At the start of this series I noted that, according to Elmar Flatschart, wertkritik states the abolition of labor is not the same as social emancipation. In his view, the abolition of value is only a condition of social emancipation, but social emancipation itself is a more complex problem.
At first glance this conclusion might be seen as very pessimistic, since it implies that even in the absence of any material need for labor, the great mass of society might still be trapped in compulsory labor and the debilitating division of labor to the sole benefit of an ever diminishing group of exploiters.
This is not a minor point. The concept of the abolition of labor is central to Marx’s and Engels’ theory. Uri Zilbersheid calls the abolition of labor one of Marx’s most important ideas; he notes the concept is central at least in “his early writings and to some degree in his later writings”. Yet, Zilbersheid observes, the abolition of labor receives little attention from Marxists:
“the radical Marxian vision—the abolition of labour—has not gained due recognition. Marxian thought is devoted to liberating humanity from all kinds of servitude, and the abolition of labour constitutes a major aspect of this liberation.”
5. Capitalistically Determined, Materially Determined and Superfluous labor times
If I understand Postone’s argument in his book Time, Labor and Social Domination, (and he can speak to this if I am misreading him) in the capitalist mode of production value (i.e., ‘socially necessary labor time’) appears in not one, but two distinct, historically determined forms. So far as I know, Postone is the first theorist since Marx and Engels to show how these two forms of labor time are embedded in the capitalist mode of production itself. He defines the two forms of value for us as,
“the total labor time determined as socially necessary by capital, on the one hand, and the amount of labor that would be necessary … were material wealth the social form of wealth, on the other”.
There is, as Postone explains, a duration of socially necessary labor time that arises from the material needs of the social producer, the combined body of all workers engaged in social production, and a distinct and separate duration of socially necessary labor time that arises from the needs of the capitalist mode of production itself. I will refer to the total labor time of society as the capitalistically determined labor time and the amount of labor that would be necessary if material wealth were the social form of wealth as the materially necessary labor time.
There is nothing to say that these two durations of socially necessary labor time must be the same. In fact, the recurrent crises of the capitalist mode of production is nothing more than the forcible adjustment of these two durations of socially necessary labor time. Moreover, as Postone shows in his reconstruction of Marx’s category of superfluous labor time, the aim of capitalist production is the constant and ever increasing extension of labor time beyond that duration required for the needs of the social producers. Which is to say, the aim of the mode of production is to maintain and increase, by all means at its disposal, an imbalance between the two durations of socially necessary labor time — to constantly generate labor that is completely superfluous to society.
3. The problem of identifying economic waste in a capitalist economy
As I argued in the previous section of this series, if we are going to set as our aim the complete abolition of labor, there is a big question posed by the problem of a capitalist economy. To reiterate it briefly: In an economy based on directly social labor, particular forms of concrete labor appear as abstract homogenous labor. The labor of the doctor, the janitor, the autoworker or the soldier do not appear in these concrete forms but only as wages, salaries, etc. The same is true for the various sectors of the economy — industrial, services, agriculture and the state. Finally, whatever waste might be present in the economy, and which would serve as the material basis for a reduction of hours of labor, appear in the economy as just another cost.
One expenditure of abstract homogenous labor is exactly identical in every way to every other expenditure of abstract homogenous labor
There is, therefore, no way to tell industrial production from industrial waste, medical care from murdering civilians simply by going through the North American Industry Classification System and cherry picking what labor is useful and what labor is not. If medical care is useful, is it still useful when it is being used to return a soldier to the battlefield? If industrial production is assumed to be useful, is it still useful when the product is military materiale? Is the industrial labor producing military boots more or less useful than the labor expended bussing a table in a restaurant? We can make moral judgments on this, but Obama’s morality is different than mine.
Tags: Chris Harman, commodity money, commodity production, currency, gold, Karl Marx, Labor theory of value, Moishe Postone, Money, socially necessary labor time, superfluous labor time, surplus value, value
In his book, “Debt: The First 5000 Years”, David Graeber levels the accusation against the Left, that it lacks imagination to see beyond present society. I think Graeber’s accusation is accurate and can be seen in his own antistatist (i.e., anti-political and anti-economic) argument. Contrary to Graeber’s argument that money has no essence, it is precisely because money has an essence that fascist state issued debt monies (treasuries) represent a world historical money-form: this debt-money implies money itself has become obsolete.
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
5. The recovery of capitalism is no longer possible
Kurz’s overall analysis of the crisis that emerged full blown in 2008 consists of four fundamental bullet points:
First, in the course of capitalist development Marx’s theory states there is a rising composition of constant capital to variable capital; this rising composition of capital compels an increasing dependence of productive capital on interest yielding capital, i.e., on debt.
Second, this rising composition of capital is also a declining ratio of variable capital to constant capital that compels the total capital to find new outlets. This dependence can, at first, be satisfied through outward expansion into new markets, but ultimately can only be met by the growth of an unproductive service (or tertiary) sector.
Third, based on the above two developments, there is an increasingly paradoxical (self-contradictory) dependence of productive capital on profits derived from debt of the non-productive sector that consists entirely of a dependence of productive capital on fictitious claims to its own future profits.
Fourth, this third paradoxical, self contradictory, dependence can only be resolved ultimately through the dependence of this entire increasingly fragile structure of accumulation on the consumption and debt of the fascist state.
In the first instance, the increasing dependence of the total social capital on the state is made necessary by the fact that the state becomes essential to the expansion of the total social capital into new markets through the means of imperialist wars and predations. But, this dependence really only comes into its own when the state becomes the consumer and debtor of last resort. In the final analysis the growth of a non-productive sector must be dependent on the growth of the fascist state as consumer of last resort. And this latter, if it is to maintain existing commodity production relations, must be dependent on expansion of the public debt. This is true because only the state can decide what serves as money within its territory and what means are used to pay its debts. It can, therefore, pay its debts with “money” it creates out of nothing, simultaneously “satisfying” this debt and evaporating its value.
Tags: ex nihilo currency, financial crisis, Karl Marx, Keynesian stimulus, Labor theory of value, Money, Occupy the Marxist Academy, political-economy, Robert Kurz, shorter work time, the Fascist State, THE GREAT DEPRESSION, transcendence of capitalism
4. The Necessary Parasitism of Fascist State
In a recent interview, Saint Paul Krugman gave us this gem of bourgeois economic theory:
SPIEGEL: More stimulus also means more debt. Many European nations, as well as the US, are already drowning in debt.
Krugman: I’m not saying that I don’t ever care about debt, but not now. If you slash spending, you just depress the economy further. And, given the low interest rates and what we now know about long-run effects of high unemployment, you almost certainly actually even make your fiscal position worse. Give me a strong-enough economic recovery that the Fed is starting to want to raise interest rates to head off inflation — then I become a deficit hawk.
Saint Paul tells us in a depression such as the one we are now experiencing it is impossible to pursue the sort of austerity currently being visited upon the EU without rushing headlong into calamity. Better, he says, we should expand the debt of the already bloated public sector still further and worry about the consequences later. It never occurred to the interviewer from Spiegel to ask Saint Paul why the growth of capitalist economies is now chained to the debt of the public sector.
Not surprising, Robert Kurz had a few ideas on that subject.
Tags: Agustín Bénétrix, Barry Eichengreen, ex nihilo currency, financial crisis, Karl Marx, Keynesian stimulus, Labor theory of value, Miguel Almunia, Money, Robert Kurz, the Fascist State, THE GREAT DEPRESSION
My fellow Americans,
Now more than ever our government needs our help. For centuries we have believed democracy to be the best form of government, without ever experiencing true democracy. Greed and corruption have infiltrated our government, and now Democrats and Republicans have become so hopelessly opposed and unwilling to work together that nothing is accomplished. Our “representatives” use their entire term to campaign for reelection instead of doing the work Americans want done. Our government is broken, but we can fix it, and we can fix it through participating in our limited democracy, ironically. There is hope for democracy – a new hope, a liberating hope, a Libertarian hope. The Libertarian Party must be America’s Party now, because a new choice is always more democratic.
Democracy, as defined by Merriam-Webster is “a : government by the people; especially : rule of the majority; b : a government in which the supreme power is vested in the people and exercised by them directly or indirectly through a system of representation usually involving periodically held free elections.”
Free elections are an illusion. For the majority of this country’s history, two parties have held a monopoly over campaign contributions and the vote. Either a Democrat or Republican has won every presidential election since 1852, and since 1804 the most electoral votes a third-party candidate has obtained is just 46 by George Wallace in 1968. That was the year Tricky Dick was elected the first time. Needless to say had we realized then what we have the opportunity to realize now we could have avoided putting a crook in office. But we have an opportunity to change American politics once again and bring about a more democratic democracy.
The United States political scene suffers from what Herbert Marcuse would call one-dimensional thought, which “militates against qualitative change. Thus emerges a pattern of one-dimensional thought and behavior in which ideas, aspirations and objectives that…transcend the established universe of discourse and action are either repelled or reduced to terms of this universe” (Marcuse 12). This one-dimensional thought allows for greed and corruption to flourish in our government because we, the people, have accepted it as simply a consequence of democracy.
Marcuse’s one-dimensional thought is ever-present in the Presidential Election Campaign Fund Act. “The Republican and Democratic candidates who win their parties’ nominations for President are each eligible to receive a grant to cover all the expenses of their general election campaigns. The basic $20 million grant is adjusted for inflation each Presidential election year. In 2008, the grant was $84.1 million…A third-party Presidential candidate may qualify for some public funds after the general election if he or she receives at least five percent of the popular vote.” So the Democratic and Republican candidates get $84.1 million and the third-party candidate gets squat unless they grab 5% of the vote in the previous election. The laws governing these “free” elections are keeping third parties at a disadvantage to install an incumbent, ruling order that “militates against qualitative change.” Changing these laws is not an option at this point, so we must act within the system to bring about qualitative change, which is one-dimensional in itself., but no one in Congress is going to reform campaign finance laws when they’re running for reelection. “In the political sphere…the programs of the big parties become ever more undistinguishable, even in the degree of hypocrisy and in the odor of the cliches” (Marcuse 19). The Democrats and Republicans are false opposites. They clearly have the same goal in mind – to keep the power divided amongst themselves and the money out of the hands of people looking to change the status quo. That’s why it’s important that the Libertarian Party surpass the 5% popular vote benchmark in the 2012 presidential election, or we can expect more of the same from the White House.
“As the great words of freedom and fulfillment are pronounced by campaigning leaders and politicians, on screens and radios and stages, they turn into meaningless sounds which obtain meaning only in the context of propaganda, business, discipline, and relaxation.” We’re in the whirlwind of this media now and we can already smell the stench of propaganda permeating from the camps of Democrats and Republicans, but the Libertarian Party doesn’t have the money to compete on television and radio, and unless the Libertarian Party is able to poll at 15%, they won’t be able to compete on stage either. You see, third party candidates are withheld from nationally televised debates if they don’t reach 15% on CNN’s presidential election poll. Don’t let the propaganda fool you. There’s only one party looking to bring about qualitative change despite what President Obama’s campaign slogan may be.
Marcuse warns us that “the range of choice open to the individual is not the decisive factor in determining the degree of human freedom, but what can be chosen and what is chosen.” Having another choice on the ballot does not make us more free, but having a quality choice on the ballot will if we cast a quality vote. The Libertarian Party takes the social tolerance of the Democrats and mixes it with the fiscal responsibility of the Republicans, which proves to be a strong party in an election year expecting the most independent voters in history. We have a quality choice in the Libertarian Party. Now it’s up to us to cast a quality vote. Though Marcuse again warns, “Free election of masters does not abolish the masters of the slaves.” The American government is a democratic republic, and until we change the entire order of things, a very two-dimensional thought, we’ll have to deal with our “masters” for the time being, but we can operate the machine.
“We are neither in the amphitheatre, nor on the stage, but in the panoptic machine, invested by its effects of power, which we bring to ourselves since we are part of its mechanism” (Foucault 217). Michel Foucault’s Discipline and Punish insists that power is everywhere and we all can wield it. And he’s right. Despite our panoptic society, we are still the fuel that drives the machine. Under the current administration, the panoptic surveillance has only increased, as President Obama signed into law the National Defense Authorization Act, which allows the US government to detain its own citizens indefinitely and without trial if they are suspected terrorists. All of this after our President said during his campaign that he’d close Guantanamo Bay. A clear example of Foucault’s power relations occurred quite recently, when only public outrage kept bills SOPA and PIPA from criminalizing file sharing and destroying the communicative, free structure of the Internet. We do have power, “against an extraordinary evil, power is mobilized; it makes itself everywhere present and visible” (Foucault 205). Internet activists used the best tool they had to defeat SOPA and PIPA – the Internet. They flooded Congress Twitter accounts with pleas to stop the bills. They shut down Wikipedia in outrage of the bills. And yes, some people hacked into bank websites and shut them down, but it was ultimately a success for the American people, though many people believe CISPA, a cyber-security bill passed by the House on Thursday, to be a way for the government to further monitor its own citizens. The oppressors always comes back with a power play of their own, but the Libertarian Party is strongly opposed to any legislation that allows our government to monitor our web practices. It’s a clear invasion of privacy and that’s why we need to keep fighting because “there is no risk…that the increase of power created by the panoptic machine may degenerate into tyranny’ the disciplinary mechanism will be democratically controlled, since it will be constantly accessible ‘to the great tribunal committee of the world’” (Foucault 207).
The actions of Internet activists are also a great demonstration of communicative action. “In modern, secular societies social order rests chiefly on the basis of communicative action (action coordinated by validity claims) and discourse, which together help establish and maintain social integrity – that is, they provide the glue that keeps society together.“ Jürgen Habermas is my kind of guy – a democratic socialist in the best sense. “Habermas argues that we can establish an ideal speech situation – a set of conditions under which democratic discussion optimally takes place – that can guide the way we set up group conversations on important community issues and decisions” (Brookfield 63). He would urge us to organize at a local level and discuss the issues of the day and arrive at a consensus that neglects no one and is not self-serving, which is difficult given Habermas believes human beings to be “essentially self-interested,” though the Internet has provided an opportunity for humanitarian efforts, as Clay Shirky makes clear in his book Cognitive Surplus. “The Internet is an opportunity machine, a way for small groups to create new opportunities, at lower cost and with less hassle than ever before, and to advertise those opportunities to the largest set of potential participants in history.” (Shirky 128-129). The Internet allows us to organize our efforts and communicate effectively, and I think Habermas is wrong to think “the electronic mass media of today is organized in such a way that it controls the loyalty of a depoliticised population” (qtd. in Brookfield 232). “For Habermas democracy is all about communication – the freest, least-restricted communication possible. In his view the greater the freedom of conversation that people enjoy, the higher the chance that true critical reason – reason employed to create a just, humane democracy – will emerge.” (Brookfield, 230). If the Internet is not the freest form of communication, I’m a little scared of what might be. I think now that Habermas knows Twitter is capable of keeping bills off the Senate floor, he may change his tune and urge us to use this “opportunity machine” to organize communicative action for liberty.
In organizing communicative action, Paulo Freire would urge “the oppressed must not, in seeking to regain their humanity…become in turn oppressors of the oppressors, but rather restorers of the humanity of both” (Freire 46). When the Libertarian Party does rise up and overcome our oppressors, it’s important to embrace those oppressors and help them to regain their humanity. We can’t simply leave the Democrats and Republicans in the dust. That would be selfish and ineffective. When the gay community finally achieves marriage equality, they aren’t going to live their lives oblivious to heterosexuals. We must help Democrats and Republicans realize their oppressive ways and install an active dialogue between the oppressed and the oppressors, and if we are to move forward, we must not fear freedom.
“The oppressed, having internalized the image of the oppressor and adopted his guidelines, are fearful of freedom. Freedom would require them to eject this image and replace it with autonomy and responsibility. Freedom is acquired by conquest, not by gift. It must be pursued constantly and responsibly. Freedom is not an ideal located outside of man, nor is it an idea which becomes myth. It is rather the indispensable condition for the quest of human completion” (Freire 48).
A heavy burden of responsibility is awaiting the Libertarian Party at the end of this election, regardless of outcome, and we must not shy away from this responsibility as the Tea Party movement has done. We must accept this responsibility and go about restoring legitimacy to our government through love, because bipartisan bickering and political pandering is how we got here in the first place. Paulo Freire, a civil rights activist himself, would be appalled by the unwillingness of both Democrats and Republicans to recognize the marriage rights of gay human beings. The Libertarian Party won’t allow Democrats and Republicans to continue ignoring the gay community. Marriage equality cannot be denied to these Americans simply because they’re not conducting a traditional, religious marriage. Marriage used to be as strong a social order as evangelical Republicans still believe it to be, but we all know marriage doesn’t mean the same thing it did 20 years ago. Marriage is a human right, a civil right, a right that shall not be denied to any human regardless of race or sexual preference, and the Libertarian Party will fight for those rights.
It’s clear the Libertarian Party has a unique opportunity to change American politics forever, but how can we bring about this communicative action? Well, by taking a page from Augusto Boal’s book we can “practice how the theater can be placed at the service of the oppressed” (121). Boal’s main objective, and this is the main objective of the Libertarian Party as well, is “to change the people – ‘spectators,’ passive beings in the theatrical phenomenon – into subjects, into actors, transformers of the dramatic action” (122). Boal’s Peru experiments provide a model for Americans looking to become more aware of other people’s hopes and “one will be able to physically ‘interpret’ characters different from oneself” (128). Only through understanding each other can we effectively govern ourselves. A thorough understanding of our fellow citizens isn’t all we’ll need to bring about change, though. They must also have a thorough understanding of us, and Boal offers an effective way to invite people to live in other people’s shoes. The medical marijuana debate is a perfect opportunity for Boal’s theatric experiments to be put to the test. Consider a hypothetical situation: a Libertarian who happens to be a medical marijuana patient in favor of legalizing marijuana meets a Republican or Democrat staunchly opposed to medical marijuana and legalization of any kind. Boal gives us a model for reshaping people’s subjectivities by allowing them to step out of their own heads and into someone else’s. The Libertarian calmly explains why she supports marijuana legalization and listens attentively to why the new friend is opposed to it. Aware of their new friend’s subjectivities, the Libertarian invites the new friend to step into her shoes. “I suffer from (cancer/post-traumatic stress syndrome/multiple sclerosis/degenerative disc disease/etc.), and I use marijuana to deal with the (pain/nausea). Without it my life is a living hell, and now my provider has been arrested by the DEA despite following the state medical marijuana laws, so I can’t even get the medication I need. Now, if you found yourself with (cancer/post-traumatic stress syndrome/multiple sclerosis/etc.) and a doctor told you this plant could help you live more comfortably, would you still support DEA raids of providers just looking to make a living?” Most folks can’t help but feel empathetic because they have actively experienced what the other person is going through. They were invited to consider their subjectivities in an alternate reality. They are no longer a spectator, but a “spectactor.”
Without action there is no theatre, and the show can’t go on without action. Boal urges us to get off our asses and act rather than watch, and the Libertarian Party urges you to do the same. We find ourselves in a participatory democracy in which the participants are unwilling to participate, whether it be due to poor choices on the ballot or simple laziness. We cannot allow this lack of participation define our democracy.
“The spectator is less than a man and it is necessary to humanize him, to restore him to his capacity of action in all its fullness. He too must be a subject, an actor” (Boal, 155). We must become actors, for without action we are forever stuck in constant oppressiveness. Volunteer to register voters in your community or on your campus and inform them of the Libertarian Party and where it stands on the issues. Don’t just register them. Educate them. Discuss these issues with your neighbors, and inform those who may be misinformed. Distribute informative election materials and signs around your community. There is so much more to a participatory democracy than simply voting, and in order for the Libertarian Party to be America’s Party we all have to participate more. “The poetics of the oppressed is essentially the poetics of liberation: the spectator no longer delegates power to the characters either to think or to act in his place. The spectator frees himself; he thinks and acts for himself! Theater is action! Perhaps the theater is not revolutionary in itself; but have no doubts, it is a rehearsal of revolution!” Life is all action, too, and until we act together we’ll accomplish nothing.
Brookfield, Stephen D. The Power of Critical Theory. San Francisco: Jossey-Bass, 2005.
Boal, Augusto. Theatre of the Oppressed. New York: Theatre Communications Group, 1985.
Finlayson, James. Habermas: A Very Short Introduction. New York: Oxford, 2005.
Foucault, Michel. Discipline and Punish. New York: Vintage Books, 1977.
Freire, Paulo. Pedagogy of the Oppressed. New York: Continuum, 1960.
Marcuse, Herbert. One-Dimensional Man. Boston: Beacon, 1964.
Shirky, Clay. Cognitive Surplus. New York: Penguin, 2010.
Tags: act, action, actor, america, american, augusto boal, boal, campaign, choice, communicate, communication, communicative action, Democracy, Democrat, election, foucault, free, Freedom, freire, gay, Government, habermas, Human, humanity, internet, Law, liberation, Libertarian, Libertarian Party, Liberty, life, marcuse, marriage equality, michel foucault, Money, one-dimensional, oppressed, oppressor, order, panoptic, panopticism, participant, participate, participatory, party, paulo freire, poetics of the oppressed, politic, Politics, Power, Republican, responsibility, Revolution, social, spectator, surveil, theater, theatre, vote
This is very geeky, sorry. I posting it because I intend to revisit it sometime in the near future in the context of a review of the Euro-zone crisis.
My post on Moseley’s MELT paper (pdf) argues the so-called “price of gold” is actually the standard of price for a currency. I argued in the paper that dollars do not buy gold, gold buys dollars. Dollars are “sort of” a commodity necessary to convert gold into capital. I said “sort of”, because I really cannot describe it, except along the line of Marx’s argument on loaned capital:
M ==> M ==> C.
Where the first M is the bank’s money to be loaned, and the second M is the actual conversion of this loaned money into industrial capital. We could think of the movement of gold similarly as:
Mg ===> Mc ===> C.
Where Mg is a quantity of gold, Mc is a quantity of a particular currency, and C is the commodity.
The owners of gold, however, have a choice of currencies whose bodily form their gold can assume: euros, dollars, yen, yuan, reals, pesos, etc. And, each of these currencies have their own standard of price, i.e., their own specific exchange rate with gold. Each of these standards of price is an expression of the quantity of a given currency in domestic circulation to the quantity of domestic socially necessary labor time. Since, in each country, the relation between the total currency in circulation and total socially necessary labor time is different, the standard of price for each country currency must necessarily be different.It would seem to follow from this that the relation between currencies, their relative exchange rates, should be determined by the above. For instance, if country A has a standard of price with gold of 10 currency A units per ounce of gold, while country B has a standard of price of 20 currency B units per ounce of gold, the relation between the two should be:
one unit of currency A = 2 units of currency B
However, just as different industries have different composition of capital, so different nations have different compositions. The composition of capital in the US is far higher than that of the People’s Republic of China, or Zimbabwe. The movement of gold between currencies, I think, is determined much like the movement of capital between industries. On the one hand, the standard of prices in various countries arise from the domestic quantitative relation between the currencies and socially necessary labor time. On the other hand, for the owners of gold, these currencies are no more than forms gold must take if it is to become capital — and capital is self-expanding value, the production of surplus value through the consumption of labor power.
This suggests that although the standard of price of a currency is determined solely by the relation between the mass of currency and the mass of socially necessary labor time; it is also being determined by the rate of surplus value within each country as determined by their varying compositions of capital.
I think we are again face to face with Marx’s transformation problem, where the law of value confronts the law of average rate of profit. One law suggests the standard of price of a currency is determined solely by the relation between the total quantity of currency in circulation domestically and the total quantity of socially necessary labor time; the other law suggest the relative exchange rates among all currencies is determined by the law of the average rate of profit. The latter law suggests currencies are exchanging in the world market above or below their actual domestically determined standard of prices.
What use might this argument have?
- This might just offer an idea how, without violating Marx’s labor theory of value, imperialist super-profits are obtained.
- It could offer a way of modeling the emergence of world market prices, and the dollar as world reserve currency.
- It could also explain the empirical data, which shows neoliberal free trade policies produced a US expansion in the 1980s and 1990s.
- Finally, it explains why China’s currency appears undervalued on the world market and the US dollar overvalued against what we would expect.
Nothing wakes you up quicker than a letter from the debt collector. These bastards don’t mess around. If you don’t cough up the cash they will take everything you own and kick you out on the street.
Some tend to miraculously find the exact amount owed before a debt is sold to a collector agency. How they came across that money is usually not spoken about – due to legal reasons.
Who thought this would be a good solution? You can barely afford to pay rent and buy food. How can you suddenly afford to pay a huge lump sum with penalty fees, etc attached to it?
Where’s the logic in this!?
You just started a new job. You pay rent, bills and food. You get nicer looking clothes for work. Treat yourself to a better mobile phone. Everything seems fine – so far.
Suddenly the company decides to save money.
You were the last one in. You will be the first one out.
It’s easy to say that you shouldn’t sign up for anything that might land you in debt. By that logic you shouldn’t go outside. Because who knows, you might get killed by a mugger.
You can’t expect people to know what will happen in the future or how the economic climate will be like five years from now.
No-one expected the recession a few years ago and the ongoing crisis in Europe.
The last thing we should want is a hand-out. But there must be a better way to handle debt. Or should we just assume that everyone with a debt deserves being in that situation? If they end up on the street, it’s purely their own fault?
If you look around it’s evident that how we handle debt isn’t really working so well at the moment. At some point– most likely ages ago –an alarm should’ve gone off. Letting us know the way we handle debt will create poverty.
FOFOA’s argument against modern money theory can be summarized as follows:
A staggeringly massive hyperinflationary event is already latent in the global economy. The dollars currently in circulation only retain their purchasing power because of the function of money as medium for the circulation of commodities. Modern money theory, which proposes the fascist state faces no monetary constraint on spending in excess of its ability to tax or issue debt, is making an argument for monetary policies that will only exacerbate the latent hyperinflation already present in the economy. The problem posed by hyperinflation, “too little money”, is not mitigated when the state creates new currency out of nothing. Rather, the case is the reverse: emitting new dollars does not create additional purchasing power; it simply dilutes the purchasing power of the dollars already in circulation, adding to the implosive potential of the inevitable hyperinflationary event.
According to FOFOA, the hyperinflationary event has been held back so far by the self-interested action of Europe, Japan, and China; who have recycled their dollars back to the US to buy its debt over the past thirty years. This recycling of dollars into US debt has supported the purchasing power of the dollar, but it has reached its limit. The dollar is now suffering a credibility crisis among US creditors, that must lead to an effort by these creditors to exchange their dollars for real, not fictional, assets. With the US’s creditors losing faith in the stability of dollar purchasing power, and boycotting the purchase of US debt, the US is actually engaged in wholesale creation of dollars out of nothing to fund its operations, driving the dollar into actual hyperinflation.
This latter scenario, the impending and irreversible loss of dollar credibility, is where FOFOA badly stumbles in his argument against the advocates of modern money theory.
Toward the end of his case against the modern money school, FOFOA offers this insight into Wiemar Republic hyperinflation, and what he argues is the basis for the coming hyperinflation set to be unleashed in the dollar system:
As the German Mark fell, there was “not enough money” to pay the debt. And with a little inflation, there is “not enough money” to buy our necessities from abroad.
Hyperinflation, FOFOA argues, is commonly described as a rapid rise in the general price level — an incredibly sharp burst of inflation where the prices of commodities increase a hundred-fold, even a thousand-fold, as a result of a rapid depreciation of the purchasing power of the currency. But, hyperinflation can also be thought of as a sudden implosion — collapse — in the supply of money in relation to the prices of commodities. A situation emerges where there is “not enough money” to pay for commodities. FOFOA quotes writers who made this observation during the time of Wiemar Republic Germany in the 1920s:
“In proportion to the need, less money circulates in Germany now than before the war.” (Julius Wolfe, 1922)
“However enormous may be the apparent rise in the circulation in 1922, actually the real figures show a decline.” (Karl Eister, 1923)
The phrase, “not enough money”, is ironic precisely because, using FOFOA’s definition of money, it appears the deficiency could be resolved by simply printing more dollars. If dollars were money, it would be reasonable to expect a shortage of money as existed in the financial crisis of 2008 could be remedied by going to a computer terminal and crediting the accounts where this lack of money was most acute. In fact, as FOFOA explains, this was exactly what the monetary authorities attempted:
…Mervyn King made headlines saying “the UK was suffering from a 1930s-style shortage of money.”
“There is not enough money. That may seem unfamiliar to people.” he told Sky News. “But that’s because this is the most serious financial crisis at least since the 1930s, if not ever.”
However, as FOFOA explains simply printing more currency does not and cannot fix a hyperinflation; instead, the hyperinflation is exacerbated by such actions:
It should be obvious from this video that Mervyn King, at least, does not get that expanding the base which debases the economy’s money is not the best response to “not enough money.” You don’t have enough money, so you make what you’ve got worth less? Perhaps he meant the monetary base is too small for the credit clearing system. He did, after all, reference the 1930s rather than the ’20s. But, sadly, that’s not the case because he clearly said “we are injecting 75 billion (with emphasis reminiscent of Dr. Evil) pounds directly into the British economy.” But in King’s defense, he’s doing no different than the Fed or the Reichsbank
FOFOA makes the argument printing currency does not resolve the problem of too little money, but only dilutes the existing stock of currency already in circulation. Obviously, for this to be true, dollars, pounds, euros and rubles must not be money, but tokens of money. However, using this same reasoning, it becomes clear that “too little money” cannot be the basis for his prediction of a future hyperinflation of the dollar: there has been no money in the world economy since the dollar was debased from gold in 1971.
To approach this another way: in 1971 one dollar had the official definition of 1/35th of an ounce of gold. A commodity having the price of one dollar had the exchange value equal to this same 1/35th of an ounce of gold. When Nixon took the dollar off the gold standard, one dollar had the official definition of zero ounce of gold. A commodity having a price of one dollar had no exchange value whatsoever. Effectively, the dollar was worthless, and the country was plunged into an actual hyperinflation, where no dollar price, no matter how high, sufficed to express the actual money price of a commodity. One billion dollars could be entered in a computer terminal and credited to the account of a seller without paying even a vanishingly small fraction of the actual price of the commodity in ounces of gold.
It is interesting in this regard that no seller of commodities immediately demanded gold in exchange for her commodities, and refused any amount of dollars, no matter how great, in return for her commodity. In the case of the Weimar Republic, Zimbabwe, and the confederate money of the American Civil War, two price systems quickly sprung up — one denominated in the official currency, and another — or many — in “sound” money. The Wikipedia explains that, in the case of Zimbabwe, dollars and euros circulated in the economy as money, quickly displacing the Zimbabwe dollar as medium for the circulation of commodities. Eventually the government had to recognize its currency was not money:
The use of foreign currencies were legalised in January 2009, causing general consumer prices to stabilise again after years of hyperinflation and price speculation. The move led to a sharp drop in the usage of the Zimbabwean dollar, as hyperinflation rendered even the highest denominations worthless.
On 2 February 2009 the Zimbabwean dollar was redenominated once more, at the ratio of 1,000,000,000,000 ZWR to 1 ZWL. The third dollar was expected to be demonetised on 1 July 2009, but the complete abandonment of local currency was hastened by the decline in overall consumer usage of local currency in favour of other currencies, helped by the legalization of the use of hard currencies in January 2009.
The dollar was effectively abandoned as an official currency on 12 April 2009 when the Economic Planning Minister Elton Mangoma confirmed the suspension of the national currency for at least a year, but exchange rates with the Zimbabwean dollar were maintained for up to a year afterwards. The current government of Zimbabwe said that the Zimbabwean currency should only be reintroduced if the industrial output was 60% or more of its capacity, compared to the April 2009 average of 20%.
If hyperinflation is defined as a lack of sufficient money in circulation, I think it is safe to say we have been experiencing it at least since 1971, when the dollar was debased from gold. If it is defined as an incredibly sharp burst of inflation where the prices of commodities relative to the value of these commodities increases to astronomical levels, we can also date it to 1971, when, owing to the debasement of the dollar, the value expressed in any dollar price was zero. What has to be explained is why, despite the dollar’s evident lack of value, commodity sellers have not abandoned it in favor of a money capable of expressing the value of their commodities, or, failing this, reverted to simple barter, as occurred in every previous episode of hyperinflation.
Hyperinflation can either be thought of as too little money in circulation or the rapid increase in the currency prices of commodities in relation to their values. FOFOA wants to accuse the advocates of the modern money school with setting the global economy on a course to a catastrophic hyperinflation; yet, by both definitions of hyperinflation he uses we have been living in a hyperinflationary monetary regime for forty years now. A worthless debased currency characteristic of hyperinflation has served as the medium of circulation for four decades without resulting in the sort of monetary disaster he predicts.
FOFOA has an explanation for this, a synopsis of which I present in the extensive excerpt below:
The US has enjoyed a non-stop inflow of free stuff including oil (a trade deficit) ever since 1975, the last year we ran a trade surplus. In the 1970s, following the Nixon Shock and the OPEC Oil Crisis, the US dollar went into a tailspin. Because the US dollar was the global reserve currency, this was bad news for the global economy. If the dollar had failed then, without a viable replacement currency representing an economy at least as large as the US, international trade would have ground to a standstill.
Europe was already on the road to a single currency, but it still needed time, decades of time. So at the Belgrade IMF meeting in October of 1979, a group of European central bankers confronted the newly-appointed Paul Volcker with a “stern recommendation” that something big had to be done immediately to stop the dollar’s fall. Returning to the US on October 6, Volcker called a secret emergency meeting in which he announced a major change in Fed monetary policy.
Meanwhile, the European central bankers made the tough decision to support the US dollar, at significant cost to their own economies, by supporting the US trade deficit by buying US Treasuries for as long as it took to launch the euro. As it turns out, it took 20 years. After the launch of the euro, the Europeans slowly backed off from supporting the dollar. But right about that same time, China stepped up to the plate and started buying Treasuries like they were hotcakes. This may have been related to China’s admission into the WTO in 2001.
Then, sometime around 2007 or 2008, the dollar’s Credibility Inflation peaked. The growth of the “economy’s money” (credit denominated in dollars) hit some kind of a mathematical limit (expanding to the limit was wholly due to FOFOA’s dilemma) and began to contract. Since then, China has slowly backed off from supporting the dollar. We now know that China is more interested in using its reserves to purchase technology and resource assets wherever they are for sale than bonds from the US Treasury. China is also expanding the economic zone that uses its monetary base as a reference point in trade settlement to the ASEAN countries.
Meanwhile, the junkie USG has kept the free stuff flowing in by expanding the monetary base. Sure, China still wants to sell her goods to the US, but she’s no longer supporting the price stability of the last 30 years by recycling the dollar base expansion back into USG debt.
Essentially, FOFOA’s argument is that the dollar has not collapsed because commodity sellers need it to serve a medium for the circulation of their commodities. Although the dollar is incapable of serving as the material to denominate the value of their commodities, the dollar is more than adequate to serve as medium of circulation for commodities. While the first function — denominating value — requires money in the material form of a physical commodity like gold; the second function — medium of circulation — requires only a token of money, currency.
FOFOA is making the perfectly reasonable argument that so long as the dollar is required for the circulation of commodities within the world market, it can perform the function of medium of circulation without difficulty. However, once the circulation of commodities is interrupted, and money must step forward in its own physical body, shit is going to hit the fan on a scale never before seen in human history.
It turns out my first reaction to FOFOA’s post, Moneyness, was the correct one: the Moneyness of the dollar is to Money what Stephen Colbert’s Truthiness is to Truth, i.e., NOT.
To really understand the significance of FOFOA’s pure concept of money, I will compare it to Karl Marx’s and classical political-economy’s view of money. In the latter view, value drives and determines price; while in FOFOA’s pure concept of money, price is wholly indifferent to value. Marx argued the price realized by the sale of a commodity in any exchange was, at root, a function of the duration of socially necessary labor time it takes to produce it. The realized price of the commodity included the wages paid to the worker plus a quantum of unpaid labor time realized as profit by the capitalist. However, because this is a social process, and the actual exchange is heavily influenced by imbalance between supply and demand and many other factors, a direct connection between the price and value of a commodity in a given transaction could not be established in any obvious fashion.
FOFOA’s view of money can best be understood by an analogy:
Suppose we could take a snapshot of all the economic activity taking place simultaneously in the entire economy at this very moment; and reproduced this snapshot as a 500 piece puzzle. In this puzzle, the total value of all of this economic activity contained in this series of transactions can be thought of as the size of the puzzle taken as a whole. The dollars making up this activity can be thought of as the individual pieces of the puzzle — each piece would represent one dollar.
According to FOFOA’s argument, if we doubled the number of pieces from 500 to 1000, this would not change the size of the puzzle itself; it would just mean each piece of the puzzle represented a smaller portion of the underlying economic activity. Likewise, if we reduced the number of pieces from 500 to 250, each puzzle piece would represent a larger portion of the total puzzle without changing the total puzzle size. In FOFOA’s pure concept of money, you can increase the number of puzzle pieces (dollars) without increasing the size of the puzzle itself. The thing serving as money has no real relation to the underlying value it represents. The value represented by a single dollar is simply a function of the number of dollars in circulation. By contrast, Marx and classical political-economy held the relation between the pieces of the puzzle and the entire puzzle were more or less fixed. So, the only way to increase the number of pieces (dollars) in the puzzle (economy) was to increase the total size.
Insofar as we are discussing how the present dollar is used as money, I think FOFOA’s argument is dead on target. However, from the point of view of classical political-economy, his argument amounts to a statement that the dollar is not money — our economy is essentially moneyless! If FOFOA is correct, once the gold standard was abolished, the dollar was no longer money, because it is incapable of expressing the values of commodities in a transaction. And, in this argument, Marx would agree with him completely. Marx actually makes FOFOA’s argument in Capital, when discussing how the currency can come to be detached from the real value underlying it:
The State puts in circulation bits of paper on which their various denominations, say £1, £5, &c., are printed. In so far as they actually take the place of gold to the same amount, their movement is subject to the laws that regulate the currency of money itself. A law peculiar to the circulation of paper money can spring up only from the proportion in which that paper money represents gold. Such a law exists; stated simply, it is as follows: the issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols. Now the quantity of gold which the circulation can absorb, constantly-fluctuates about a given level. Still, the mass of the circulating medium in a given country never sinks below a certain minimum easily ascertained by actual experience. The fact that this minimum mass continually undergoes changes in its constituent parts, or that the pieces of gold of which it consists are being constantly replaced by fresh ones, causes of course no change either in its amount or in the continuity of its circulation. It can therefore be replaced by paper symbols. If, on the other hand, all the conduits of circulation were to-day filled with paper money to the full extent of their capacity for absorbing money, they might to-morrow be overflowing in consequence of a fluctuation in the circulation of commodities. There would no longer be any standard. If the paper money exceed its proper limit, which is the amount in gold coins of the like denomination that can actually be current, it would, apart from the danger of falling into general disrepute, represent only that quantity of gold, which, in accordance with the laws of the circulation of commodities, is required, and is alone capable of being represented by paper. If the quantity of paper money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name not of 1/4 of an ounce, but of 1/8 of an ounce of gold. The effect would be the same as if an alteration had taken place in the function of gold as a standard of prices. Those values that were previously expressed by the price of £1 would now be expressed by the price of £2.
Marx appears to be in full agreement with FOFOA on the issue of the dollar: when the currency is debased from a commodity money (e.g., gold), prices would no longer have any fixed relation with the value of the commodities — the essential link between values and prices, established not by the currency itself, but by the commodity for which the currency serves as a token, would be broken. Far from being the case that Marx is right and FOFOA is wrong, for Marx to be right about money, FOFOA’s pure concept of money has to be right about the dollar.
So, if our economy is essentially moneyless, what explains the persistence of exchange, prices, and the dollar? I think this persistence clearly has nothing to do with the role of money in expressing the value of the commodity in an exchange. Once we realize FOFOA’s pure concept of money is not, as he alleges, “the same concept that first emerged thousands of years ago”, but a thoroughly modern notion of money arising about the time of the Great Depression, it becomes obvious that if the dollar does not express the values of commodities, this must be because value itself no longer exists.
Value and money
I admit, the idea that value doesn’t exist in our economy is quite absurd on its face, and you would be wise to dismiss it out of hand as just another of the silly statements I am prone to make in my posts. However, before you do, consider FOFOA’s own argument:
‘Money’ is a “unique unit” that we use as a kind of language for expressing the relative value of things other than money.
In FOFOA’s argument money is not a thing in itself, but a thing which expresses something other than itself — namely, value. Marx makes an argument very similar to FOFOA in his own discussion of money, where the thing serving as money is described as a pledge to a certain definite quantity of value:
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.
In Marx’s argument, as in FOFOA’s, money expresses the value of an object — this much they agree on. But, there are significant dissimilarities as well: in Marx’s argument, money is gold or another commodity, while in FOFOA’s argument, money is merely a token — a piece of paper or dancing electrons on a computer terminal, a way of keeping an account of transactions. However, while the distinction seems to hinge on what serves as money, the actual distinction is the definition of value itself: What constitutes the value of the commodity that is expressed by the thing serving as money? What is value?
As I stated in the first post, unfortunately FOFOA offers no definition of value of his own, so I am at a loss to restate it and compare it to Marx’s definition. However, the Wikipedia offers a number of different and conflicting definitions of value that more or less seem to capture what is expressed in FOFOA’s pure concept of money. The one most obviously expressing FOFOA’s pure concept of money is this one:
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 this definition of value, the value of the commodity is its money price. The price of the object is simply the money name we give to its underlying value: if a house sells for $3000 in 1950, its value is $3000; if, in 2010, the same house is resold for $300,000, the value of the house, despite 60 years of wear and tear, is now 100 times what it was new. In each case, value is simply another way of referring to the price of the house in the form of the existing unit of account. Why does the value of the house change in the interim between 1950 and 2010? Aside from the influences of supply and demand and other factors, the units of money in which the value of the house is denominated has undergone a depreciation, such that, despite 60 years of wear and tear, its market value has increased 100 times.
In other words, if the neoclassical definition of value is “accurate”, as an independent category of political-economy value no longer exists — there is only the currency price of the good.
So, how does the neoclassical definition of value fit Marx’s argument? In Marx’s definition, value is the socially necessary labor time required to produce a commodity. This labor time is measured not by the time required by any particular individual producer to create his commodity, but the social average production time required by all the competing producers. Moreover, these individuals have no idea what the market is for their goods. It is not until these individual producers come to the market with their commodities and offer them for sale do they get an inkling as to the actual demand for the commodities they have produced.
In Marx’s definition, value is the blind result of many isolated acts of production by individuals who do not know and cannot know either the time required to produce their particular commodities, or the actual demand in the marketplace for the commodities they produce. The only means they have of ascertaining these two important bits of information is transmitted to them solely through prices of the commodities themselves. Although they create the value of their products as they create the products themselves, the producers have no clue as to the quantity of value they created prior to offering them for sale in the market.
The value of any commodity, Marx argues, can only be expressed through the act of exchange as exchange value. And, it can only be expressed in the form of a money that can serve as “a pledge for its own magnitude of value”. This is because, under conditions where the innumerable private acts of individual production form the basis of production, only through money can these millions of individual acts of production spontaneously organize themselves into social production.
Value cannot be expressed without money, but, more importantly, the value created by these millions of individual acts of production must be expressed in the form of money. Money is the blind expression of millions of individual producers seeking to turn their private act of production into a socially valid and universally recognized object. The millions of producers do not merely create the values of their respective commodities, they also spontaneously create the money object that serves as the socially valid medium to express this value — it simply one of the many objects they created as commodities spontaneously emerging as the money object.
In Marx’s theory, the same process that accounts for value also accounts for the commodity serving as money. Money does not simply express value, it is the product of value creation itself — the spontaneous creation of millions of individual producers. It is not the state that creates money, but society. If money does not exist, it is safe to assume value doesn’t either.
And, just in case you were not paying attention, that means the dollar is not a natural creation of market forces.
I am now reading FOFOA’s Moneyness, an epic length blog on the history of money. I was lured into reading it by the title, which I stupidly misinterpreted as tongue in cheek on the order of Colbert’s Truthiness. In fact, it is an attempt to bring his view on money to an analysis of the current global monetary crisis.
FOFOA begins this extended treatment of the crisis with a tangle of questions, all of which are centered on the nature of money itself:
Is gold real money? Or is money whatever the government says it is? Or is it whatever the market says it is? Is silver money in any way today? Are US Treasury bonds money? Is real money just the monetary base? Or is it all the credit that refers back to that base for value? Is money supposed to be something tangible, or is it simply a common unit we use to express the relative value of things?
Is money really the actual medium of exchange we use in trade? Or is it the unit of account the various media of exchange (checks, credit cards, PayPal) reference for value? Should the reference point unit itself ever be the medium of exchange? Some of the time? All of the time? Never? Is money a store of value? And if so, for how long? Is money supposed to be the fixed reference point (the benchmark) for changes in the value of everything else? Or is it simply a shared language for expressing those changes?
To answer these questions, and so set the context of his argument on the present crisis, FOFOA offers a history lesson on what he calls the pure concept of money from the pre-capitalist period. Tracing money back to these roots, FOFOA argues, is necessary because our present concept of money has been corrupted by a long period of conflict between advocates of easy money policies — who favor a debased currency like the dollar — on the one hand, and advocates of hard money policies — who demand a return to some sort of commodity money (gold, or some other commodity) — on the other.
FOFOA admits he cannot really get back to a pure concept of money, but he attempts to construct a close substitute, based, he says, on archeological findings and etymology (with a judicious application of his own predetermined notions):
If we look at the specific etymology I highlighted, we are pretty close to the pure concept which I will confirm from a couple different angles. ‘Money’ is a “unique unit” that we use as a kind of language for expressing the relative value of things other than money. The modern example would be “dollar”. Not “a dollar,” not a physical dollar, but the word “dollar” as it is used to say a can of peas costs a dollar, or my house is worth 100,000 dollars, or you owe me a hundred dollars. If you give me two grams of gold you won’t owe me a hundred dollars anymore. You don’t have to give me actual dollars. That’s just the unit I used to express the amount of value you owed me. That’s the pure concept of money.
According to FOFOA, money is simply a common unit of account that we use to express the relative value of things. With it, we can compare, for instance, the value of a can of peas to the value of a house, because we can use some socially valid accounting unit to express their respective values.
It is unfortunate for his argument that FOFOA does not define the thing being expressed by money — value — at this point, preferring to leave it hanging out there simply as “the thing money expresses”. This is very damaging to his argument at the outset, because we have no way of knowing the attributes of value which logically must be shared by the can of peas, the house and money. Thus, it is difficult to actually ascertain whether money can actually play this critical role in society, as he argues it does.
The attributes of value present in the two items must also be present in the thing which expresses them. Even if we assume money is only a conceptual tool — a language for expressing this value — this conceptual tool presupposes there is something to be expressed through money. Is this value being expressed also conceptual like the money; or, is it a material thing like the can of peas? How do we know a house has 100,000 times the quantity of value contained in one can of peas?
“Because that’s what the prices paid for them says”, FOFOA seems to argue.
Without a theory of value it would seem impossible to have a theory of money, but FOFOA offers none in his argument. Suppose value referred to weight; would it not be necessary to have our money denominate units of weight measure? Would it not be necessary for actual money to come in some fixed weight unit, fraction, and multiple of this weight measure so that during a transaction we could be sure we were getting 1/100,000th of a house in our can of peas, not 1/200,000th of a house.
Likewise, if money is needed to express the value of a can of peas, is it not necessary that this money have actual value of its own? How is the actual money material to express the value of all else besides money if it has no definite value of its own? We can arbitrarily state one unit of value is to be called a dollar, but how is this relationship insured? How can we be sure that a dollar will, in fact, purchase this unit of value in our next visit to the grocery? FOFOA offers no ideas on these and other critical questions.
Next, FOFOA tells us a dollar is money only because we reference it when expressing the relative value of things. He emphasizes money is a product of our conceptions; but the actual material we use as money — e.g., the dollar — is money only because we use it to denominate the relative values of things. If we began using something else when denominating the relative values of things, this new thing would now be the money.
We could be using seashells as money. If we were, then all the seashells available for trade would be the monetary base. That’s the base to which I would be referring when I said you owed me one hundred seashells. A single seashell would be the reference point, the unique unit, but the whole of all available seashells would be the base around which money flowed. You could pay your debt to me with either an item that I desired with a value expressed as 100 seashells, or with 100 actual seashells. So if the total amount of seashells available (the monetary base) suddenly doubled making them easier for you to come by, I’d be kinda screwed. Of course I’d only be screwed if the doubling happened unexpectedly between the time I lent you the value of 100 seashells and the time you paid me back.
Of course, this begs the question: since money is only a concept, why does it need an independent material body? We don’t seem to need an independent material to express the concepts succulent and foul. According to FOFOA, money itself is only a language to express the relative values of things; however, for reasons FOFOA does not explained, this language needs an independent material form. It is not enough to have a common language to express relative values of objects, this language needs an independent common material form. Moreover, the common material form this concept takes is not actually the money, but a mere material referent or pointer. The material object employed as money is just a referent pointing back to our money conception.
Finally, FOFOA offers nothing to explain money in terms of its actual functions: Why does production take the form of objects with value? Why do we compare the values of these commodities? When did such comparison making arise in human history? What natural or social forces caused it to emerge? Certainly commodity production and value comparison is not hard wired in our DNA — so where did it come from?
These questions demand an answer, because later in his post, FOFOA is going to be making arguments against the modern money school that assumes he has answers to them. Arguments like “Hyperinflation is bad” — an argument that just printing money is ultimately disastrous. But, why is hyperinflation disastrous if money is only a concept, a mere language for expressing the relative values of objects other than money? How does adding zeroes to the material that only expresses a conception not like simply switching to yen from dollars to express relative values of things?
Money is a concept, a symbol of value; but, as FOFOA indicates with his dire prediction, it is much more than this.
With all of my objections and questions regarding FOFOA’s basic argument, you probably think I fundamentally disagree with him on the gist of his outline — but you would be completely wrong; I fully agree with his description. Insofar as he has simply outlined his ideal form of money, he has described our present dollar system in an adequate fashion. The problem is not that FOFOA’s description of money is wrong, but that, as a practical matter, he is correct in almost every detail but one: the dollar is not money.
To understand why it is not money, we need only recognize that the monetary system FOFOA describes has only existed in one other place and time in human history: the Soviet Union and other now-defunct centrally planned economies of the so-called socialist bloc. There money was not money as it emerged in history, but a political or administrative tool for enforcing the domination of the party-state over the productive activities of members of society. Far from being the object that became money as the term is properly used — an independent expression of the relations of production and exchange within existing society, and a ruling power over those relations — money in the Soviet Union, and in the world market today, is an instrument for enforcing the despotic will of the state, no different in this regard from the corporate budget which enforces the will of a single capitalist over his enterprise.
What FOFOA describes is not money; it is the expression of the despotic rule of the fascist state.
I apologize for this part of the series, because it is hopelessly geeky. Unfortunately, I see no way to move forward without getting into the weeds of Marx’s unique contribution to the theory of money at this point. Please bear with me on this. As I really need to explain the difference, before 1933, between a token currency and the commodity money that underpinned its value. Without understanding this relationship, it is impossible to truly understand what happened when the dollar was removed from the gold standard in 1933. Nor is it possible to understand why ex nihilo dollars can’t tell us anything about anything.
As I explained in the previous post, to become capital, a quantity of gold must be exchanged for ex nihilo currency, but this exchange also strips the capital of the value it contained when it was in the form of gold. This requires a bit of digression: In Marx’s labor theory of value, when a currency of a state no longer has a fixed exchange rate with gold, the value contained in a unit of gold no longer has any definite relationship with the use value of the currency as medium of circulation. This has a radical implication for political-economy that has been long overlooked by both Marxist and bourgeois economists. I will try to explain the implications of going off the gold standard using as little jargon as possible.
Background: Prior to debasement dollars served in the United States both as a measure of value contained in an individual commodity, and the medium of circulation for commodities. By the term “value”, I mean the labor time required by producers on average to produce any object. If an automobile takes as much time on average as a ounce of gold to be produced, we can say that the value of the car is equal to one ounce of gold. Gold acts as a socially valid measure of the value of other commodities when it is used as money. Before money was debased, the value of any good was loosely bound to some definite quantity of money because both the money and the commodity were the product of some definite expenditure of socially necessary labor time. The movement of market prices over a period of time worked to align the socially necessary labor time of a good with the quantity of money containing the same amount of socially necessary labor time. The two functions of money are closely connected: the price of any commodity, when this price was denominated in a currency that observed the gold standard, followed the general rule that, on average and over a period of time, this price was also a measure of the value contained in the commodity.
A token (e.g., paper) currency only could serve as measure of value contained in the commodity if it was fixed to a definite quantity of gold — for instance, prior to the Great Depression law stated one ounce of gold could be exchanged for 20.67 dollars. Since an ounce of gold always had a definite quantity of value (socially necessary labor time required to produce it) fixing the token currency to this definite amount of gold served to fix the currency itself to a definite amount of socially necessary labor time. Token currency, therefore, could only serve as the material expression of socially necessary labor time, because it was itself tied to gold.
We could say the term “dollar” was not only the name of the official currency, it was also the “name” established by law of some definite quantity of gold.
On the other hand, when used directly in circulation, a gold coin served as medium of circulation of commodities in such a way that its actual use in any particular exchange for commodties was very brief; the coin constantly moved from one person to another in the course of commerce — rarely, if ever, staying in one hand for long, since it would almost immediately be used in the next transaction. Marx argued gold in this function was, for several reasons, merely a token of itself used to facilitate the circulation of commodities.
One particular example of this token role was the use of a coin that had been eroded by use over a period of time and was now no longer of legal weight. Although the coin carried a legal definition of one dollar, its weight now no longer adhered to the standard of legal definition of a dollar. Since the coin was legally a dollar, but did not actually contain a dollar’s weight, if it continued in circulation it had been reduced to a token of itself. As a practical matter, this meant, within certain limits, the gold coin could be replaced in circulation by a token currency provided this token was redeemable for a definite quantity of gold. Thus, a token currency like the dollar could serve as money only because it had a fixed and definite relation with some commodity money.
So, when the dollar was debased from gold, there was more at stake than a simple legal redefinition of money. The Roosevelt and Nixon administrations were severing the currency from the only thing that gave it the ability to express in price form the value contained in a commodity. This legal redefinition of what was officially called money, concealed within itself an unprecedented break in the role of prices in a modern economy. It would not be an exaggeration to say Roosevelt and Nixon, through their executive orders, chopped off Adam Smith’s invisible hand, and replaced it with the iron fist of Fascist State economic policy.
With the debasement of the currency, the two functions of money — measure of value contained in an individual commodity, and the medium of circulation for commodities — devolved on different objects whose relationship was no longer fixed and given. As the material to express the value contained in each commodity, gold no longer played a role as a medium of circulation of these commodities; while token currency, as medium for circulation of commodities, could no longer serve as the material to express their values in the prices we paid for goods.
But, the crises which produced this change offer an even more profound argument about why this debasement occurred. Every commodity is both a useful object and an object containing a definite amount of value (socially necessary labor time to produce it.) Debasement suggests that the routine exchange of commodities is now fundamentally at loggerheads with the routine production of these commodities. As an object containing value — i.e., a definite amount of socially necessary labor time — the commodity cannot circulate; as a particular useful object in circulation its value cannot be expressed. The solution adopted by the two administrations essentially severed rules governing exchange from the rules governing production.
On the one hand, this means commodities no longer circulate as objects containing value, but only as particular useful objects differentiated only by their particular useful qualities. This conclusion will be both startling and controversial, because it also implies Marx’s law of value no longer determines exchange. The fact that currency has been debased from gold must force the conclusion that prices no longer express the values of the commodities to which they are attached.
By exchange, we can only mean the exchange of qualitatively different objects having equal values — so many pairs of shoes for so many pairs of pants — but the ex nihilo currency now serving as the medium of circulation has no value of its own, and, therefore, the price denominated in units of the currency cannot express the value of either the shoes or the pants.
After the debasement of the dollar, in any transaction between the seller of a commodity and the buyer with an ex nihilo currency, the seller of the commodity gives it to the holder of ex nihilo currency and receives in return nothing but a piece of paper. She gives away not only the particular use value she has, but also the value contained in this particular use value as well. While receiving ex nihilo currency in return for her commodity, she receives nothing in return for the value contained in her commodity. Although it appears otherwise, the exchange is not determined by the quantitative equivalence of the values contained in the two objects, but by qualitative differences in their respective use values alone.
On the other hand, things having no value at all — for instance, Predator drones — can now circulate alongside shoes and pants, the latter of which have both use value and value. This is already given in the successive transactions involving an ex nihilo currency and commodities, or in the exchange between any two ex nihilo currencies. The state can, for instance, produce a quantity of ex nihilo currency simply by crediting it to the account of a defense contractor and receive in return Predator drones to kill kids in Afghanistan. While the purchase of the drone by Washington using newly created ex nihilo currency looks like just another simple market transaction, and even shows up in measures of gross domestic product side by side with purchases like groceries or a new car — this appearance is really quite deceiving.
The most significant implication of the debasement of the currency that is completely overlooked by Marxist and bourgeois economists is this: once gold was removed as the standard of price by the Fascist State, not only did the currency lose its capacity to express the value of an individual commodity, the market as a whole lost the capacity to distinguish between productive labor and wasted unproductive labor. Rather than limiting society to the productive and efficient employment of labor power, the stage was set for something truly unprecedented: the relentless expansion of superfluous labor time and the attendant secular inflation of prices.
“The mode of production is in rebellion against the mode of exchange.” – Frederick Engels, Socialism: Utopian and Scientific, 1880
Krugman confuses the superficial relations of exchange for a deeper analysis of the capitalist mode of production. This failing might help him when he wishes to ignore the likely results of this sort of examination, but when he actually tries to understand how capitalism works — for instance, why rising gold prices might be a warning sign of a deflationary event — his inability to get beyond the superficial appearances lead him straight into a dead end.
Had Krugman looked at data from the 1980s and 1990s, he would have immediately noticed the slide in the price of gold over that period, and the incongruity of this decline for his argument. His hypothesis turned things exactly upside down — associating a negative so-called real interest rate with a period of general expansion. This is at odds with historical evidence to the contrary: prior to 1934 rising prices and generally rising interest rates and profit have always been associated with economic growth.
Speaking of the impact of Fed’s current counter-cyclical strategy on the price of gold, Krugman writes:
…there has been a dramatic plunge in real interest rates…What effect should a lower real interest rate have on the Hotelling path? The answer is that it should get flatter: investors need less price appreciation to have an incentive to hold gold…if the price path is going to be flatter…it’s going to have to start from a higher initial level…And this says that the price of gold should jump in the short run…with lower interest rates, it makes more sense to hoard gold now…which means higher prices in the short run and the near future.
Krugman is arguing Federal Reserve policy over the last three years is responsible for more than a decade of persistently rising gold price. He wants to explain gold price movements by interest rates, when it is clear he should be explaining interest rates by the movement in gold prices. The data suggests he has the situation exactly reversed. Moreover, if the connection I have made between generally falling gold price and economic expansion is correct, logic suggests the Federal Reserve is not trying to reduce real interest rates, but working feverishly to raise them. The real interest rates is only the change in the price of dollars over a period of time measured in gold (or some other commodity serving as money). If, at the beginning of the year, the price of dollars is such that one ounce of gold can buy 1400 dollars, but at the end of the year this price has changed so that one ounce of gold can now only purchase 1260 dollars, the real price of dollars has increased by 10 percent — restated in conventional terms, the “price” of gold has fallen from $1400 an ounce to $1260 an ounce.
Since, as Krugman argues, the rising price of gold is a sign of a depressed economy, it follows that a falling annual average price of gold must be evidence, at least, that this depression may be lifting. When the price of gold is falling, as during the 1980s and 1990s, it is a sign that real interest rates are positive, not negative. Moreover, it is a sign that the purchasing power of gold, as measured in dollars, is falling. Which is just what I would expect based on Marx’s theory of value.
All of this forces me to conclude the question of whether there is a persistent inflation or deflation hinges not on the general price level as measured in dollars or some other ex nihilo currency, but on the real price level — the purchasing power of gold (the purest commodity money) as measured in the sum of dollars or other ex nihilo currency a definite unit of this commodity money can purchase. When the quantity of dollars a troy ounce of gold can purchase is increasing, deflation is positive; when the quantity of dollars a troy ounce of gold is falling, deflation is negative. But, from the standpoint of the ex nihilo currency the situation is reversed: as the price of a troy ounce of gold decreases, the so-called real interest rate is positive; when the price of a troy ounce of gold increases, the so-called real interest rate is negative.
Rather than removing the change in the general price level from the equation of nominal interest rates, so-called real interest rates are only a measure of the change in the price of ex nihilo currency.
As we stated in the previous part of this series, gold is money, dollars are not — this is also true for all ex nihilo currencies in the world market, they are not money. The object serving as money is the material expression of the value contained in commodities solely because it is itself a product of a definite quantity of human labor. However, the value contained in a single dollar bill is the same as that contained in a one hundred dollar bill — or that contained in $700 billion created with a few keystrokes in a computer terminal at the Federal Reserve Bank in Washington; namely, zero. Once this is understood, it is possible to see that holders of ex nihilo currencies do not buy gold — that dollars are not here serving in the exchange as the money pole in the transaction, but as something else. Rather the situation precisely is the reverse: the holders of ex nihilo currencies are sellers who auction off their currencies to the highest bidder, while the holders of gold buy these worthless currencies from their holders.
Although it appears otherwise on the surface — that we must explain why, and under what circumstances, the holders of currency will choose to place their savings in gold — the case is exactly opposite of appearances: the fact that gold is exchanged for a valueless currency requires us to explain not why the holder of an ex nihilo currency would want to get out of her holdings of dollars or euros, but why the holders of gold would want to exchange their gold for these worthless currencies.
To be sure, since the ex nihilo currencies have no value, they are not purchased for their value. If dollars are not purchased for their value, the motivation for the exchange on the part of the holder of gold cannot be the value contained in the ex nihilo currency but the use value of the currency to the holders of gold. While gold serves especially well as a store of value, as a form of riskless savings, these saving can only become capital if this gold can be turned into land, machinery, factories, and other elements of fixed and circulating capital, and, above all, into a mass of labor power that is the source of surplus value and what makes real capital out of capital. For the owner of a hoard of gold to actually become the owner of a mass of capital, this gold must be converted into one or another currency, allowing it to assume the form of money-capital. This conversion is nothing more than the conversion of money into capital once removed.
The conditions determining this conversion are established by laws in each nation, which determine what is and is not to be used as money within the borders of that particular nation. If the laws of a nation establish that its currency shall exchange with an ounce of gold for, say, $20.67 per ounce, then the owner of gold can use his hoard to purchase 20.67 dollars for each ounce of gold he is willing to give in exchange. If the laws of the nation should suddenly change, so that now an ounce of gold will exchange for $35, then the owner of gold use his hoard to purchase 35 dollars for each ounce of gold he is willing to give in exchange. Finally, if the laws of a nation establish that its currency will have no fixed exchange rate with an ounce of gold, then the owner of gold must search in the market for the best exchange rate for the currency concerned. All other things equal, in the first two cases, the capacity of the state to issue currency is more or less severely constrained by the need to maintain the proper balance between the quantity of currency in circulation and the quantity of gold it must represent. In the final case, this constraint is relaxed.
If the point of the exchange of an ounce of gold for any quantity of dollars was a mere commodity transaction, the owner of the gold would be giving her gold away for free, no matter the quantity of dollars she received in return. Since the dollars contain no value, were the exchange regulated by the law of value, it would require an infinite quantity of dollars to equal the value in one ounce of gold. It should be obvious that equal exchange plays no role in this transaction, but only the laws of the state concerned. The state has determined that its ex nihilo currency is money; should the capitalist wish to turn his hoard of gold into capital, and become a real not imaginary capitalist, he must purchase this ex nihilo currency. He, therefore, purchases not the value contained in the dollars, but the use value of the dollars: its capacity to become capital.
It is the use value of the currency — its capacity to become capital — that serves as the basis for determining the exchange ratio of an ounce of gold with the currency, i.e., that determines the price of dollars expressed in units of gold, or, in the eyes of simpleton economists like Paul Krugman — whose point of view is determined by the needs of Fascist State monetary and fiscal policies, as “essentially a capitalist machine” — determines the price of gold. The use value of currency consists entirely of its use as capital, as self-expanding value, as value set in motion for the purpose of creating more value. From the point of view of the owner of gold, the ex nihilo currency is but the form his gold must take on, before it can take the form of capital — of fixed and circulating capital, and of labor power. Far from being something mysterious, it is actually no more mysterious than the need to exchange dollars for euros in order to purchase fixed and circulating capital and labor power in the Eurozone. What motivates this latter exchange is not the exchange rate of dollars for euros, but the specific use to which these euros can be put as capital.
There is, however, a problem with this that might throw a monkey wrench into the gears of capitalist production: to assume the form of capital, our would be capitalist must exchange his gold, containing real value, for a currency containing no value of its own. To expand the value of his gold holding, the capitalist must first strip off the value of the gold. What does he get in exchange for this quantity of gold? He receives in return some quantity of use value in the form of so many dollars, which, despite their usefulness as capital, contain not a single jot of value. The capitalist places this quantity of dollars in motion as a capital, and, after some period of time, withdraws it plus an additional quantity of dollars which make up the profit on his activity. But, it is not until he has reconverted this quantity of dollars back into gold, and assured himself that, indeed, the new quantity of gold is greater than the original quantity, will he know that, in fact, his gold became capital.
When there is a fixed exchange rate between a definite unit of gold and a definite unit of dollars, it is not at all complicated to assess whether the capitalist currency profit is also a definite quantity of surplus value. However, when the exchange rate between a definite unit of gold and a definite quantity of dollars is subject to fluctuations within the world market, assessing whether some profit in currency form is actually surplus value is complicated by the fluctuations in the rate of exchange itself.
The capitalist exchanges 100 ounces of gold for dollars at a given rate of 1000 dollars per ounce of gold. He then places this total capital of $100,000 in motion as capital; later drawing out of it a new sum of $150,000 — $100,000 is his initial capital plus a profit of $50,000. However, upon reconverting his $150,000 back into gold, he is surprised to find that his 100 ounces of gold is now only 50 ounces of gold, or, alternately, has grown to 200 ounces of gold. In the first case, this is because the new exchange rate of gold has changed from 1000 dollars to an ounce of gold to 3000 dollars to an ounce of gold. In the second instance, the exchange rate has changed from 1000 dollars to an ounce of gold to 750 dollars to an ounce of gold. In the first instance, he has lost fifty percent of his capital; while, in the second instance, he has doubled his capital.
I have a simple hypothesis for how Krugman managed to reach the correct conclusion regarding the relationship between the price of gold and the general level of economic activity: he probably started with his conclusion and tried to work backward. He needed an argument for why the rising price of gold might signal deflation rather than inflation. So, he took his conclusion and looked for some argument on which he might hang this conclusion.
Hey, it happens sometimes — that is how intuition works. The problem in this case is that Krugman’s argument requires us to ignore so many facts it is clear he did not think the problem through completely.
The most vital empirical fact Krugman overlooks is the rather jarring upward slope of the demand curve for gold. This means increasing demand for gold is driven by its increasing price (if not completely insensitive to price altogether). If this seems bizarre, that’s because the actual relationship between gold and currency is reversed in the demand schedule. The demand schedule for gold can be restated thus: the quantity of dollars demanded in the market is the inverse function of its price in ounces of gold. In other words, if the observation of our gold-bug in China can be believed, ex nihilo dollars is the “commodity”, and gold is its price. I am not the first person to note this. The writer, FOFOA, often quotes another anonymous writer from 1998, who observed:
It is gold that denominates currency.
FOFOA, commenting on this argument, states:
Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero.
The upward slope of the demand curve for gold can be seen in the above chart for the years 2001 to 2010, using data, supplied by the World Gold Council, of demand for gold in the form of bars and coin plus gold purchased by exchange traded funds. The pronounced upward slope is unmistakable. This curve suggests that the story of gold as just another commodity is wildly off-base.
To put this in terms that might be less opaque, when CNBC states an ounce of gold is going for $1400, they are not telling you the value of an ounce of gold, but the value represented by 1,400 dollars, using an ounce of gold as the unit of measure. Gold is money by reason of its natural (physical) properties; while dollars are money only through the fiction of a state law that says they must be accepted as payment for transactions. Having no value of their own, the value represented by a quantity of dollars is solely dependent on the ratio between this quantity of dollars and a definite quantity of gold (or, some other commodity that can serve as money in the relationship). So, when Krugman proposes to explain the “real price of gold” in this situation, he is employing a meaningless term. Unbeknownst to him, he is merely asking what quantity of gold can be used to purchase that quantity of gold. If, instead, he had asked what determines the “real price” of a dollar in gold terms, it would immediately have been obvious that the price of a dollar is the physical quantity of gold that can purchase it. Moreover, it would have been obvious that the change in the price of the dollar is identical to the change in the quantity of gold with which it can be purchased — in other words, that the so-called “real interest rate” of dollars is equal to the change in the quantity of dollars that gold can buy over some period of time.
Now that we solved the riddle of the unusual demand curve for gold, we can resolve, as well, the paradox of ex nihilo currency real interest rates in the United States over the long period from 1980 until now. As I stated in the last post, Krugman’s argument implied interest rates were negative for most of the 1980s and 1990s, and that interest rates have been positive since 2001. Now, it is obvious that the case must have been the exact opposite of Krugman’s implicit argument: For most of the 1980s and 1990s, as the average annual price of gold fell, the real interest rate averaged +5% per year. This is because the quantity of gold necessary to purchase a given quantity of dollars — i.e., the real price of dollars — was increasing over that 20 year period by 5% per year. In 1980, an ounce of gold could purchase $595, but by 2001, it could only purchase $271. By the same token, as the average annual gold price has risen at an average rate of 15% per year for the entire period from 2001 to 2011, this implies the real interest rate has been -15% per year over the period.
Since, gold is money (a specific money commodity at least), we can explain its use as a store of value. When gold serves as a store of value, it is merely serving as a form of savings for its holders. In this case it becomes clear why gold is a preferred form of saving. First, it has an unlimited shelf-life; but, second, and more important, Washington cannot devalue gold as it can dollars, by printing dollars indiscriminately.
We can also explain the relation between gold and dollars: gold is money, and ex nihilo currency is not. Gold has value but no purchasing power — you can’t use it to buy groceries — since it is not legally recognized as money and it does not serve as the standard of prices. On the other hand, while ex nihilo currency has no value, it does have purchasing power, since it is officially recognized as money and serves as the standard of prices. However, despite the legal definition of the dollar as official money in the United States, money is not just whatever the state says it is. It is a real relation between members of society that exists independent of the thing government legally defines as money (or, even the commodity serving as money).
What else dollars might be is not our concern right now.
When a worthless ex nihilo currency has a floating exchange rate against gold, it doesn’t represent any real value itself but only that expressed in its actual exchange rate with gold over a period of time. Based on this, it is now clear that the “real price” of a good is not its ex nihilo currency price — as measured in so many dollars — but the definite quantity of gold that can purchase this quantity of dollars. Even if it is not obvious to us in our daily shopping activities, the “real price” of a commodity is derived from the quantity of gold that can be used to purchase the quantity of money listed as the price of the commodity.
We have examined the relation between gold and ex nihilo dollars, showing that gold is money while dollars are not. We also showed why the value represented by any quantity of dollars is only an expression of the value contained in a definite quantity of gold that can purchase this definite quantity of dollars.
So, for example, the value of the price of a 42 inch, wide-screen, high definition, plasma television at Best Buy, with a price of $1400, has the value of one ounce of gold when that ounce of gold can purchase 1,400 dollars. If that ounce of gold can purchase 2,800 dollars, then the television has the value equal to one half ounce of gold. And, if, If that ounce of gold can purchase only 700 dollars, then the television has the value equal to two ounces of gold. In any case, the price of the television only reflects the value of the quantity of gold that can purchase a quantity of dollars equal to that price.
It might appear, at first, that the value of the television could be doubled simply by doubling its price, but this would be an error. As we stated above, the dollars used in such a transaction have no value of their own, and, therefore, cannot express the value of either the television or gold. So, if the prices of all goods were suddenly doubled, this would not result in the doubling of the value of the total output; it would simply double the dollar price of the existing output — leaving the value of the output unchanged. The relationship between the value contained in the commodity and the corresponding value contained in a unit of gold is determined not by the price paid for the commodity, but their respective socially necessary labor times of production. As long as these respective socially necessary labor times do not change relative to each other, the change in dollar price of either is of no consequence.
This statement has implications for both calculating inflation and nominal interest rates, as we will see in the next post.
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
“…the more does it actually become the national capitalist, the more citizens does it exploit.”
In the first part of the series, I made three critical assumptions about present political-economic relations.
First, in 1929, Capitalism suffered a general breakdown, brought on by absolute over-accumulation — absolute over-production. This crisis, known popularly as the Great Depression, occurred in every major industrialized nation in the world market, and constituted a global over-accumulation of capital that was irreversible. It took the form of a great mass of unemployed workers, side by side with a mass of unemployed means of production and subsistence.
Second, the fascist states which emerged from this economic catastrophe took the form of the ‘political rule of the proletariat over itself’, effected through its suffrage in the nations where it formed the largest class.
Third, the only alternative solution to the breakdown of capitalism and the “political rule of the proletariat over itself” was and remains the reduction of labor hours.
I also attacked the “Marxist theory of the state” and argued this “theory” is, in fact, not supported by Marx’s critique of capitalist society. So far as I can determine, not a single point of Althusser’s 1970 statement of the ‘Marxist theory of the state’ is found either in Marx’s or Engels’ writings of the state. While it is true, Althusser agrees with historical materialism that the state is an organ of class rule, this simplistic description of the state is ahistorical and does not satisfy the historical materialist description of the capitalist mode of production as a distinct historical stage in the development of the forces and relations of production.
Althusser’s statement can be applied to any epoch of human civilization, and to every known mode of production. It does not explain what of the capitalist state is specific to the capitalist mode of production and the social relations within society that are founded on this mode. What is specific to the state under the capitalist mode of production is not merely, or even primarily, that it is an instrument by which the ruling class imposes its will on society: in the writings of Marx and Engels, the state under the capitalist mode of production is “essentially a capitalist machine,” that displaces and renders the capitalist class itself superfluous to the mode of production and functions as the national, i.e., social, capitalist.
Althusser treats the state as an ahistorical category, not as a real thing situated in the capitalist epoch. The state is reduced to an instrument of repression, which appears in the capitalist epoch already in its complete and unchanging form. Essentially, Althusser recycles Duhring’s argument on force and dresses it in 20th Century “Leninist” clothing. While he does not go so far as Duhring and Anarchism to give force the determining role in historical development, he treats the state itself as essentially unchanged by the material changes in society.
This essentially static view of the state can not help us understand our present condition, as it throws no light on existing social relations.
In the second part of the series, I examine Lenin’s and Kautsky’s argument that the class conflict takes place completely within the bounds of a commercial transaction and confirm it as agreeing with my understanding historical materialism. The recognition by Lenin and Kautsky of the limits of the purely economic struggle — of the struggle with the capitalist over the terms and conditions of the sale of labor power, however, is converted by Leninism into an argument that the proletariat is incapable of carrying out its historical mission of burying capital without theory. And, since the proletariat is not “the bearer of theory”, into an argument for a vanguard party.
The argument for a Leninist vanguard party on these grounds, however, is a non-sequitur, since, despite the limitations of the economic struggle, historical materialism insists the working class abolishes capital based on empirical comprehension of their circumstances — not on a theory purporting to describe these circumstances.
Marxists take Kautsky’s and Lenin’s arguments completely out of context of the capitalist mode of production itself, and abstracted from the impact the mode of production has on the state. Although the conflict between capitalist and wage laborer is essentially a commercial conflict, Engels description of the State shows how the capitalist (as personification of the relationship) is progressively displaced by the state as Capital develops. The marginalization of the capitalist does not resolve — overcome — the class conflict; rather, it converts it into a directly political struggle. Which is to say, the worker to assert her purely commercial interests in the class conflict, must also assert her political interest against the state.
If, on this basis, historical materialist investigation of the Fascist State refutes the arguments of the Marxists who trace their thinking to Lenin, still more clearly does it refute the European Social-Democrats who, having thrown Marx and Engels out the window entirely, propose to tinker with existing relations to render capitalism more humane. This latter gang of opportunists aspire to nothing more than perfecting the Fascist State as the social capitalist.
Against both failed variants of this tradition, we demand not a new brand of sectarian organization, nor reform of politics, but the abolition of the state.
While the historical task of the worker is simplified by the convergence of Capital and the State power and the emergence of the Fascist State, it is obvious this fascist state rests on universal suffrage of the proletarian majority. To put it bluntly, in her political activity the worker constitutes the very machinery of exploitation against which she fights. Her commercial interest as a seller of labor power, sparks her political activity to ensure this sale is consummated; the terms and conditions of this sale, and the prerequisites of these, figure as this or that economic policy of the fascist state. On the other hand, the enlargement of the state, its increasingly pervasive economic role, is no more than the expansion of the state as social capitalist and must lead to the ever increasing exploitation of the worker. The more she struggles to realize political relations to satisfy her requirements as a seller of labor power, the more indifferent the State becomes to her needs as a human being.
This must lead to two results that I can think of:
In the first instance, what was once concealed beneath purely monetary relations must become increasingly obvious to the proletarians: that their activity is the enlargement of an alien power standing over against them. As the state becomes the social capitalist, what was previously only a theoretical derived conclusion regarding the relationship between capital and wage labor is made explicit and comprehensible to the worker.
In the second instance, the increasingly comprehensible relation between capital and wage labor appears, not in its commercial form, but in the form of increasing antagonism to the fascist state, and to its role as social capitalist, stated in a political form, i.e., as demands against the state. However, expressed in this purely political form, it is now the empirical expression of a radical critique of all existing relations.
(I want to clarify that I am discussing certain writers, while withholding judgement on their overall work. It is not my intention to assert they were wrong in their time and place, only that their arguments have been taken out of context by what is currently referred to generally as “Marxism”. Moreover, by “Marxism” I include the body of work that traces its origins to both the Soviet experience and to Western Social-Democracy.)
Convergence of the economic and political conflict in society
In the first part of this series, I introduced some fundamental assumptions about 21st Century society. I also took issue with the Marxist theory of the state, as elaborated by Louis Althusser in his 1970 work, Ideology and Ideological State Apparatuses. Now, I want to sketch out my understanding of the historical materialist conception of both the State and Capital, in order to trace the error in the ‘Marxist theory of the State’ back to its likely roots.
The nexus of the relation between the two appears to arise just before Lenin and his work, What is to be Done. In chapter II of this book, Lenin quotes Karl Kautsky on the relationship between Marxist theory and the practical economic struggle of the working class:
“Many of our revisionist critics believe that Marx asserted that economic development and the class struggle create, not only the conditions for socialist production, but also, and directly, the consciousness of its necessity. And these critics assert that England, the country most highly developed capitalistically, is more remote than any other from this consciousness. Judging by the draft, one might assume that this allegedly orthodox Marxist view, which is thus refuted, was shared by the committee that drafted the Austrian programme. In the draft programme it is stated: ‘The more capitalist development increases the numbers of the proletariat, the more the proletariat is compelled and becomes fit to fight against capitalism. The proletariat becomes conscious of the possibility and of the necessity for socialism.’ In this connection socialist consciousness appears to be a necessary and direct result of the proletarian class struggle. But this is absolutely untrue. Of course, socialism, as a doctrine, has its roots in modern economic relationships just as the class struggle of the proletariat has, and, like the latter, emerges from the struggle against the capitalist-created poverty and misery of the masses. But socialism and the class struggle arise side by side and not one out of the other; each arises under different conditions. Modern socialist consciousness can arise only on the basis of profound scientific knowledge. Indeed, modern economic science is as much a condition for socialist production as, say, modern technology, and the proletariat can create neither the one nor the other, no matter how much it may desire to do so; both arise out of the modern social process. The vehicle of science is not the proletariat, but the bourgeois intelligentsia: it was in the minds of individual members of this stratum that modern socialism originated, and it was they who communicated it to the more intellectually developed proletarians who, in their turn, introduce it into the proletarian class struggle where conditions allow that to be done. Thus, socialist consciousness is something introduced into the proletarian class struggle from without [von Aussen Hineingetragenes] and not something that arose within it spontaneously [urwüchsig]. Accordingly, the old Hainfeld programme quite rightly stated that the task of Social-Democracy is to imbue the proletariat (literally: saturate the proletariat) with the consciousness of its position and the consciousness of its task. There would be no need for this if consciousness arose of itself from the class struggle. The new draft copied this proposition from the old programme, and attached it to the proposition mentioned above. But this completely broke the line of thought…”
Kautsky’s statement concerns the formation of consciousness under the capitalist mode of production. In it he proposes a dual track model of communist consciousness, where the direct conflict between wage labor and capital coexists side by side with, but separately from, the understanding of the implication of this conflict. The worker is engaged in the direct struggle, the intellectual brings to her a consciousness of the implications of her struggle — the need for her to assume control of the state.
In chapter III of the above book, Lenin imports Kautsky’s statement into his argument against what would later become the Mensheviks in Russian communism. However, we now have a problem: societies do not imagine themselves into existence. (I got this statement from somewhere, but can’t remember who, perhaps the Marxian writer Chris Cutrone) This is, in my opinion, a restatement of the fundamental historical materialist assumption — material conditions first, ideas second.
Kautsky’s statement, therefore, violates a fundamental assumption of historical materialism — its most important assumption. Perhaps a correction is in order: he does not directly violate this assumption, since he is only talking about Marx’s theoretical conclusion. As a theory, he may be correct, but communism cannot possibly rest on general acceptance of a theory. Which is to say, communism, as a real movement of society, must have been inevitable even if Marx had not discovered it. If the science had advanced no further than, say, Ricardo or Hegel or St Simon, the emergence of communism would still occur.
Discovering this inevitability, of course, was science, and this is a product of the intelligentsia — but not the historical process itself. The result is, if all communists were to disappear tomorrow, this process would still unfold according to its own logic. Communists are superfluous to it — a fifth wheel. We can no more change the outcome than can Ben Bernanke over at the Federal Reserve Bank.
I tried this argument out at Kasama.org and (after having a collective seizure) they asked me if this was true why was I a communist? More importantly, Why was Marx a communist? Why did he organize the working class movement? I had no real answer for this at the time.
I do now, because a tweep, @yelbley, asked how I would explain 1929 from a materialist perspective.
I think it was because Marx saw 1929 coming, and the implications of the Event — Engels actually stated it explicitly. At a certain point, both knew, the State would have to seize control of the entire machinery of production. Whether this ended in a social revolution, or what I now call the Fascist State would depend on the “political consciousness” of the class. How much of the theory of its own material condition it had absorbed would decide the outcome — not the final outcome, but the intermediate outcome.
That was the Event that should have seen the Paris Commune reborn on a global stage — a form for the proletariat to work out its final liberation — a liberation, not just from wage slavery, but from labor itself.
Marx was notorious for not talking about the future, only the immediate was important — because he was not given to making blueprints. The world did not need another utopian system — it only needed to understand its actuality and the process inherent in it. In Volume 3, however, and Engels in “Utopian and Scientific Socialism” we get a glimpse into the implications of his theory.
The fact is, in historical materialism properly understood, the Proletarian never even realizes she is a wage slave. As individuals, they act exactly like any other commodity seller, like small commercial players. The worker sells her one commodity over and over again and the conflict with the capitalist over the terms of this sale falls completely within the bounds of commercial rivalry.
Lenin explicitly states this idea in chapter III of What is to be Done; he argues that the trade union fight alone is insufficient for the development of a communist consciousness among the working class:
“The overwhelming majority of Russian Social-Democrats have of late been almost entirely absorbed by this work of organising the exposure of factory conditions. Suffice it to recall Rabochaya Mysl to see the extent to which they have been absorbed by it — so much so, indeed, that they have lost sight of the fact that this, taken by itself, is in essence still not Social-Democratic work, but merely trade union work. As a matter of fact, the exposures merely dealt with the relations between the workers in a given trade and their employers, and all they achieved was that the sellers of labour power learned to sell their “commodity” on better terms and to fight the purchasers over a purely commercial deal. These exposures could have served (if properly utilised by an organisation of revolutionaries) as a beginning and a component part of Social-Democratic activity; but they could also have led (and, given a worshipful attitude towards spontaneity, were bound to lead) to a “purely trade union” struggle and to a non-Social-Democratic working-class movement. Social-Democracy leads the struggle of the working class, not only for better terms for the sale of labour-power, but for the abolition of the social system that compels the propertyless to sell themselves to the rich. Social-Democracy represents the working class, not in its relation to a given group of employers alone, but in its relation to all classes of modern society and to the state as an organised political force. Hence, it follows that not only must Social-Democrats not confine themselves exclusively to the economic struggle, but that they must not allow the organisation of economic exposures to become the predominant part of their activities. We must take up actively the political education of the working class and the development of its political consciousness. “
What does Lenin’s statement imply about the empirical relation between these two great classes of capitalist society, and for the mode of production itself?
The capitalist as buyer of labor power confronts the worker as seller; and, later, the worker as buyer of subsistence commodities confronts the capitalist as seller. Both poles of this relationship rests on the successful exchange of labor power for wages. The sale of labor power appears, in the first instance, as the direct result of the exchange of labor power for wages. And, the sale of labor power appears, in the second instance, as the condition for the exchange, as means of purchase in the form of wages for commodities.
Historical materialism states that labor power has undergone a change between the first instance and the second instance. This change is both qualitative: labor power is consumed and this consumption turns it into various useful objects — shoes, cars, etc. But, there is also a quantitative change: the value of the latter — shoes, cars, etc. — is greater than the former — the initial labor power.
Empirically, however, it appears otherwise: while a qualitative change has taken place, there has been no quantitative change. This is because all the quantitative change has taken place outside the purview of the commodity sellers — outside of exchange.
Everything which, from the standpoint of the law of value, appears as a necessary result of the improvement in the productivity of social labor, appears to the society of commodity sellers in its inverse form: theoretically, there is creation of surplus value, but, empirically there is “not enough money in circulation”. Society is constantly threaten by overproduction and crises.
The entirety of the reality of the material relations of production is hidden behind money, not only from the capitalist but also the worker. Both classes are fucking clueless. And, they are engaged in this meaningless, never-ending, commercial squabble over terms of a filthy transaction. But, as repulsive as the relationship is, they are both trapped in it: without it, the capitalist cannot be a capitalist, while the worker starves.
The reproduction of the relation, the purchase/sale of labor power, is their entire, and intimately shared, basis for existence. And, as Engels shows, and many writers like Kevin Carson recount, the relationship becomes increasingly dependent on the state. Now let’s look again at the quote from Engels, I referred to in the previous part of this series:
But, the transformation — either into joint-stock companies and trusts, or into State-ownership — does not do away with the capitalistic nature of the productive forces. In the joint-stock companies and trusts, this is obvious. And the modern State, again, is only the organization that bourgeois society takes on in order to support the external conditions [my emphasis] of the capitalist mode of production against the encroachments as well of the workers as of individual capitalists. The modern state, no matter what its form, is essentially a capitalist machine — the state of the capitalists, the ideal personification of the total national capital. The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist, the more citizens does it exploit. The workers remain wage-workers — proletarians. The capitalist relation is not done away with. It is, rather, brought to a head. But, brought to a head, it topples over. State-ownership of the productive forces is not the solution of the conflict, but concealed within it are the technical conditions that form the elements of that solution.
What Engels is predicting here is an Event: that impending convergence of the purely commercial relation between the wage worker and the capitalist over the purchase/sale of labor power, with the incremental expansion of state management of the process of production itself. Stated simply: in 1880, Engels was predicting that the purely commercial conflict between the two great classes would be converted by the convergence with increasing state control over production into a directly political struggle — into a direct fight against the national — i.e., social — capitalist, the state.
In 1929, capitalism enters its end-stage, and becomes absolutely dependent on the State. The state, in turn, becomes the fascist state, representing not capitalist or worker, but Capital — the relationship itself. And, this happen 50 years after Engels wrote these words:
“The more it proceeds to the taking over of productive forces, the more does it actually become the national capitalist…”
From the moment this process culminates, the capitalist class is a side-show, lacking any real role in production beyond clipping coupons. Everything is being managed by the state. The fight against capital is now immediately political — expressed directly in the conflict with the state itself.