inflation, but that this inflation did not in any way result from an increase in the value of commodities, but increased despite a general decline in the value of commodities.
- total hours of work have increased faster than was socially necessary for the past 40 years — this implies the additional hours of work per person did not result from any cause necessary from the standpoint of social needs, but despite growing social needs.
- total employment has increased faster than productive employment in the past 40 years — this implies the employment of labor has become less efficient over time,despite increased addition of labor saving techniques to production. It also suggests growth has been in those part of the economy where productivity is impossible to measure.
- total output has increased faster than total wages in the past 40 years — this implies output has increased most rapidly in precisely those commodities that do not enter into the consumption of the working class.
Basically, these four general statements come down to one thing with regards to the great mass of society: In the past 40 years, people have had to work more hours, and more of them have been forced to work, even as they have become poorer. We should, in other words, be able to demonstrate beyond question that labor no longer adds any value to the economy, and the increase in output, in hours of work, and in additional jobs, does not increase the living standards of the great mass of society. The more work performed, the greater the increase in poverty.
The “paradox of capitalist price” is the paradox of more work for less real income. The paradox suggests only those measures which reduce the size of government can increase the living standards of the mass of working people. Of course, because, this argument is counter-intuitive — since, theory is only necessary when things are not as commonsense suggests they should be — making this argument requires it be buttressed with considerable empirical support from the anti-statist community.
Moreover, Marx’s labor theory of value has an additional aspect which recommends it even over what I just stated. Since, in Marx’s labor theory of value, socially necessary labor time is the material barrier to the realization of a classless, stateless society — which has been the avowed aim of communists for nearly two hundred years — his theory is also the concrete measure of the extent to which the productive capacity of society has developed to make this aim a realistic possibility. Contained in the labor theory of value is also the material measure of the possibility of society to immediately achieve a stateless and classless society on the basis of the principle of “each according to his need.”
I think every anarchist, libertarian and Marxist should understand Marx’s transformation of surplus value into profits and the paradox of capitalist prices, because in it is the entire argument against the existing state, and all the ugly mess bound up with it.
Tags: bank for international settlements, bieri, Bohm-Bawerk, Depression, economic collapse, economic policy, Federal Reserve, financial crisis, great depression, international financial system, Karl Marx, labor theory, monetary policy, necessary labor, Paul A. Samuelson, political-economy, recession, stupid economist tricks, transformation problem, unemployment, Wall Street Crisis, werner sombart
In reality, there was nothing in Bohm-Bawerk’s argument to be disproved. Bohm-Bawerk had indeed cited the essential contradiction at the core of capitalism. His problem, however, was to imagine the contradiction to be a defect of Marx’s theory, and not a fatal flaw laying at the heart of the capitalist mode of production itself.”
Bohm-Bawerk had inadvertently confirmed the rather grim future arrived at by Marx’s theory: Capitalism would kill the so-called free market, and in so doing, would destroy itself. It was, as Marx argued, creating its own gravediggers, a mass of directly social laborers who did not need it, and would see it as an impediment to their very survival, owing to obstacles it put in the way of its own operation.
By the 1970s, economists finally were forced to acknowledge there was in fact no inconsistency in Marx’s argument. Marx had, just as Bohm-Bawerk accused him, arrived at a theoretical description for why prices, although resting on the socially necessary labor time required to produce commodities, nevertheless appeared to reflect the prices of production of these commodities and not their labor times. It was not, as Werner Sombart feared, that from Marx’s labor theory of value “emerges a ‘quite ordinary’ theory of cost of production”, but precisely that Marx’s theory predicted from the first that the value of commodities must appear in the form of prices of production.
Moreover, Marx had demonstrated his proof almost in real time, so to speak, in front of his audience in a painstakingly detailed series of volumes — subject to the critical purview of his opponents. He had, as it were, made the elephant in the room — socially necessary labor time — disappear before the disbelieving eyes of his skeptical audience. It was a performance so dramatic and unprecedented, it took decades for the skeptics even to figure out what they had just witnessed with their own eyes.
The acknowledgement of Marx’s triumph took the form of a paper by Paul A. Samuelson, and was couched in the form of the complaint echoing that leveled against Marx by Sombart, as previously quoted by Bohm-Bawerk :
“…if I have in the end to explain the profits by the cost of production, wherefore the whole cumbrous apparatus of the theories of value and surplus value?”
Taking a cue from Sombart, Samuelson, in a paper titled “Understanding the Marxian Notion of Exploitation: A summary of the So-Called Transformation Problem Between Marxian Values and Competitive Prices”, introduced his so-called erasure method arguing,
It is well understood that Karl Marx’s model in Volume I of Capital (in which the “values” of goods are proportional — albeit not equal — to the labor embodied directly and indirectly in the goods) differs systematically from Marx’s model in Volume III of Capital, in which actual competitive “prices” are relatively lowest for those goods of highest direct-labor intensity and highest for those goods of low labor intensity (or, in Marxian terminology, for those with highest “organic composition of capital”). Critics of Marxian economics have tended to regard the Volume III model as a return to conventional economic theory, and a belated, less-than-frank admission that the novel analysis of Volume I — the calculation of “equal rates of surplus value” and of “values” — was all an unnecessary and sterile muddle.’
Samuelson gave a simple straightforward explanation of his “erasure method”:
I should perhaps explain in the beginning why the words “so-called transformation problem” appear in the title. As the present survey shows, better descriptive words than “the transformation problem” would be provided by “the problem of comparing and contrasting the mutually-exclusive alternatives of `values’ and `prices’.” For when you cut through the maze of algebra and come to understand what is going on, you discover that the “transformation algorithm” is precisely of the following form: “Contemplate two alternative and discordant systems. Write down one. Now transform by taking an eraser and rubbing it out. Then fill in the other one. Voila!
For all his genius, Samuelson argued, Marx had produced a theory which offered no greater insight into the social process of production than was already present in the form of mainstream economics. It could, for this reason, be entirely ignored.
Ignored also, however, would be the entire point of Marx’s “unnecessary and sterile” detour: namely, to demonstrate in comprehensive and theoretically ironclad fashion why the capitalism mode of production is doomed.
This only deepens the mystery of David Bieri’s interest in a theory routinely dismissed by economists as, at best, a vestigial remnant of classical political-economy. Why would this former bureaucrat of the Bank for International Settlements still be reviewing an obscure technical problem of a long dead theory?
Tags: bank for international settlements, bieri, Depression, economic collapse, economic policy, Federal Reserve, financial crisis, great depression, international financial system, Karl Marx, monetary policy, Paul A. Samuelson, political-economy, recession, stupid economist tricks, transformation problem, unemployment, Wall Street Crisis
In the previous blog post, I argued that in each of the three great capitalist catastrophes of the 19th and 20th Centuries — the Long Depression, the Great Depression and the Great Stagflation — economists scurried to bone up on Marx in an effort to understand practical problems of state economic policy confronting them at the time.
Naturally, the connection between these catastrophes and interest in Marx intrigued me, since this guy Bieri is now interested as well. If Bieri were just another Marxian economist I could understand his interest but his connection to the BIS and Bankers Trust, London intrigued me. Bankers Trust, one of the many institutions with which Bieri has been associated, is not exactly your typical local community credit union. It was up to its neck in the dirty dealings that led to financial crisis, and has long been implicated with equally shady dealings in the market in general. Here is what Wikipedia has to say about it:
“In 1995, litigation by two major corporate clients against Bankers Trust shed light on the market for over-the-counter derivatives. Bankers Trust employees were found to have repeatedly provided customers with incorrect valuations of their derivative exposures. The head of the US Commodity Futures Trading Commission (CFTC) during this time was later interviewed by Frontline in October 2009: “The only way the CFTC found out about the Bankers Trust fraud was because Procter & Gamble, and others, filed suit. There was no record keeping requirement imposed on participants in the market. There was no reporting. We had no information.” -Brooksley Born, US CFTC Chair, 1996-’99.
Several Bankers Trust brokers were caught on tape remarking that their client [Gibson Greetings and P&G, respectively] would not be able to understand what they were doing in reference to derivatives contracts sold in 1993. As part of their legal case against Bankers Trust, Procter & Gamble (P&G) “discovered secret telephone recordings between brokers at Bankers Trust, where ‘one employee described the business as ‘a wet dream,’ … another Bankers Trust employee said, ‘…we set ‘em up.”
Perhaps I am just being a tad paranoid, but when a guy with these kinds of connections starts sniffing around dusty old volumes of Capital just before the outbreak of the financial crisis of 2008, I begin to wonder what’s up.
But, I’m getting ahead of myself, am I not? I have not yet even explained what all the fuss is about. This tale begins with a little known simpleton scribbler, whose name is probably unfamiliar to anyone outside of the field of economics: Eugen von Bohm-Bawerk.
Tags: bank for international settlements, bank of international settlement, bieri, Depression, economic collapse, economic policy, Federal Reserve, financial crisis, great depression, international financial system, Karl Marx, london school of economics, monetary policy, political-economy, recession, stupid economist tricks, transformation problem, unemployment, Wall Street Crisis
I’m reading, “The Transformation Problem: A Tale of Two Interpretations”, by David Bieri.
According to his profile,
David studied economics at the London School of Economics and international finance at the University of Durham (UK). In 2006, he started his Ph.D. studies in SPIA.
From 1999 until 2006, David held various senior positions at the Bank for International Settlements, most recently as the Adviser to the General Manager and CEO. From 2002 to 2004, he held the position of Head of Business Development in which capacity he was responsible for new financial products and services and reserve management advisory for central banks. From 2004 to 2005, David worked as an economist in the BIS’ Monetary & Economics Department.
Prior to joining the BIS, David worked as a high-yield analyst at Banker’s Trust in London and in fixed-income syndication at UBS in Zurich.
What caught my attention is the notable resume of this author, which is quite unlike that of the typical Marxian economist. High-yield analyst, central bank bureaucrat, mainstream economist? This is not the sort of person you will find at your local Occupy campsite.
Why, I wondered, is the Bank of International Settlement interested in an obscure technical problem of Marx’s theory? So, I decided to give the paper a read.
Tags: Depression, economic collapse, economic policy, Federal Reserve, financial crisis, great depression, international financial system, Karl Marx, monetary policy, political-economy, recession, stupid economist tricks, unemployment, Wall Street Crisis
I have been critiquing Barry Eichengreen’s unprincipled attack on Ron Paul and his demand for a return to the gold standard, but, so far, I have danced around the real question posed by this vicious hit piece. Eichengreen’s argument is not about whether or not Ron Paul’s ideas can be compared to the insanity of Glenn Beck, nor is it even about the criticism of the Fascist State proposed by the argument of Frederick Hayek, who plays in this venal attack only the role of betrayer — Ron Paul having based his argument on many of the insights of Hayek, is ultimately betrayed by him when the latter dismisses
the possibility of a return to the gold standard.
Hayek concedes, in other words, to the necessity of totalitarianism.
Ron Paul, having been deserted by Hayek, even before he begins his career as a politician, is left alone in the company of Glenn Beck, who (Beck) is trying to foist gold coin on you at an astounding markup. The implication of this being that if Ron Paul is not himself in cahoots with Glenn Beck, he is just another hopeless sucker to be played. Just another miser looking for a place to safely store up his accumulated wealth from the predations of the investment banksters.
All of this is nothing more than an attempt at misdirection, a ploy to distract you from asking the important question:
What is money?
Ask this question to Ron Paul, and he will tell you gold is money — honest money, not a fiction of money as is ex nihilo currency. When Ron Paul asked Fed Chairman Ben Bernanke if gold was money, the Chairman tried his damnedest to avoid giving a straight answer. The chairman knows that money can perform two useful functions: universal means of payment in an exchange, and store of value. Even if gold is not recognized as the official standard of prices in a country, it can still perform exceptional service as store of value. And, in this function, it entirely fulfills the definition of a money – moreover, it fulfills this function better than any other commodity. And, it certainly fulfills this function better than currency created out of thin air.
Yes. Gold is money. But, of course, that is not the question I am asking:
“What is money?”
Not what thing can serve as money, but what is money itself. No matter what serves as money, or the functions of money it fulfills; what is money itself, i.e., the functions to be filled by the things?
Simply stated: Gold is money, but money is not gold.
People always make this silly argument: “Why can’t dogs, or sea shells or emeralds be money?” Yes. Within limits, anything can serve as money; and, this fact makes the thing serving as money appear entirely accidental and arbitrarily established. So, for instance, whether gold or dancing electrons on a Federal Reserve terminal is money seems simply a matter of convenience and fit.
But, the real questions raised by this is why anything serves as money? That is, why money? This question appears to us entirely irrational. We take the existence of money for granted, and therefore, argue not about money itself, but the things to be used as money. Eichengreen wants us to believe the question, “What thing should serve as money?”, has no deeper significance but for a handful of scam artists and marks like Glenn Beck and Ron Paul. A fifty dollar gold coin (worth some $1900) is inconvenient for daily purchases; we should use dancing electrons on a Federal Reserve terminal.
But, why do we have to use anything at all when it comes time to fill up the SUV for a trip to the corner store? Why isn’t the gas free? In other words, what is money doing coming between us and the things we need?
“Because”, the economist Barry Eichengreen will tell us, “there is not enough of stuff to go around.” Well, how does Barry know this? Does he have some insight into how much of one or another thing is produced in relation to demand for that thing? No. He doesn’t. The function of money is to tell us which things are in shortfall relative to demand because those things have a price in the market place. Prices presuppose the existence of scarcity; of a relation to nature marked by insufficiency of means to satisfy human want. Money is not an attribute of a fully human society, but the attribute of a society still living under the oppressive demands of nature.
So, the question,
“What is money?”
really comes down to
“What is scarcity?”
And, this can now be answered: it is insufficient means to satisfy human needs. But, this answer is still insufficient, because we really have no way to know directly if scarcity exists, right? What we know is the things generally have a price, and we infer from this that things must be scarce. But, this too is a fallacy like “gold is money = money is gold”. I stated that prices presuppose scarcity — but I must now correct myself. Scarcity of means to satisfy human needs is necessarily expressed by prices, but prices do not of themselves necessarily express scarcity of means.
Catelization, monopoly pricing, false scarcity and the Fascist State
We know, for instance, near the turn of the 20th Century, certain big industries learned they could maintain artificially high prices on their products by creating entirely artificial scarcities. We know also how this expertise was put to use and the reaction of society to it. Or, at least, we think we do. Folks like Joseph Stromberg, Murray Rothbard, Paul Baran and Paul Sweezy tell a much different story than the official record. That alternative narrative is summed up brilliantly by Kevin Carson in his work here.
But merely private attempts at cartelization before the Progressive Era–namely the so-called “trusts”–were miserable failures, according to Kolko. The dominant trend at the turn of the century–despite the effects of tariffs, patents, railroad subsidies, and other existing forms of statism–was competition. The trust movement was an attempt to cartelize the economy through such voluntary and private means as mergers, acquisitions, and price collusion. But the over-leveraged and over-capitalized trusts were even less efficient than before, and steadily lost market share at the hands of their smaller, more efficient competitors. Standard Oil and U.S. Steel, immediately after their formation, began a process of eroding market share. In the face of this resounding failure, big business acted through the state to cartelize itself–hence, the Progressive regulatory agenda. “Ironically, contrary to the consensus of historians, it was not the existence of monopoly that caused the federal government to intervene in the economy, but the lack of it.”
In fact, these folks argue, cartelization and monopoly pricing wasn’t very successful until the state stepped in at the behest of industry to organize them. Carson again:
The Federal Trade Commission created a hospitable atmosphere for trade associations and their efforts to prevent price cutting. (18) The two pieces of legislation accomplished what the trusts had been unable to: it enabled a handful of firms in each industry to stabilize their market share and to maintain an oligopoly structure between them. This oligopoly pattern has remained stable ever since.
It was during the war [i.e. WWI] that effective, working oligopoly and price and market agreements became operational in the dominant sectors of the American economy. The rapid diffusion of power in the economy and relatively easy entry [i.e., the conditions the trust movement failed to suppress] virtually ceased. Despite the cessation of important new legislative enactments, the unity of business and the federal government continued throughout the 1920s and thereafter, using the foundations laid in the Progressive Era to stabilize and consolidate conditions within various industries. And, on the same progressive foundations and exploiting the experience with the war agencies, Herbert Hoover and Franklin Roosevelt later formulated programs for saving American capitalism. The principle of utilizing the federal government to stabilize the economy, established in the context of modern industrialism during the Progressive Era, became the basis of political capitalism in its many later ramifications. (19)
But, there’s a problem with this cartel argument by Austrians, like Hayek and Mises, and Marxist-Keynesians, like Baran and Sweezy: Following Rudolf Hilferding, they describe prices realized by cartelization as “tribute exacted from the entire body of domestic consumers.”
The “monopoly capital” theorists introduced a major innovation over classical Marxism by treating monopoly profit as a surplus extracted from the consumer in the exchange process, rather than from the laborer in the production process. This innovation was anticipated by the Austro-Marxist Hilferding in his description of the super profits resulting from the tariff:
The productive tariff thus provides the cartel with an extra profit over and above that which results from the cartelization itself, and gives it the power to levy an indirect tax on the domestic population. This extra profit no longer originates in the surplus value produced by the workers employed in cartels; nor is it a deduction from the profit of the other non-cartelized industries. It is a tribute exacted from the entire body of domestic consumers. (64)
The problem with this theory is this: if we assume a closed system where the wages of the working class are the overwhelming source of purchasing power for the goods produced by industry, with prices of commodities more or less dependent on the consumption power of the mass of workers who produce them, these workers are unable to buy what they produce. The problem cited by Marx that the consumption power of society is an obstacle to the realization of surplus value is only intensified by cartelization.
Cartelization, even if it could be achieved in one or two industries, could not be the principle feature of any closed economy. Moreover, Marx’s theory predicts as productivity increased, and the body of workers needed to produce a given output shrank, this imbalance worsens. Even with the full weight of the state behind it, monopoly pricing would result in the severe limitation of the consumption power of society. This wholly artificial limitation on the consumption power of society would be expressed as a reduced demand for the output of industry and generally falling prices. So, in any case, the attempt to impose a general scarcity on society through cartelization alone must, in the end, fail miserably.
At this point it is entirely necessary to again ask the question:
“What is money?”
But, this time, not in the fashion we previously addressed it,
“Why is money coming between us and the things we need?”
We now can ask it in the form Barry Eichengreen wants us to consider it:
“What thing should serve as the money?”
As we just saw, cartelization must fail, even if it is sponsored by the state, owing to the artificial limits on the consumption of society. The limited means of consumption in the hands of the mass of workers must place definite limits on the demand for the output of industry.
But, what if — and this is only a silly hypothetical — another source of “demand” could be found within society? What if, out of nowhere, government should suddenly find itself in possession of a previously untapped endless supply of gold? What if, no matter how much of this supply of gold was actually spent, the gold coffers of the state remained full to the bursting point. Indeed, what if, for every bar of gold the state spent, 2 or 3 … or one thousand bars took the place of the spent gold?
In this case, the consumption power of society lost by cartelization and monopoly pricing could be made up for by judicious Fascist State spending, for instance on the military or building out an entire highway system or leveling the industiral competitors of entire continents in a global holocaust or pursuing a decades long Cold War/War on Terror/War on Democracy, to offset the limited demand of society. Since all gold bars look pretty much the same, no one need know that the state had a secret vault that produced gold as needed. No one need know that gold had lost its “price” as a commodity, because it was so incredibly abundant as to exceed all demand for it.
Which is to say, no one need know that in gold-money terms, all other commodities, including labor power, were essentially being given away for free.
The only people who would know this would be the men and women who managed the vault. And, since they were getting a cut of every bar spent into circulation, they could be relied on to keep this a tightly held secret.
“What is money?”
Is it gold, a commodity in limited supply, and requiring a great deal of time and effort to produce? Or, is it the dancing electrons on a computer terminal in the basement of the Federal Reserve Bank in Washington, DC? Is it real gold, available in definite limited quantities? Or, is it “electronic gold”, available in infinite quantities? The first choice makes it impossible for state enforced monopoly pricing and cartelization; the second makes it entirely possible.
So far as I know, I am the only one making this argument — Marxist or non-Marxist. But, it is the entire point of Ron Paul’s campaign. It is what makes his campaign a potentially revolutionary moment in American society. Of far greater importance than he imagines, because, like any petty capitalist, he is only looking for a safe place to store his wealth. The radical potential of a demand for the return to the gold standard, even from the mouth of this petty capitalist, this classical liberal is a dagger aimed directly at the heart of the Fascist State, and of its globe-straddling empire.
Tags: Austrian Economics, Barry Eichengreen, Depression, ex nihilo pecunaim, Federal Reserve, financial crisis, gold, Hayek, international financial system, Joseph Stromberg, Karl Marx, Kevin Carson, Libertarianism, monetary policy, Money, Murray Rothbard, Paul Baran, Paul Sweezy, political-economy, Ron Paul, Rudolf Hilferding, Tea Party, Wall Street Crisis
Barry Eichengreen makes much of the role the theories of Friedrich Hayek play in Ron Paul’s world view for a reason that becomes immediately clear:
In his 2009 book, End the Fed, Paul describes how he discovered the work of Hayek back in the 1960s by reading The Road to Serfdom. First published in 1944, the book enjoyed a recrudescence last year after it was touted by Glenn Beck, briefly skyrocketing to number one on Amazon.com’s and Barnes and Noble’s best-seller lists. But as Beck, that notorious stickler for facts, would presumably admit, Paul found it first.
The Road to Serfdom warned, in the words of the libertarian economist Richard Ebeling, of “the danger of tyranny that inevitably results from government control of economic decision-making through central planning.” Hayek argued that governments were progressively abandoning the economic freedom without which personal and political liberty could not exist. As he saw it, state intervention in the economy more generally, by restricting individual freedom of action, is necessarily coercive. Hayek therefore called for limiting government to its essential functions and relying wherever possible on market competition, not just because this was more efficient, but because doing so maximized individual choice and human agency.
Yes, folks: Ron Paul is a follower of the very same theories recently endorsed by that cheap huckster of gold coin: right wing conspiracy theorist nut job, Glenn Beck.
Indeed, Ron Paul hails from that portion of the libertarian movement that is a reactive response to the growing role of the state in the economic activity of society. While Marxists predict this increasing state role — demanding only that state power must rest in the hands of the workers whose activity it is — libertarians of Paul’s type reject this role entirely and warn it can only have catastrophic implications for human freedom. Thus, these two streams of communist thought diverge less significantly in their respective diagnoses what was taking place in 20th Century than in their respective solution to it.
As Eichengreen points out, Ron Paul sees in the ever increasing interference by the state in economic activity a danger to individual freedom and a growing threat of totalitarian statist power, in which the state attempts to determine the individual and society rather than being determined by them. This has echoes among Marxists, who themselves had nothing but disdain for nationalization of industry, and by Marxist writers, like Raya Dunayevskaya, who, during the same period Hayek was developing his own ideas, observed an inherent tendency of the state to organize society as if it were a factory floor.
“At the same time the constant crises in production and the revolts engendered befuddle the minds of men who are OUTSIDE of the labor process… where surplus labor appears as surplus product and hence PLANLESSNESS. They thereupon contrast the ANARCHY of the market to the order in the factory. And they present themselves as the CONSCIOUS planners who can bring order also into ‘society,’ that is, the market.”
Paraphrasing Marx, Dunayevskaya points to the inherent logic of this process:
If the order of the factory were also in the market, you’d have complete totalitarianism.”
What Eichengreen wants to treat as an observation specific to the “loony right” turns out to be a view held in common by both the followers of Marx and the followers of the Austrian School. Moreover, it is not just the fringes of political thought who warned of growing convergence between the state and capital, the mainstream of political thought also recognized this inherent tendency, Eichengreen acknowledges, by citing President Richard Nixon’s famous quote, “we are all Keynesians now.” What emerges from this is a very different impression than the one Eichengreen wishes us to take away from his tawdry attempt to discredit Paul by noting his affinity with Glenn Beck for the writings of Nobel Laureate Friedrich Hayek and the Austrian School within bourgeois economics: As Engels predicted, the state was being driven by Capital’s own development to assume the role of social capitalist, managing the process of production and acting as the direct exploiter of labor power.
While mainstream bourgeois political-economy was treating the convergence of Capital and State power as a mere economic fact, the followers of Hayek and the best of the followers of Marx warn not merely of the effect this process would have on economic activity, but the effect it must have on the state itself — as social manager of the process of extraction of surplus value from the mass of society, the state must become increasingly indifferent to its will, must increasingly treat it as a collective commodity, as a mass of labor power, and, therefore, as nothing more than a collective source of surplus value.
Although lacking the tools of historical materialist analysis, that comes from familiarity with Marx’s own methods, libertarians, like Ron Paul, have actually been able to better understand the implications of increasing state control over economic life than Marxists, who, having abandoned Marx’s methods to adopt spurious theories propagated from whatever academic scribbler, still to this day have failed to completely understand the Fascist State.
Eichengreen, worthless charlatan that he is, deftly sidesteps this critique shared by both Austrians and Marxists of the political impact of growing Fascist State control over the production of surplus value, and instead directs our attention to the entirely phony debate of whether gold as money serves society better than ex nihilo currency to abolish the crises inherent in the capitalist mode of production itself. He begins this foray by admitting the failure of of monetary policy to prevent the present crisis, but poses it as a non sequitur:
Why are Ron Paul’s ideas becoming more popular among voters?
The answer, as is Eichengreen’s standard practice in this bullshit hit piece, is to blame Ron Paul’s popularity on Glenn Beck:
BUT IF Representative Paul has been agitating for a return to gold for the better part of four decades, why have his arguments now begun to resonate more widely? One might point to new media—to the proliferation of cable-television channels, satellite-radio stations and websites that allow out-of-the-mainstream arguments to more easily find their audiences. It is tempting to blame the black-helicopter brigades who see conspiracies everywhere, but most especially in government. There are the forces of globalization, which lead older, less-skilled workers to feel left behind economically, fanning their anger with everyone in power, but with the educated elites in particular (not least onetime professors with seats on the Federal Reserve Board).
Only after we get this conspicuously offensive run of personal attacks on Ron Paul’s reputation, does Eichengreen actually admit: Ron Paul’s ideas are gaining in popularity, because the Fascist State is suffering a crisis produced by a decade of depression and financial calamity:
There may be something to all this, but there is also the financial crisis, the most serious to hit the United States in more than eight decades. Its very occurrence seemingly validated the arguments of those like Paul who had long insisted that the economic superstructure was, as a result of government interference and fiat money, inherently unstable. Chicken Little becomes an oracle on those rare occasions when the sky actually does fall.
Ah! But, even now, Eichengreen, forced to admit, finally, the present unpleasantness, cannot help but label Ron Paul a broken clock for having rightly predicted it in the first place. Okay, fine.
So, it turns out that the banksters really do extend credit beyond all possibility of it being repaid; and, it turns out that this over-extension of credit plays some role in overinvestment and the accumulation of debt, and, it turns out prices spiral to previously unimaginable heights during periods of boom — and, finally, it turns out all this comes crashing down around the ears of the capitalist, when, as at present, a contraction erupts suddenly, and without warning.
This schema bears more than a passing resemblance to the events of the last decade. Our recent financial crisis had multiple causes, to be sure—all financial crises do. But a principal cause was surely the strongly procyclical behavior of credit and the rapid growth of bank lending. The credit boom that spanned the first eight years of the twenty-first century was unprecedented in modern U.S. history. It was fueled by a Federal Reserve System that lowered interest rates virtually to zero in response to the collapse of the tech bubble and 9/11 and then found it difficult to normalize them quickly. The boom was further encouraged by the belief that there existed a “Greenspan-Bernanke put”—that the Fed would cut interest rates again if the financial markets encountered difficulties, as it had done not just in 2001 but also in 1998 and even before that, in 1987. (The Chinese as well may have played a role in underwriting the credit boom, but that’s another story.) That many of the projects thereby financed, notably in residential and commercial real estate, were less than sound became painfully evident with the crash.
All this is just as the Austrian School would have predicted. In this sense, New York Times columnist Paul Krugman went too far when he concluded, some years ago, that Austrian theories of the business cycle have as much relevance to the present day “as the phlogiston theory of fire.”
(I think it is rather cute to see Eichengreen present himself as the disinterested referee between the warring factions of bourgeois political-economy, by gently chiding Paul Krugman for going too far in his criticism of the Austrians — after all, the Fascist State will have to borrow heavily from the Austrian School to extricate itself from its present predicament)
Where people like Ron Paul go wrong, Eichengreen warns, is their belief that there is no solution to this crisis but to allow it to unfold to its likely unpalatable conclusion — unpalatable, of course, for the Fascist State, since such an event is its death-spiral as social capitalist. Apparently, without even realizing it, this pompous ass Eichengreen demonstrates the truth of Hayek’s argument: Fascist State management of the economy, once undertaken, must, over time, require ever increasing efforts to control economic events, and, therefore, ever increasing totalitarian control over society itself.
Eichengreen pleads us to understand the Fascist State does not intervene into the economy on behalf of Capital (and itself as manager of the total social capital) but to protect widows and orphans from starvation and poverty:
Society, in its wisdom, has concluded that inflicting intense pain upon innocent bystanders through a long period of high unemployment is not the best way of discouraging irrational exuberance in financial markets. Nor is precipitating a depression the most expeditious way of cleansing bank and corporate balance sheets. Better is to stabilize the level of economic activity and encourage the strong expansion of the economy. This enables banks and firms to grow out from under their bad debts. In this way, the mistaken investments of the past eventually become inconsequential. While there may indeed be a problem of moral hazard, it is best left for the future, when it can be addressed by imposing more rigorous regulatory restraints on the banking and financial systems.
Thus, in order to protect widows and orphans from starvation, the Fascist State is compelled to prop up the profits and asset prices of failed banksters and encourage the export of productive capital to the less developed regions of the world market — not to mention, leave millions without jobs and millions more under threat of losing their jobs. Eichengreen even has the astonishing gall to state the problem of moral hazard identified by Austrians, “is best left for the future, when it can be addressed by imposing more rigorous regulatory restraints on the banking and financial systems.” Eichengreen takes us all for fools — did not Washington deregulate the banksters prior to this depression, precisely when the economy was still expanding? If banks are deregulated during periods of expansion, and they cannot be regulated during periods of depression, when might the time be optimal to address moral hazard?
The question, of course, is rhetorical — and not simply because Eichengreen is only blowing smoke in our face. Eichengreen actually argues that Fascist State intervention prevented a depression!:
…we have learned how to prevent a financial crisis from precipitating a depression through the use of monetary and fiscal stimuli. All the evidence, whether from the 1930s or recent years, suggests that when private demand temporarily evaporates, the government can replace it with public spending. When financial markets temporarily become illiquid, central-bank purchases of distressed assets can help to reliquefy them, allowing borrowing and lending to resume.
And, here we can see the role of the thing serving as money and its relation to the crises inherent in the capitalist mode of production. Ex nihilo currency does not abolish crises, it merely masks them from view: while ex nihilo dollar based measures of economic activity indicate the economy suffered a massive catastrophic financial crisis in 2008, gold indicates this financial crisis is only the latest expression of an even more catastrophic depression that has, so far, lasted more than a decade.
NEXT: The tale of two monies
Tags: Austrian Economics, Barry Eichengreen, Depression, ex nihilo pecunaim, Federal Reserve, financial crisis, gold, Hayek, international financial system, Karl Marx, Libertarianism, monetary policy, Money, political-economy, Raya Dunayevskaya, Ron Paul, Tea Party, unemployment, Wall Street Crisis
Washington has a problem, and Barry Eichengreen is doing his bit to save it. The problem’s name is Ron Paul, and this problem comes wrapped in 24 carat gold:
GOLD IS back, what with libertarians the country over looking to force the government out of the business of monetary-policy making. How? Well, by bringing back the gold standard of course.
Last week, Eichengreen published a slickly worded appeal to libertarian-leaning Tea Party voters, who, it appears, are growing increasingly enamored with Ron Paul’s argument against ex nihilo money and the bankster cartel through which Washington effects economic policy.
The pro-gold bandwagon has been present in force in Iowa, home of the first serious test of GOP candidates for that party’s presidential nomination. Supporters tried but failed to force taxpayers in Montana and Georgia to pay certain taxes in gold or silver. Utah even made gold and silver coins minted by Washington official tender in the state. But, the movement is not limited to just the US: several member states of the European Union have made not so quiet noises demanding real hard assets in return for more bailout funds for some distressed members burdened by debt and falling GDP.
No doubt, these developments are a growing concern in Washington precisely because demands for real assets like commodity money threaten to blow up its eighty year old control of domestic and global economic activity through the continuous creation of money out of thin air.
Although Eichengreen invokes the difficulty of paying for a fill up at your local gas station, “with a $50 American eagle coin worth some $1,500 at current market prices”; the real problem posed by a gold (or any commodity) standard for prices is that such a standard sounds a death-knell to a decades long free ride for the very wealthiest members of society, and would end the 40 years of steady erosion of wages for working people here, and in countries racked by inflation and severe austerity regimes around the world.
Make no mistake: Ron Paul is now one of the most dangerous politicians in the United States or anywhere else, because his message to end the Federal Reserve Bank and its control of monetary and employment policy has begun to approach the outer limits of a critical mass of support — if not to end the Fed outright, than at least to bring the issue front and center of American politics.
Eichengreen begins his attack on Ron Paul’s call for an end to the Federal Reserve by choosing, of all things, Ron Paul’s own writings as weapon against him:
Paul has been campaigning for returning to the gold standard longer than any of his rivals for the Republican nomination—in fact, since he first entered politics in the 1970s.
Paul is also a more eloquent advocate of the gold standard. His arguments are structured around the theories of Friedrich Hayek, the 1974 Nobel Laureate in economics identified with the Austrian School, and around those of Hayek’s teacher, Ludwig von Mises. In his 2009 book, End the Fed, Paul describes how he discovered the work of Hayek back in the 1960s by reading The Road to Serfdom.
For Eichengreen, Paul’s self-identification with Hayek is a godsend, because, as Eichengreen already knows at the outset of his article, Hayek ultimately opposed the gold standard as a solution to monetary crises:
At the end of The Denationalization of Money, Hayek concludes that the gold standard is no solution to the world’s monetary problems. There could be violent fluctuations in the price of gold were it to again become the principal means of payment and store of value, since the demand for it might change dramatically, whether owing to shifts in the state of confidence or general economic conditions. Alternatively, if the price of gold were fixed by law, as under gold standards past, its purchasing power (that is, the general price level) would fluctuate violently. And even if the quantity of money were fixed, the supply of credit by the banking system might still be strongly procyclical, subjecting the economy to destabilizing oscillations, as was not infrequently the case under the gold standard of the late nineteenth and early twentieth centuries.
Eichengreen pulls off a clever misdirection against Ron Paul by deliberately conflating the problem of financial instability with the problem of limiting Fascist State control over economic activity. Ron Paul’s argument, of course, is not primarily directed at eliminating financial crises, which occur with some frequency no matter what serves as the standards of prices, but at removing from Washington’s control over economic activity not just at home, but wherever the dollar is accepted as means of payment in the world market — and, because the dollar is the world reserve currency, that means everywhere. But, by conflating the question of Fascist State control over the world economy with solving the problem of financial and industrial crises that are endemic to the capitalist mode of production, Eichengreen takes the opportunity to foist an even more unworkable scheme on unsuspecting Ron Paul supporters: privatize money itself:
For a solution to this instability, Hayek himself ultimately looked not to the gold standard but to the rise of private monies that might compete with the government’s own. Private issuers, he argued, would have an interest in keeping the purchasing power of their monies stable, for otherwise there would be no market for them. The central bank would then have no option but to do likewise, since private parties now had alternatives guaranteed to hold their value.
Abstract and idealistic, one might say. On the other hand, maybe the Tea Party should look for monetary salvation not to the gold standard but to private monies like Bitcoin.
It is cheek of monumental — epic — proportion. Even by the standards of the unscrupulous economics profession — a field of “scholarship” having no peer review and no accountability — the sniveling hucksterism of Eichengreen’s gambit is quite breathtaking. However, not to be overly impressed by this two-bit mattress-as-savings-account salesman, in the next section of this response to Barry Eichengreen, I want to spend a moment reviewing his examination of the problem of financial instability, and the alleged role of gold (commodity) money in “subjecting the economy to destabilizing oscillations… under the gold standard of the late nineteenth and early twentieth centuries.”
Part Two: Money and crises
Tags: Austrian Economics, Barry Eichengreen, Depression, ex nihilo pecunaim, Federal Reserve, financial crisis, gold, Hayek, international financial system, Libertarianism, monetary policy, Money, political-economy, Ron Paul, Tea Party, unemployment, Wall Street Crisis
In part one of this series, I showed how inflation affects not only consumption but also production. In the former, inflation expresses itself in the fall of the consumption power of the mass of society. In the latter, inflation expresses itself as a fall in the actual realized rate of profit — a negative rate of profit arising not from a material change in the composition of capital, but from a depreciation in the purchasing power of money. The two of these effects are achieved by one and the same cause. The two effects do not simply exist side by side, but influence each other: in the circulation of capital, excess money-demand effectively reduces the portion of the output of productively employed capital that is realized in sales. With an inflation rate of ten percent, a capital with value of $100 now can be realized only if $110 is offered for it. On the other hand, a capital with the actual value of $110, is effectively purchased for $100.
The problem here is that between the production of the commodity and its realization in a sale the purchasing power of the money has depreciated. The problem can be better understood if we divide value and price and examine each separately. If we assume a capital with the value of $100, represents 10 hours of socially necessary labor time, we can make the following observation: The capitalist takes his capital with a value of $100 or ten hours of labor time and produces a quantity of commodities with a new total value of $110, representing 11 hours of socially necessary labor time. However, during this same period, the purchasing power of money has changed so that 1 hour of labor time no longer has a price of $10, but has a new price of $11. His capital now has the value of 11 hours of labor time with an implied expected price of $121 (11 times 11 = 121), yet he only realizes $110, or 10 hours of labor time under the new price conditions.
From the point of view of value, the capitalist has taken his capital with a value of 10 hours of socially necessary labor and produced a capital with a value of 11 hours of socially necessary labor. Yet, of this 11 hours of value he only realizes 10 hours, i.e., he realizes no more than his original investment. From the point of view of price, the capitalist has taken his capital with a money-price of $100 and produced a capital with a money-price of $110. He expects no more than $110 and is satisfied with this, despite the fact that this $110 in sales only has a value of 10 hours of socially necessary labor time.
The riddle of the divergence of prices from values
The riddle of this perverse situation can only be solved if we assume that a change occurred in the relationship between values and prices during the exchange of money and commodities — that the realization of the value of capital produced suffered from a defect such that a portion of the value this capital was lost in the act of exchange itself. This defect, as we showed in part three, is already inherent in the value/price mechanism itself. The value/price mechanism contains in itself a contradiction between the actual labor time expended on the production of a commodity and the socially necessary labor time required for its production; a contradiction between the value of the commodity itself and the expression of the value in the form of the price of the commodity; and, a contradiction between the price of the commodity denominated in units of the money and the socially necessary labor time required for the production of the object that serves as the money.
These contradictions exists only in latent form until crises bring them to the surface in a sudden divergence between prices and values of commodities. During periods of over-production of commodities — or, more accurately, over-accumulation of capital — these crises are expressed in the sudden collapse in the prices of commodities below their value, or socially necessary labor times. The divergence between prices and values of commodities only express the fact that for a more or less lengthy period of time wealth can no longer accumulate in its capitalistic form; and, as a result, the socially necessary labor time of society must contract to some point where the production of surplus value no longer takes place. Precisely because the circulation of capital requires not just the production of surplus value in the form of commodities, but also its realization in a separate act of sale of these commodities, the possibility exists for an interruption of the process of realization for a longer or shorter period of time until balance between production and consumption is restored — that is, until conditions exist for the total social capital to once again function as capital; for the process of self-expansion of the total social capital to resume.
If, for whatever reason, conditions are not established for the total social capital to resume functioning as capital — for the process of self-expansion of the total social capital to begin again — production itself must cease. The interruption of exchange — which, I note for the record, begins not with too much money-demand for too few commodities, but precisely the reverse — creates a sudden fall in the rate of profit to zero. If this occurs not as an intermittent breakdown, but as a permanent feature of capitalist production — which is to say, if the over-accumulation of capital is not momentary, but a now permanent feature of the mode of production — capital has encountered its absolute limit as a mode of production. From this point forward the production of wealth can no longer take its capitalistic form — can no longer take the form of surplus value and of profit.
Over-accumulation of capital and civil society
Moreover, since the production of surplus value is the absolute condition for the purchase and sale of labor power, the sudden interruption of its production affects not just the capitalist class, but the class of laborers as well — it appears in the form of a social catastrophe threatening the existence of the whole of existing society, and all the classes composing existing society without regard to their respective place in the social division of labor. Each member of society encounters the exact same circumstance: she cannot sell her commodity, whether this commodity is an ordinary one — shoes, groceries, etc. — or the quintessential capitalist commodity, labor power. The premise of all productive activity in society is that this activity can only be undertaken if it yields a profit; if, in other words, the existing socially necessary labor time expended by society realizes, in addition to this value, additional socially necessary labor time above that consumed during its production.
Marx argues in Capital Volume 3 that capitalist production presupposes a tendency toward the absolute development of the productive forces of society, irrespective of the consequences implied by this development for capital itself. What does Marx mean by this? As a mode of production, capital shares with all previous modes of production the feature of being founded on natural scarcity, on the insufficiency of means to satisfy human need. Yet, at the same time, it implies a tendency for the productive capacity of society to develop more rapidly than consumption power of society — a tendency for more commodities to be thrown on the market at any given time than society can consume under the given conditions of exchange. What society can consume at any given moment is not determined simply by the amount of commodities available to be consumed, but by class conflict between the mass of owners of capital and the mass of laborers; a conflict which presupposes the reduction of the consumption power of the mass of laborers to some definite limit consistent with the realization of profits.
That this conflict, absent a successful attempt on the part of the mass of society to end the monopoly over the means of production by an insignificant handful of predators, must be settled in favor of capital and, therefore, that production is constantly kneecapped by completely artificial limits on consumption, is already given by capitalist relations of production themselves — relations which nowhere figure in the description of capital by simple-minded economists, who instead ascribe this barrier to the gold standard, etc.
This contradiction — that the productive power of society tends toward its absolute development, yet the consumption power is constantly constrained by the need to produce commodities at a profit — implies that at a certain point in capital’s development production and consumption come into absolute conflict — a conflict which, on the one hand, cannot be resolved by simply increasing this productive power still further, nor by limiting consumption still more severely. It can only be overcome by such means as overthrow capitalist relations entirely, or, alternately, destroy both the productive and consumption power of society together in one and the same act of exchange.
Exchange and disaccumulation, or, the destruction of value through exchange
I have made the assumption that both the productive power of society and the consumption power of society are destroyed by one and the same act of exchange. Based on this assertion, I define inflation not simply as the increase in money-demand over the supply of commodities, but the actual destruction of the productive power of society and consumption power of society during the act of exchange. Or, what is the same thing, by the progressive reduction of the total social capital circulating within society, i.e., the reduction of the quantity of the existing total social capital which continues to function as capital within society, through exchange.
I have also made the assumption that this same act of exchange also expresses,
- the contradiction between the actual labor time expended on production of commodities and the socially necessary labor time required for production of these commodities — inflation, therefore, expresses itself as a declining portion of the total labor time expended by society that is socially necessary, or, alternately, the constant increase in the total labor time of society in relation to the social necessity for productively expended labor time;
- the contradiction between values of commodities and the expression of these values in the prices of commodities — inflation, therefore, is expressed as a decline in the value of commodities as a proportion of the prices of commodities, or, alternately, the constant increase in the prices of commodities in relation to their values; and,
- the contradiction between the prices of commodities denominated in units of the legally defined money and the price of the commodity that historically served as the money — inflation, therefore, is expressed in the constant depreciation of the exchange ratio of the money token against the commodity historically serving as the standard of price, or, alternately, as the rising price of the commodity historically serving as the standard of prices denominated in the money token, i.e., a secular rise in the price of gold.*
The conditions of this act of exchange, which destroys both the productive power of society and its consumption power — and which, on this basis, progressively reduces the quantity of the existing total social capital which continues to circulates as capital and function as capital on this basis — is fulfilled only by exchange of that portion of the newly created social capital representing surplus value with ex nihilo money, and the unproductive consumption of this newly created value by the Fascist State. Moreover, this unproductive consumption of the newly created surplus value is only fulfilled if it is entirely unproductive in all of its forms, i.e., whether this unproductive consumption takes the form of the unproductive consumption of commodities, of labor power, or, of the fixed and circulating capital.
Fascist State expenditures consist entirely of removing the surplus product of labor from circulation, consuming it unproductively, and replacing this surplus product in circulation with a valueless ex nihilo money that formally completes the act of exchange, but that in reality abrogates it. The total mass of capital circulating within society is thereby reduced by this exchange, while the total money-demand in society is simultaneously increased.
The chief symptoms of inflation, therefore, is (1.) the unproductive consumption of the existing total capital by the Fascist State, no matter what form this unproductive consumption takes; (2.) the constant secular increase in Fascist State expenditures, no matter how these expenditures are financed, but which is no more than the continuous exchange of every form of commodity (i.e., of capital in the form of commodities) for newly created valueless ex nihilo money; and, finally, (3.) the constant expansion of the total labor time of society beyond that duration required by the satisfaction of human needs. In tandem with the improvement in the productivity of labor, society is compelled to expend an ever greater amount of effort just to feed, house and clothe itself. In tandem with the reduction in the value of commodities, the prices of commodities soar still higher. In tandem with relentless expansion of Fascist State expenditures, the actual provision of necessary public services — education, health care, provision for the disabled and those no longer able to work, public infrastructure and communications — sink into decay and obsolescence.
The terminal trajectory of capitalist social relations is expressed precisely in the fact that at a certain stage of development the total social capital can no longer function as capital, can no longer realize the constantly increasing quantity of surplus value produced in the form of profits, that, to the contrary, this surplus value must be unproductively consumed in its entirety by the Fascist State and replaced by purely fictitious profits denominated in a purely fictitious money.
*NOTE: I need clarify from Part Three that this third contradiction implies gold tends to exchange with other commodities at some exchange ratio below its relative value, despite its rising nominal price. As is obvious, if commodities are priced above their values, the purchasing power of gold — the physical body of exchange value — is exchanged below its value. This situation, which once occurred only during periods of general capitalist expansion, is now a permanent feature of exchange. It is, however, expressed through the intermediary of the money token by commodities being priced above their values, while gold is priced below its value. An existing quantity of money token can buy fewer commodities, but more gold, than otherwise expected. This inevitably leads to charges by gold-bugs that the price of gold is being deliberately suppressed, but I think it is actually a natural consequence of over-accumulation of capital — a condition normally seen at the apex of an expansion. Commodities in general are devalued, but this devaluation is expressed most thoroughly in the devaluation of the former money commodity which serves little other function in society but to express value.
Tags: capital, commodity, consumption, ex nihilo money creation, ex nihilo pecunaim, exchange, fictitious profits, fiscal policy, gold, inflation, monetary policy, negative rate of profit, prices, production, public debt, purchasing power of money, socially necessary labor time, stupid economist tricks, wages
According to the Wikipedia entry on Executive Order 6102, the fine for hoarding gold was ten thousand dollars. At the same time, the executive order demanded all private holdings be turned in and exchanged for government issued ex nihilo dollars at an exchange rate of $20.67 per troy ounce of gold. Using this as our base measure, the fine for hoarding gold amounted to 483.79 troy ounces of gold.
So, like the authors of the Wikipedia entry I tried to update the purchasing power of the 1933 ten thousand dollar fine into an amount of money equal to it in 2011 dollars. I went to the Bureau of Labor Statistics Consumer Price Index website and found that according to its statistical measure of inflation it now takes $171,897.69 to purchase the same quantity of goods that the ten thousand dollar fine would have purchased in 1933. According to the Bureau of Labor Statistics, the purchasing power of the ten thousand dollar fine has fallen to just 5.82 percent of its purchasing power in 1933. This is a fantastic depreciation in the purchasing power of dollars. However, it is also a gross lie — the depreciation of dollars has been far more severe than even the BLS admits, as we will now show.
The Problem of the Consumer Price Index
The Consumer Price index has been the subject of continuing controversy, including charges that it overestimates inflation and charges that it underestimates inflation. But, this controversy does not concern us here, since it is, in part at least, a political disagreement. What does concern us is the index itself, which popularly purports to measure the depreciating purchasing power of money in relation not to a fixed standard, but against a multitude of standards — that is, against a so-called basket of consumer goods.
Upon deeper investigation, however, I found, according to the entry in the Wikipedia on the United States Consumer Price Index, that the CPI was never meant to measure inflation or the depreciating purchasing power of money:
The U.S. Consumer Price Index (CPI) is a time series measure of the price level of consumer goods and services. The Bureau of Labor Statistics, which started the statistic in 1919, publishes the CPI on a monthly basis. The CPI is calculated by observing price changes among a wide array of products in urban areas and weighing these price changes by the share of income consumers spend purchasing them. The resulting statistic, measured as of the end of the month for which it is published, serves as one of the most popular measures of United States inflation; however, the CPI focuses on approximating a cost-of-living index not a general price index.
Intrigued by this disclaimer, I went searching for the difference between a measure of inflation and a measure of the “cost of living”. Among the information I found was an admission by the Bureau of Labor Statistics that the Consumer Price Index not only does not measure inflation, but it is not even a true measure of the cost of living. It is limited to measuring market purchases by consumers of a basket of goods and services.
According to Wikipedia, the BLS states:
The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. BLS has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this to also take into account changes in other governmental or environmental factors that affect consumers’ well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would constitute a complete cost-of-living framework.
Since, the BLS, by its own admission, incompletely measures the amount you must spend to achieve a presumed certain level of “utility” — the so-called Standard of Living — how do they define this “utility”? Further reading explains:
Utility is not directly measurable, so the true cost of living index only serves as a theoretical ideal, not a practical price index formula.
So, to sum up: the Bureau of Labor Statistics Consumer Price Index is a measure of a theoretical construct which cannot be defined, is difficult to determine, and, in any case, is not directly measurable: the so-called “Standard of Living“.
The hidden costs borne by society
If we go back to the first paragraph of the original definition of inflation proposed the the Wikipedia entry, we find this:
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.[my emphasis] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.
Inflation is defined as the general rise in prices of goods and services, but also as the erosion of the purchasing power of money — i.e., the depreciation of money. Against what is this erosion of purchasing power to be measured? Here, the Wikipedia is silent, leaving us with the wrong idea that the “real value” of money is to be measured against the commodities we can purchase with it. As this “real value” erodes, we can purchase fewer goods and services. This implied method of measuring the depreciation of money, however, does not give us a general measure of the price level, as the BLS admits, but only a measure of the price level as expressed in a series of transactions in the market for so many individual commodities.
The war in Afghanistan, for instance, would not be captured by this implied method; nor, would the cost incurred by society as a result of the damage British Petroleum caused to the Gulf of Mexico; nor, the cost borne by society for the Fukushima nuclear disaster, or that created by the bailout of the failed banksters on Wall Street. Unless these costs actually entered into the prices of commodities in market transactions, they will not show up in the Consumer Price Index. And, a considerable period of time could pass between the events and their expression in the prices of commodities tracked by the Consumer Price Index. Moreover, the change in prices of the commodities tracked by the Consumer Prices Index are subject to innumerable factors arising from market forces within the World Market — making it impossible to trace any specific fluctuation back to its source. On the other hand, each of the events of the sort cited above materially affected either the necessary labor time of society or the quantity of ex nihilo money in circulation within the economy.
The question to which we seek an answer is not how much the purchasing power of ex nihilo money has depreciated with respect to some arbitrarily established concept of living ltandard, but how much it has diverged from the purchasing power of gold standard money? To answer this question, we must directly measure these changes by comparing the general prices level against the commodity that served as the standard for prices until money was debased and replaced with ex nihilo dollars.
Gold standard dollars more or less held prices to the necessary social labor time required for the production of commodities; the divergence between gold and dollars since the dollar was debased, provides us with an unambiguous picture of inflation since 1933. The divergence between the former gold standard money and ex nihilo money must be expressed as the depreciation of ex nihilo money purchasing power for an ounce of gold over time , or, what is the same thing, as the inverse of the price of gold over a period of time — as is shown in the chart below for the years 1920 to 2010.
Inflation since 1933 has been four times higher than BLS figures show
So, how does all of this relate back to the fine imposed on anyone found guilty of hoarding gold under Executive Order 6120? Remember, in 1933 the ten thousand dollar fine could have been exchanged for 483.79 ounces of gold. According to the BLS Consumer Price Index this translates into $171,897.69 in current dollars. However, 483.79 troy ounces of gold actually commands the far greater sum of $714,441.22, or 4 times as many dollars as the BLS Consumer Price Index states.
To put this another way, the Consumer Price Index is a complete fabrication by government to deliberately understate the actual depreciation of dollar purchasing power. The cumulative results of decades of false inflation statistics can be seen by simply comparing CPI statistics to the actual depreciation of dollar purchasing power against its former standard, gold. The extent of this fabrication can be seen in the chart below:
Moreover, for 2010, the annual average price inflation rate was a quite staggering 26%, when measured against the value of gold, not the paltry 1.6% alleged by the BLS.
If you didn’t receive a 26 percent increase in your wages or salary in 2010, you experienced a 26% loss in purchasing power — your consumption power was systematically destroyed by Washington money printing.
Using gold as the standard against which the depreciation of ex nihilo money is measured demonstrates how the Fascist State deliberately manipulates statistics for its own purposes to hide from the public the extent to which it manipulates exchange, and, therefore, the extent to which this manipulation has resulted in greatly increased prices for commodities.
But, gold does not only allow us to actually visualize the extent of this manipulation, as we shall show in the next post, gold also can demonstrate how this manipulation results in the needless extension of social working time beyond its necessary limit. That the Fascist State relentlessly extends working time beyond this limit, or, more importantly, that operates to maintain an environment of scarcity within society, which is the absolute precondition for Capital’s continuation.
To be continued
Tags: Bureau of Labor Statistics, capital, commodity, Consumer Price Index, consumption, ex nihilo pecunaim, exchange, Federal Reserve, fiscal policy, Franklin Delano Roosevelt, gold, Gold Reserve Act of 1934, gold standard, Gold standard dollars, inflation, monetary policy, negative rate of profit, Presidential Executive Order 6102, prices, production, purchasing power of money, Standard of Living, stupid economist tricks, the "real value" of money, Utility, value versus “real value”
In the bare bones sketch of Marx’s theory I argued that the value of the object serving as money played no role in its function as money. This was incomplete, of course, but it served to advance my argument until I could directly address the implication of debasement of money by the industrial powers during the Great Depression. In reality, the price (actually value/price) mechanism can only perform its function to coordinate the separate acts of millions of individual labor times if it shares with commodities the attribute of being a product of labor itself, and, for this reason, requires a definite socially necessary labor time for its own production. Because gold has value, it can express the value of the commodities with which it is exchanged.
On the surface, a commodity is exchanged for money, and this transaction is the exchange of two absolutely unlike objects: the money serves no purpose but means of exchange, while the commodity with which it is exchanged is eventually consumed; the money never leaves circulation, while the commodity disappears; the money can always find a new owner, while the commodity only finds an new owner where it is needed. They are as different as night and day. Although, the flows of money through the community are only a necessary reflex of the flows of commodities through the community as it engages in a more or less developed act of social production. But, by always being exchangeable for commodities throughout the community, always being in constant circulation within the community, and by serving only as means of exchange, money brings millions of isolated individual acts of production into some sort of rough coordination.
As the physical expression of socially necessary labor time money is a natural and spontaneous means by which the value/price mechanism regulates the activities of the community in absence of the community’s own planned management. However, I must emphasize, money is only the expression of socially necessary labor time; it is not and should not be mistaken for socially necessary labor time itself. And, it can only express the socially necessary labor time of society, because the community requires some definite socially necessary labor time to create it. What object serves as money for the community is, therefore, of general interest to the whole of the community, and has a very long history — most of which, since we take this history as our starting point, is of no interest to us here. I only note that since this General Interest must take some form, the form it takes during the period under discussion, from the Great Depression until the present, are the laws of the various States regarding the legal definition of money.
Breakdown of the law of value emergence of the Fascist State
On April 5, 1933, the Roosevelt administration issued Executive Order 6102. The Wikipedia outlines the scope of this executive order:
Executive Order 6102 is an Executive Order signed on April 5, 1933, by U.S. President Franklin D. Roosevelt “forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates” by U.S. citizens. The bank panics of Feb/March 1933 and foreign exchange movements were in danger of exhausting the Federal Reserve holdings of gold. Executive Order 6102 required U.S. citizens to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, and gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce. Under the Trading With the Enemy Act of October 6, 1917, as amended on March 9, 1933, violation of the order was punishable by fine up to $10,000 ($167,700 if adjusted for inflation as of 2010) or up to ten years in prison, or both.
This simple executive order, which was succeeded by several additional orders during 1933, and by the Gold Reserve Act of 1934, removed gold as the standard for the dollar, made it illegal to own more than a small amount of the metal, and compelled individuals under penalty of law to turn their gold over to the Federal Reserve in return for the then existing exchange rate of $20.67. On the surface this order just gave the State monopoly over the ownership of gold and reduced money to just a State-issued token. While this step was, in and of itself, fairly staggering, particularly when we consider that it was duplicated in all the big industrial nations at the same time, once we consider the full ramifications of the orders and succeeding law in terms of the various national economies, it quickly becomes apparent that a state monopoly over the ownership of gold, and the replacement of gold standard money by State-issued currency was only the most obvious effect. John Maynard Keynes, who examined the issue entirely from the standpoint of a bourgeois economist, had some inkling of the far reaching implication of State issued ex nihilo money. Fifteen years earlier, he argued that the inflationary consequences of excessive money printing amount to the confiscation of private property:
… By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
If excessive money printing raised the question of secret confiscation of property, the actual confiscation of gold, and the replacement of gold money by state-issued currency amounted to the explicit expropriation of monetary wealth. Yet, even this implied expropriation of social wealth in its capitalistic form was not the most significant implication of the state action: From the standpoint of Marx’s theory, the debasement of money was the abolition of the historically developed natural and spontaneously created value/price mechanism as the regulator of the social act of production. In place of a natural relation between the values of commodities and the prices of commodities, the relation between the two was, after this, to be established as a matter of state policy. This separation is the absolute development of the historical antithesis between the commodity and money, since paper money has no use except as medium of circulation of commodities — as means of exchange. Moreover, by this executive order severing gold from money, we see not only that the value of the commodity was severed from its price, but, further, that production was severed from consumption; labor power was severed from wages; surplus value was severed from profits. Finally, with the law of value no longer determining the social necessity of a given expenditure of labor time, the labor time expended by society was no longer limited by social necessity.
In place of the historical, spontaneous and naturally developed mode by which the separate activities of millions of members of Civil Society in every country had been hitherto regulated, social labor and its duration was now regulated by the State, and under conditions determined solely by the State. The abolition of the gold standard did not simply sever the connection between gold and money, and abolish the value/price mechanism, it also placed the total social capital of Civil Society at the disposal of the State — or, what is the same thing, announced the emergence of the Fascist State. Property, the classical thinkers argued, is the power to dispose of the labor of others, hence this total social capital was converted into the property of the State.
The Fascist State as regulator of production and consumption
The entire social capital of every nation was expropriated, precisely as Marx predicted, but in a fashion and under circumstances quite different than those which might have been welcomed by him. As I argued in another post, Marx’s differences with Bakunin came down to difference over whether the Proletariat would be compelled to effect management of social production according to the principle of “to each according to his work”, that is by replacing the existing Civil Society and the State with new rules enforcing labor equally on all members of society. Marx was not making this argument in a vacuum; his theory predicted a breakdown of the law of value as the regulating principle of social labor before the necessary conditions were established for a fully communist society. Society would be required by this breakdown to step in and manage social labor directly and according to a plan. Marx’s argument with the Anarchists essentially asked the question, “By what rules would this management be effected?” As is obvious from an investigation of history, this question was settled decisively in favor of the existing Civil Society, which rose to manage its General Interest — i.e., its interests as a mode of Capital — through the machinery of the Fascist State.
Within ten years of this act, more than 80 million people were dead and the Eurasian continent lay in ruins, as each nation state, finding itself in total control of the productive capacity of their respective nations, immediately put this productive capacity to good use by trying to devour their neighbors — unleashing a catastrophe on mankind. By 1971, with the collapse of the Bretton Wood agreement, a single fascist state, the United States, had imposed on the survivors the very same control over the other national economies, that it imposed on its own citizens.
As I stated in the previous post:
However, there are so many holes in the economist’s definition of inflation, as a matter of due diligence I must consider inflation from the standpoint of Marx’s labor theory of value. If I arrive at the same conclusions about inflation that are expressed in the Wikipedia definition — or at conclusions that throw no new light on the subject — then I will have spent about five hours pursuing a dead end.
I have now considered inflation from the standpoint of Marx’s labor theory of value and have come to decidedly different conclusions than those drawn in the Wikipedia entry on the subject. These conclusions, I argue, suggest a catastrophic breakdown of the conditions of capitalist production and exchange during the Great Depression; and, based on this, the assumption by the State of direct management of social production, the conversion of the total social capital into the property of the State — not by means of outright seizure of this capital, but by taking control of the conditions of exchange — and the extension of this relationship to the entire World Market.
With the assumption of management of social production by the Fascist State, the law of value, which served to limit the average price of the commodity to the socially necessary labor time required for its production, no longer imposed such limits on prices. Hence, prices could be determined by factors other than the value of these commodities. On the other hand, with the law of value — that is socially necessary labor time — no longer imposing a limit on the total labor time of society, this labor time could be expanded in a form that is completely superfluous to social necessity. We can, therefore, define inflation as the chronic general rise in the price level resulting from the further extension of hours of labor beyond their socially necessary limit; or, prices held constant, by the reduction of the ratio of socially necessary labor time to the actual hours of labor expended. Finally, we can see that inflation itself is no more than the result of Fascist State policy, which, acting as the social capitalist, seeks the ever greater extension of the working day even as the productive capacity of society reduces the necessary labor time of social labor.
In my next post, I will examine each of these conclusions in turn.
To be continued
Tags: Bakunin, capital, Civil Society, commodity, consumption, ex nihilo pecunaim, exchange, Federal Reserve, fiscal policy, Franklin Delano Roosevelt, gold, Gold Reserve Act of 1934, gold standard, inflation, Karl Marx, Lord John Maynard Keynes, monetary policy, negative rate of profit, Presidential Executive Order 6102, prices, production, stupid economist tricks, value versus "real value"
The Wikipedia definition of inflation includes this rather silly statement on the definition of the so-called “real value” of money:
…inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.
In this statement the “real value” of money is reduced to the purchasing power of the currency, which is simply the inverse of the price of a commodity. If a commodity has a price of ten dollars, the “real value” of a dollar in relation to this commodity is one tenth of the commodity. By the same token, the value of the commodity can be said to be ten times the “real value” of one dollar. The value of the commodity is, therefore, only its price in some unit of the currency, and, in this way the economist can dispose of the nasty implications of Marx’s labor theory of value — that the classical notion of value amounts to a death sentence for Capital itself, and of the sum of relations of society founded on Capital.
It is typical of economics that its practitioners hold to the notion reality can be abolished merely by refusing to acknowledge its existence. Thus, tens of millions of unemployed women and men no longer exist simply because the Bureau of Labor Statistics’ data removes all evidence of their existence. Unemployment like the classical notion of value is no more than a conceptual construct which can be disposed of by replacing it with a new concept. However, there are so many holes in the economist’s definition of inflation, as a matter of due diligence I must consider inflation from the standpoint of Marx’s labor theory of value. If I arrive at the same conclusions about inflation that are expressed in the Wikipedia definition — or at conclusions that throw no new light on the subject — then I will have spent about five hours pursuing a dead end. The effort, however, is worth it.
Price and value
It may surprise you that, in Marx’s model, money can be thought of as something without any value at all. Value is a characteristic of a commodity, and, insofar as we consider money not as money, but as just another commodity (for instance, the gold in a necklace) it does indeed have value equal to the socially necessary labor time required for its production. But, when serving as money, gold’s value as a commodity never enters into the equation. As money, gold’s entire role in social production is to express the value of the commodity, not its own value; and this it does in its material body. Marx would never speak of the “real value” of money, because as money, its “real value” is not what matters — what matters is its physical material.
Simplified Marx’s model is this: When we speak of the value of a commodity, we are referring to the duration of labor time socially required to produce the commodity. This socially necessary labor time is expressed in a quantity of gold that requires the same duration to produce. The socially necessary labor time required to produce the commodity is the value of this commodity, while the quantity of gold equal to this socially necessary labor time is not the value of the commodity, but its price. Value and price are two different animals — in the market, where the commodity is exchanged for money, the the value of a commodity and its price in gold are just as likely represent two different quantities of socially necessary labor time as they are to agree. They will agree only on average. In its simplest form, Marx’s theory of value assumes not that the price and the value of a commodity are the same, but that they are NEVER the same — the price of the commodity and its value only coincide by innumerable transactions in which the two only coincide on average.
If the price and the value of a commodity never coincide, what is Marx’s point? His point isn’t to find the secret of prices of commodities, but to demonstrate how the millions of separate and isolated activities of the members of society are, through this mechanism of constant price fluctuations, converted into an embryonic form of social production. While the economist is trying to crack the great ‘mystery’ of price, Marx is showing how private productive activity naturally begins to inch its way along the long road to fully social cooperative productive activity.
The point of the exercise is to advance a theory showing how the labor time of the community, composed as it is of millions of separate labor times is regulated naturally through the pricing mechanism, since the community does not regulate this labor time consciously and according to a plan. In this sense, I think, Marx is not breaking any new ground in relation to the classical writers like Adam Smith. Marx’s unique contribution to this discussion is that in place of labor time generally, he posits socially necessary labor time — which is to say, he shows that productive activity is carried on under the conditions that are established generally in society and not directly arising from the decisions of the individual. The individual’s productive activity is, therefore, being constantly coerced by conditions that are entirely beyond her control, which impose on her the requirement to constantly reduce the amount of time she spends on the production of her commodity.
The conclusion Marx drew from his investigation, briefly stated, was this: If there is no connection between the socially necessary labor time of society and the prices of the commodities produced during this socially necessary labor time, the pricing mechanism could not effect a coordination of all of the millions of individual acts of production within society. We already know these millions of individual acts are not planned and consciously coordinated by the members of society; if we presume these millions of individual labor times are regulated naturally by prices, we have to accept the idea that price itself is doing what people are not, namely effecting regulation of millions of different labor times. So while, in the real world, a commodity requires so much definite time to produce, how much of this time is considered necessary, and how many of the items are to be produced, is determined by society in general, and this value is imposed on the individual in the very real form of the commodity’s price.
When too few of the commodity is produced, its price rises signaling a need to increase the amount of social labor expended on production of the commodity, when to many of the commodity is produced, its price falls signaling a need to reduce the labor time expended on production of the commodity. On the other hand, if the average amount of time need to produce to commodity falls, its price falls signaling a need to reduce the labor time expended on production of the commodity; and, if the average amount of time need to produce to commodity increases, its price increases signaling a need to increase the labor time expended on production of the commodity. This is not rocket science, folks. It is just common sense.
Capital and value
Capital introduces an additional complexity to what I have stated above: with capital the aim of production is not to produce the commodity, but to produce a profit on production of the commodity. The capitalist doesn’t care about the commodity in the least, he is totally focused on seeing that he ends with more gold in his pocket than he began with. To do this he begins with so much money-capital, which he lays out on labor power and the other necessities demanded by production of the commodity. Since he is bound by the same laws that govern production generally, he can only realize a profit if the labor power he purchases can produce more value than it costs for him to purchase it, that is if he can realize, in addition to the money-capital he advanced, this same quantity of money-capital plus an additional sum of money-capital.
However, there is a problem here: when we say the capitalist aims to produce more value than he laid out at the beginning, we are also saying the capitalist aims to produce more socially necessary labor time than is expended in the production process. Since, at every point in the development of Capital, the existing value of labor power in the form of wages is given, the new value created must result in still more labor power in the form of additional wages — the number of laborers under the direction of one capitalist constantly expands, fed by the millions of smaller, less productive, capitalists and property owners who a driven to ruin by the advance of Capital itself.
For our purpose in understanding inflation, what is important to note is that the very process of capitalist production itself presupposes that value, or, socially necessary labor time, exists in two contradictory forms: first, in the value of the wages paid out by the capitalist for labor power; and, second, in the form of additional value over these wages, which, having been newly created in the production process, can now reenter production as additional capital only if it is realized through sale. If we assume for purposes of this argument that the wages paid out are immediately realized by the existing mass of laborers in the form of food, clothing and shelter, we still have to consider how the additional sum of newly created value is realized.
Making a straight-line assumption for the sake of simplicity, this newly created value has to find a market beyond the existing social capital — i.e, it has to enlarge the market for the existing social capital. If this cannot be done, the newly created value cannot be realized, and further expansion of Capital cannot occur. The periodic crises when Capital momentarily out runs the conditions of its own process, is converted from its merely relative form into its absolute form as the capitalist can no longer realize profit on his production and ceases productive activity altogether — industry grounds to a halt, millions of laborers are idled, along ten of thousands of factories, prices of commodities collapse and lay unsold and the flows of money capital cease. While Capital presupposes the constant reduction of socially necessary labor time in the form of wages paid out, it simultaneously presupposes the expansion of socially necessary labor time in the form of additional wages for additional labor powers.
The contradiction inherent in value comes to the fore: to resume production socially necessary labor time must expand, but, since this socially necessary labor time is, in this example, limited to the wages paid out to the laborers, it can expand only on condition that wages increase. On the other hand, the increase in wages must reduce the profits of the capitalist, and the portion of existing socially necessary labor time that the capitalists claims as their rightful profits. Since, on no account are the capitalists willing to part with one additional cent in wages, they opt to maintain their profits by reducing wages still further; however, since this further reduction of wages only reduces still further socially necessary labor time, their actions only increase the problem. Wages are too high, yet, paradoxically, they are also too low.
Price and value reconsidered
Under the assumptions I am using of a very bare-bones description of the problem posed by the inherent contradiction in value, I need to sum up some of the characteristics of the contradiction. First, there is a contradiction between the actual labor time expended on the production of a commodity and the socially necessary labor time required for its production. Second, there is a contradiction between the value of the commodity itself — i.e., the socially necessary labor time expended on the production of a commodity — and the expression of the value in the form of the price of the commodity.
To these two already identified contradictions we must add a third: there is a contradiction between the price of the commodity denominated in units of the money and the socially necessary labor time required for the production of the object that serves as the money. While money denominates the price of a commodity, and thus express the value of the commodity, it does not necessarily follow that the money itself contains the same socially necessary labor time as is contained in the commodity. This much is already obvious, since prices fluctuate for innumerable reasons away from the value of the commodity, likewise this fluctuation is accompanied by corresponding fluctuations away from the socially necessary labor time contained in the money for equally innumerable reasons — for instance, a sudden discovery of a huge new source of gold which serves as the money, may force gold to exchange with commodities below its value for a time, which is to say, it takes a larger than “normal” quantity of gold to purchase a given commodity.
This is further complicated when we consider that gold was often not used directly in transactions, but substituted by a placeholder like paper money. In fact, Marx assumed that, for most transactions, gold was not even necessary even when it was formally designated as the money. The replacement of gold by paper tokens in circulation was entirely possible within certain limits. It was only a step from here for our economist to come up with the ‘brilliant’ idea that is didn’t matter what served as money. In this sophomoric reasoning, since money itself only played a token role when it served to facilitate transactions, anything could serve as money as long as it could fulfill this token role. The value of commodities could forthwith be expressed in units written down on paper or embedded in the dancing electrons on a computer terminal. As long as the State legally determined that these tokens were money, they could serve the role as effectively as any commodity money like gold.
This idea, although floating around in society for several decades, did not actually become the dominant view of money until conditions very much like those I described in the preceding section of the post burst into full bloom in the Great Depression. Those conditions brought all the contradictions inherent in value to the surface in a rather awesome fashion: to address the impasse created by the fact that wages were too high, and, at the same time too low; that socially necessary labor time in its wage form stood in complete contradiction with socially necessary labor time in its profit form; and, that, therefore, the value of commodities stood in direct conflict with the prices of commodities; within a short period of about five years every industrial nation devalued its currency and went off the gold standard. The contradictions inherent in value led society to sever the relation between value and price — not just in theory as previously, but in reality and throughout the World Market.
To be continued
Tags: capital, Civil Society, commodity, consumption, exchange, Federal Reserve, fiscal policy, gold, Gold Reserve Act of 1934, gold standard, inflation, monetary policy, negative rate of profit, prices, production, stupid economist tricks, value versus "real value"
I made the following points in the first part of this series:
- As regards the definition of inflation: The definition of inflation found in the Wikipedia entry is deficient because it assumes that the value of money is simply the reciprocal of the prices of commodities. This argument is a tautology which provides us with no real understanding of the problem of inflation. We are led to believe that inflation can be thought of as a rise in the price of commodities or, alternately, the depreciation of the “real value” of money. And, what is the “real value” of money? According to the economist, the “real value” of money is its purchasing power, i.e., the reciprocal of the price of the commodity. I will show why this definition of the depreciation of money is inadequate.
- Prices versus consumption: The Wikipedia definition is superficial, i.e., it is limited to generally rising prices. This only looks at the problem from the least important aspect of inflation, the increase in prices of commodities. But, if the amount of money in circulation is fixed, as it is more or less for each member of society, we can see also that inflation implies the reduced consumption of the mass of society — the impoverishment of society.
- Consumption versus production: Moreover, the Wikipedia definition of inflation only examines the effects of rising prices on consumption. Once we go beyond money as mere means of purchase and consider it as the money form of capital, i.e., once we leave the world of consumption and enter the world of production, we find that these rising prices act to reduce the profitability of productive economic activity. The depreciation of money acts to reduce the average rate of profit. It can be thought of as a negative rate of profit resulting from the depreciating purchasing power of money-capital over time.
- Money and demand: The Wikipedia’s explanation of the causes of inflation is nothing more than a tautology. First, the two causes identified as the cause of inflation: 1. an excess of the rate of growth of the money supply over the general rate of expansion of economic activity; and 2. the imbalance between the rate of expansion of demand for commodities over the rate of growth of the supply of commodities, resolves themselves into one and the same cause: the excess in the money-demand for commodities over the production of these commodities to satisfy this money-demand, or, alternately, the decline in the production of commodities relative to the money-demand for those commodities. Second, whenever we find that the rate of growth of the supply of commodities falling behind the rate of growth of the money-demand for these commodities, we cannot be speaking of imaginary demand — such as the human need created by a hungry belly — but “real” money-demand — i.e., a hungry belly with a wallet full of cash. The capitalist is not in the business of producing for people who imagine they are hungry, homeless, and naked, but only those who can prove they are hungry, homeless, and naked, by presenting him with sufficient cash to purchase food, shelter and clothing. On the other hand, money-demand is not limited to satisfying hungry bellies — it is still money-demand even if the demand to be satisfied is that of generals, national security agencies, or failed banksters. The authors of the entry discuss the imbalance of money-demand over the supply of commodities to satisfy this demand as if this is the entire story.
- Inflation as a policy: Only in the fourth paragraph does the Wikipedia entry hint at the most important characteristic of inflation: that it is not a naturally occurring economic malady — the result of actual processes arising from the production, exchange and consumption of commodities, but is a matter of Fascist State policy. Thus, only here do we find that it is the deliberate policy of the Fascist State to reduce the consumption power of society, its productive capacity, and to ensure a general and secular, i.e, chronic, inadequate supply of means of consumption in relation to the money-demand for those means of consumption — that the economic policy of the Fascist State is to maintain society in a condition of a wholly artificial scarcity.
The Fascist State as a mode of Capital’s own existence
Before we continue further we have to deal with the unstated assumption of the Wikipedia entry that Fascist State policy can be treated apart from and independent of the capitalist process of production and distribution. This notion, which is the standard thinking on all economic issues, and permeates the thinking not only of economists, but also of social revolutionaries and society generally, divides society into Civil Society, on the one hand, and the State, on the other. The fallacy of this sort of thinking is revealed whenever we investigate the causes of social maladies like inflation. We begin with the notion that inflation, poverty, hunger and scarcity arise solely from Civil Society and natural conditions, only to discover, under the capitalist mode of production, that, in addition to the invisible hand of the market, there is also the iron fist of the Fascist State — that the very real material conditions determining the capitalist mode of production have their ideal expression in State action.
Our picture of Capital is incomplete if we naively consider it a purely economic relation. For his part, Marx understood Capital as a social relation that permeated society — penetrating, reconstructing, reconstituting and revolutionizing the sum total of those relations, and, by these means, transforming society in its own image. It is clear from Moishe Postone’s work, “Time, Labor and Social Domination“, that this process, in Marx’s mind, was far more insidious — pernicious, subtle — than is generally understood even by Marxists — who never miss the opportunity to reduce his ideas to caricature — and most certainly by the outright opponents of his ideas, for whom most of his argument passes overhead cleanly and without effect.
In Marx’s theory, the State is not simply, nor even primarily, a sphere of politics; it is, itself, a mode of Capital’s own existence. In every stage of human development up to the present, the State has been inseparable from Civil Society, a mere part of society’s greater division of labor in the social act of production. In capitalist society, however, the State appears indifferent to Civil Society — aloof from it — and, it is under these conditions that Civil Society begins to imagine its own independent existence apart from, and in conflict with, the State. Although Civil Society is no more than a collection of petty interests in continuous conflict with its own very real, flesh and blood, communal interest, because this communal interest is not the starting point of individual activity, this communal interest arises as an abstraction, in the conception of a General Interest — e.g., the so-called “National Interest” — standing over against the individual’s very real material flesh and blood interest. This abstraction finds its ideal expression in the form of a State that is aloof and indifferent to the many and varied individual interests of society, and, only represents them in the abstract.
In Marx’s theory, I believe (and I stand to be corrected if I am wrong), this conflict between Civil Society and the State arises from the mutual conflict of all of these petty interests with each other that arises from their increasingly universal and all-sided competition, and because their innumerable separate activities are not subjected to their common control and direction. To really represent the General Interest of society, the State must be increasingly indifferent to the many petty interests that constitute Civil Society; yet, at the same time, it must be continually reconstituted by Civil Society in proportion as ever newer petty interests emerge.
Hence, the bewilderment of the progressive activist, who finds, despite all of her fulminating and effort to overturn a political regime that favors the “Rich”, the greater her effort, the more surely politics is subjugated to the interests of the very biggest owners of Property. Hence, also, the Tea Party activist, who rebels against the increasing encroachment of the State on her “constitutional liberties”, that the more forcefully she attempts to throw off this oppressive interference in her private commercial activities, the more completely the State dominates them. Hence, finally, the bizarre counsel of the economist, who, trying to solve the riddle of stagnating economic growth in capitalist society, recommends precisely the policy that only deepens this stagnation and destroys the productive capacity of society: Inflation.
Fascist State policy and Civil Society
The problem posed for us by Marx’s theory of social revolution is not why the Fascist State embarks on a policy that maintains society in a wholly artificial condition of scarcity. We can consider and discard any number of competing theories regarding the motives of the Fascist State: that is seeks power for its own sake; or, that it represents the interests of the very wealthiest members of society against the rest of society; or, that it is a body of individuals committed to a collectivist vision of society; or, that it is an instrument of a small group of men and women engaged in a far reaching conspiracy against society bound up with their financial interests, and/or their industrial interests, and/or their political, religious, ethnic, national, regional etc. interests. And, we can also advance any number of anecdotes and statistics to sustain any one or all of these arguments.
Yet, all of these arguments come down to one of two explanations: The Fascist State maintains society in a condition of scarcity for its own purpose, or, for the purposes of individual interests arising from the ongoing conflicts within Civil Society that proceed from whatever source among the innumerable divisions within Civil Society. Thus, even if we accept all of these competing motives as partial explanations for the policies of the Fascist state, all that these competing explanations can tell us is that both for its own interest and the interests of the whole of Civil Society, the Fascist State is engaged in the systematic destruction of the productive capacity of society, and an ongoing degradation of its consumption power — that, for any the reasons advanced (yet, at the same time, for all of them together) the Fascist State is deliberately and systematically trying to maintain a general condition of scarcity for mankind. From this point of view, all of the reasons for the policies of the Fascist State are merely accidental and transitory, as first one and then another reason for these policies come to the fore, and assumes in our mind the position of THE general explanation for Fascist State policies, beside which all the other explanations are merely specific expressions.
Thus, in one instance, the Tea Party activist can assert that the economic policies of the Fascist State result from the collectivist impulse of the Obama administration, while the progressive activist counters that these same policies result from the subjugation of the Fascist State to the interests of the rich; still another faction of society asserts that these very same policies result from the Fascist State’s aggressive foreign policy, while a fourth blames these policies for an alleged loss of national sovereignty and the conspiracy of men and women committed to a New World Order. What none of these competing theories can explain is why any of these alleged causes must lead to the systematic destruction of the productive capacity of society, and the ongoing degradation of its consumption power. All of these explanations cannot tell why, as the productivity of labor increases, the actual productive capacity of society must fall, and society remain trapped in conditions of scarcity.
We are thus forced to assume what Marx’s theory assumes:
First, under the capitalist mode of production the productivity of labor advances under conditions that tend toward what Marx called the absolute development of the productive forces of society — of the capacity to produce an entire world of commodities in a dazzling array and seemingly endless variety. This implies not an excess of money-demand, but its opposite: circumstances under which the production of commodities constantly run into the limited conditions of consumption, which threaten social production with a continuous crisis and wholesale ruin — not just a depression, but an unprecedented Great Depression erupting not in just one country, but throughout the whole of the World Market and at once — which brings society itself to the brink of catastrophe and threatens the very existence of Civil Society itself. And, under which, as a result of this crisis and the Hobbesian environment of universal competition it provokes, the actual flesh and blood material relations of Civil Society escape its control completely and take the form of the Fascist State — absolutely indifferent to it, absolutely hostile to it, and standing over against it as a totalitarian power existing for, and answerable to, no other mandate than its own logic.
Second, insofar as the productive capacity of society advances toward its absolute development, and, therefore, insofar as the onrush of a catastrophic collapse of existing society itself looms on the horizon, and Civil Society experiences this onrush with the level of horror appropriate to it — since it implies, above all, the abolition of all of the existing conditions that are its own premise, and, thus, sounds the death knell for Civil Society itself , and for the State — the State detaches itself completely from Civil Society, and, in turn, seeks to destroy the very productive forces that threaten the whole of existing society.
To be continued
Tags: Civil Society, commodity, consumption, exchange, Federal Reserve, fiscal policy, inflation, Mish Shedlock, Moishe Postone, monetary policy, negative rate of profit, prices, production, stupid economist tricks, value versus "real value"
With the clock counting down to an alleged shutdown of federal government operations, I thought I’d take this moment to discuss and inflation and Fascist State economic policy.
This is what Wikipedia has to say about inflation:
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.
Inflation’s effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions), and encouraging investment in non-monetary capital projects.
Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.
Today, most mainstream economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
In the first paragraph, inflation is defined as a general rise in the price level of an economy over a period of time. The authors of the entry also state that this general rise in the price level can be thought of as the depreciation in the purchasing power of money — a decline in the “real value” of money. By “real value” the authors of the entry do not mean the classical notion of value — a measure of the socially necessary labor time contained in a certain quantity of dollars — but the ratio by which these dollars can be exchange for a commodity in the market, the reciprocal of which is the price of the commodity. The term “real value” is here only another way of saying the price of the good. Thus, as the price of the good increases, the “real value” of the money declines. It is a tautological statement, and therefore, meaningless.
By the same token, we could say that Bob is taller than Jane, because Jane is shorter than Bob. Nothing of the meanings of “taller” or “shorter” is revealed in the statement. Do these terms describe their respective heights, or weights, or skin tones, or education levels, etc. For someone who enters our conversation from the outside — for instance, a Martian — the meaning of the terms “taller” and “shorter” would essentially be undefined until we explain the concept of height. Similarly, when the economist employs the terms “price” and “value” in a discussion with us (economic Martians) he does not in the least clarify for us what inflation is. We can only walk away with the idea that rising prices and an increase in the number of dollars needed to purchase a commodity are the same thing — a piece of information we already had at the outset of the discussion.
Inflation as a fall in the consumption power of society
There is, however, a more important problem with the definition given in the Wikipedia entry. The authors state that inflation is a general rise in the price level in the economy. They are satisfied with this statement and pursue it no further. We are led to consider inflation from the point of view of the prices of commodities, or, alternately, the purchasing power of the money in our pocket with which we buy these commodities. When the prices of these commodities increase, we must part with a greater sum of dollars from our pocket to exchange for them. But, if the cash in our pockets is finite, the rise in the prices of commodities translates into a fall in the quantity of commodities we can purchase. In this sense, at least, the increase in prices is the same as our impoverishment. A conclusion the authors of this entry are rather reluctant to express.
We can, therefore, make the following statement:
In economics, inflation is a fall in the general level of consumption in an economy over a period of time. When the general consumption level falls, each commodity costs a larger amount of dollars. Consequently, inflation also reflects an erosion in the material living standard of a country – a general decrease in the availability of commodities per unit of dollars. An increase in the price of a commodity is, at the same time, the decrease in the availability of that commodity per unit of money. If the total sum of money in the pockets of the members of society is unchanged, inflation would be reflected in fewer commodities available for purchase in return for this total sum. We can define inflation in terms of prices, or we can define inflation in terms of the actual quantity of commodities available to be consumed by society.
If, 100 loaves of bread are available to be purchased at $1.00 per loaf, an inflation rate of ten percent can be reflected in the quantity of loaves available for purchase falling from 100 to 90; or, it can be reflected in the prices of each loaf rising from $1.00 to $1.10.
So, the question immediately arises: “Why are the prices of commodities rising”, or, alternately, “Why is the quantity of commodities available to society falling.” In the third paragraph of the entry, the authors put forward two different theories:
Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.
Here, the causes of inflation are divided into two: 1. High rates of inflation are said to be caused by excessive growth in the supply of money; and, 2. low rates of inflation are said to be caused either by increased demand for commodities relative to supply, or a decrease in the supply of commodities relative to demand. The division between these to causes is, of course, disingenuous. As Mish Shedlock has argued time and again, if we immediately doubled the amount of money in the bank accounts of every person in society, this mere doubling of their accounts would have no effect on prices unless their behavior changed: unless they took this additional money and actually pumped it into the economy by spending it. In this case, an increased supply of money is nothing more than a sudden increase in the demand for commodities due to a sudden increase in the amount of money everyone had to spend — an increase not in money, but in money-demand. As usual, the economist pretends to have an explanation for inflation that amounts to a tautology. Leaving aside the velocity of money, i.e., the frequency with which a dollar changes hands, there is no way to get an increase in demand unless there is also an increase in the amount of money available to express this demand. Prices do not increase because people suddenly desire more things, but because they have the means to buy those additional things.
But, at least the authors now admit inflation can also come about as a result of a contraction of the supply of commodities even if demand is unchanged. Rising prices can result either from a persistent increase in money-demand in excess of the supply of commodities, or, as we argued above, it can result from a fall in the availability of commodities even as money-demand for those commodities are unchanged — a fall in the real consumption power of society.
The real consumption power of society is only a function of the commodities available for it to consume and has nothing to do with the amount of money in the hands of individuals seeking to purchase those commodities. The amount of money individuals may have in their possession may double overnight, but unless this doubling is accompanied by a proportional doubling in the amounts of commodities available to be purchased, it has no effect on this real consumption power. Likewise, if the amount of commodities available for purchase by the members of society fall, and the amount of money in their possession is unchanged, the real consumption power of society will fall without any change in the amount of money in their wallets. Thus, the Federal Reserve Bank’s massive quantitative easing program and Washington’s equally massive federal fiscal deficits, despite creating trillions of dollars each year out of nothing, cannot increase the material consumption power of society, because this ex nihilo money creation does not in any way create more commodities..
While the demand for commodities in a capitalist economy can only be expressed in money-demand for those commodities, the supply of commodities to be purchased is determined only by production. Only production can increase the availability of commodities, and only this increase in commodities can increase the ability of society to consume. It is, therefore, impossible to understand inflation by referring only to the money-demand for the existing stock of commodities, we must also consider inflation and its effects on the actual production of these commodities.
Inflation or the Negative Rate of Profit
In relation to the price of a commodity inflation is expressed as a rise in the price of the commodity; in relation to the quantity of the commodity available to be purchased, inflation is expressed by fall in the quantity of commodities available to be purchased by a given sum of money-demand. But, how is this quantity of commodities determined? In a capitalist economy, production is determined by profit, and undertaken solely with the eye to realizing profit. However, profit is the rate of return on an investment of a given sum of capital. The capitalist lays out so many dollars of his capital in the form of labor power, and necessary materials of production, and he expects to realize this investment plus a certain rate of profit upon final sale of his commodities.
As we have shown in previous posts, if the capitalist advances $100 in labor power and the other necessities of production, and the average rate of profit is 10 percent. He expects to realize $110, or his original $100 plus a profit of $10. On the other hand, inflation during this same period reduces the purchasing power of his capital by ten percent, leaving the capitalist with little or no real return. He has advanced $100 with the expectation of realizing $110, but he has, in fact, only realized $100 of actual purchasing power. His capital, having nominally increased from $100 to $110, has actually remained unchanged in its purchasing power of $100 — despite his nominal success as a capitalist, he has realized no real profit on his investment. While the average rate of profit is nominally 10%, once we subtract the rate of inflation the real rate of profit is 0%.
While the consumer experiences inflation as a loss in purchasing power of her money, from the standpoint of the capitalist, inflation is a negative rate of profit. Since, he is an intelligent person who is not interested in beating his head against the wall of the Federal Reserve, and knows the Feds action will drive up the prices of commodities generally, our capitalist removes his capital from productive employment and uses it to speculate in the oil futures market. Thus, the productive capacity of society is reduced in proportion as inflation rages within the economy, and this loss of productive capacity reduces also the consumption power of society. Side by side with the increase in the prices of commodities, the availability of commodities shrinks; side by side with the falling productive capacity of society, the consumption power of society falls.
At this point you are scratching your head, because you notice in the fourth paragraph of the Wikipedia entry the following:
Today, most mainstream economists favor a low, steady rate of inflation. Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
Could this be right? If, inflation, a general rise in the prices of commodities, expresses both the reduced capacity of society to produce and a reduction of its power to consume, why would economists advocate for “a low, steady rate of inflation”? Why would they advocate for policies that drives productive capital into the arms of speculators? Why would they advocate for policies that deliberately impoverish the mass of society?
These questions are, of course, deliberately misleading. For quite mischievous reasons, I am asking you to consider the issue from the standpoint of the economist, who, more than any other single profession in society, is constantly examining the problems of society through some completely bizarre lens that turns the whole of the world upside down. While we have seen thus far that the amount of money in the hands of society has absolutely no impact on its consumption power, and that this consumption power is solely a function of its productive capacity — its capacity to produce commodities for the satisfaction of human need, the economist, who sees the problem entirely from the perspective of money, tries to explain the consumption power of society with reference to a change in the given supply of money. While money has no role in the productive and consumption capacity of society, and only serves as a means of exchange — a necessary bridge between the act of production and the act of consumption — this bridge is turned by the economist into the entire explanation for both the progressive collapse of production and the progressive collapse of consumption.
The collapse of production and consumption — the growing impoverishment of society as a whole — becomes, through the eyes of the economist, a problem of price inflation.
To be continued
Tags: commodity, consumption, exchange, Federal Reserve, fiscal policy, inflation, Mish Shedlock, monetary policy, negative rate of profit, prices, production, stupid economist tricks, value versus "real value"
We can now restate Marx’s theory in a way which will make it easily digestible by those who stand full square for a completely stateless society, as well as the various and sundry people who seem intent on getting him completely wrong in every possible variation — including the imbeciles who count themselves among his followers:
Marx came to the conclusion that capital was abolishing the need for labor and this abolition had profound, far-reaching, implications for the whole of society, and the social relations within which individuals carried on their activity.
Moishe Postone writes:
Until this historical stage of capitalism, according to Marx’s analysis, socially necessary labor time in its two determinations [necessary labor time and surplus labor time] defined and filled the time of the laboring masses, allowing nonlabor time for the few. With advanced industrial capitalist production, the productive potential developed becomes so enormous that a new historical category of “extra” time for the many emerges, allowing for a drastic reduction in both aspects of socially necessary labor time, and a transformation of the structure of labor and the relation of work to other aspects of social life. But this extra time emerges only as potential: as structured by the dialectic of transformation and reconstitution, it exists in the form of “superfluous” labor time. The term reflects the contradiction: as determined by the old relations of production it remains labor time; as judged in terms of the potential of the new forces of production it is, in its old determination, superfluous.
By concentrating property into fewer and fewer hands; ripping the mass of society out of its long historical practice of carrying on its activities in relative isolation employing crude instruments of production for a meager material standard of living that just barely ensured their survival; and, converting the mass of society into directly social laborers, capital was making it possible to apply the latest technological breakthroughs, advancing scientific knowledge, and economies of scale to the task of producing a basic minimal standard of living with as little labor as possible given the level of development of the productive capacities of the laborers themselves and the tools they employed.
No aspect of this process was being consciously undertaken by any member of society, any group of its members, nor even by the members of society as a whole. No one consciously declared their intention to abolish labor. Each person in society was only engaged in self-interested activity in pursuit of private ends: the proletarian, for whom the sale of her labor power was a matter of simple survival — a matter of life and death, the capitalist, for whom continuation as owner of property required the ever increasing surplus producing capacity of the capital under his control. No where in society was the abolition of labor the expressed aim of anyone engaged in this mean, brutal process.
Indeed, as mankind actually crosses the threshold, the event horizon, where it is no longer possible for the demand for productive labor to increase, despite the increasing social demand for new, previously unimaginable, forms of material consumption, the members of society actually experience this incredible historical event as a loss — a terrifying regression to an earlier period of starvation and want — against which the whole of society blindly struggles, employing for this purpose all the instruments at its disposal, including the State, for the purpose of increasing the demand for labor where no productive employment of this additional labor exists, or can exist.
The human and material capacities of entire continents are laid to waste in an unceasing series of ever more barbaric wars; entire industries spring up overnight not for the creation of new means of production and consumption, but solely to destroy existing means; ever more terrible engines of self-extinction appear, and with them, a mass of proletarians whose sole purpose is to devise and create ever newer versions of these insane commodities. Alongside these industries, and essential to their existence, rises an entire industry of financial engineers, a class of public and private debtors, and the cancerous growth of fictitious capital and financial instruments.
Organizing, expanding and directing this obscenity, the State: that wholly superfluous organ of society, whose long bloody history of aggression, repression, and conquest, stands alone as the single greatest, longest running, continuing conspiracy against the rest of mankind, as well as its chief tormentor, torturer, and parasite in every age and in every epoch — a vile, filthy, parasitic collection of drones whose sole purpose in life has, always and everywhere, been to suck the life from society for its own enlargement — becomes, in the Orwellian world of Hobbesian chaos, the very instrument by which the members of society seek to stave off the results of their own activity.
In tandem with the ever diminishing material demand for productive labor, the social demand for labor in any and every form emerges as the rallying cry from every part of the society. In tandem as the State increases its invasive penetration into, and totalitarian control over, hitherto private and common activities, the Hobbesian chaos reigning within society intensifies, gains a more pervasive character, and further reduces each member of society more completely to an anonymous set of abstract data-points which can be identified, sifted and measured by the high priests of economic policy — converted into the raw material of policy recommendations for potential State action over a shorter or longer period of time. The parameters of this potential State policy action itself becomes the focus of the mass of the members of society and subjected to the Hobbesian chaos of society as interests line up on each side of the debate and seek to gain control of the lever of State power. In turn, as this body of parasitic drones master the control of society and gains knowledge of how it can maximize the expansion of purely superfluous labor, its policy parameters narrow — not employment, but the “non-accelerating inflation rate of unemployment”; not free trade, but “free trade agreements”; not economic growth, but “low-inflation economic growth”. In this way, State economic policy is gradually converted into those policies which maximize not the expansion of superfluous labor in general, but the expansion of the State itself as a completely superfluous, cancerous growth on society.
It is precisely this State which, Marx argues, cannot on any account serve as the foundation of the new society. It cannot be salvaged, it cannot be reformed, it cannot be utilized to emancipate society in any fashion. It must be broken: discarded by society; and, with it, Labor itself, and all the remnants of the existing order. The abolition of Labor, and the age-old division of labor that has for so long chained humanity to a set of alien, inhuman relations, increasingly becomes bound up with the question of the abolition of the State, and the abolition of the State is increasingly dependent on the abolition of superfluous labor in every form.
Tags: abolition of labor, abstract individual, abundance, aggregate demand, capital, capitalists, Civil Society, class interest, class society, Classes, deficit spending, economic policy, fascism, Federal Reserve, fiscal policy, free trade, full employment, gdp, general interest, hours of labor, interest, Karl Marx, labor power, law of value, Marxism, Moishe Postone, monetary policy, NAIRU, productive forces, productivity, profit, Proletarians, Property, public debt, rent, scarcity, superfluous labor, surplus value, The State, unemployment, value, voluntary association, wages, war