Archive for the ‘Token Money’ Category

Three Books on Marxist Political Economy (Pt 10)

September 10, 2017

History of interest rates

A chart showing the history of interest rates over the last few centuries shows an interesting pattern — low hills and valleys with a generally downward tendency. During and immediately after World War I, interest rates form what looks like a low mountain range. Then with the arrival of the Great Depression of the 1930s, rates sink into a deep valley. Unlike during World War I, interest rates remain near Depression lows during World War II but start to rise slowly with some wiggles through the end of the 1960s.

But during the 1970s, interest rates suddenly spike upward, without precedent in the history of capitalist production. It is as though after riding through gently rolling country for several hundred years of capitalist history, you suddenly run into the Himalaya mountain range. Then, beginning in the early 1980s, interest rates start to fall into a deep valley, reaching all-time lows in the wake of the 2007-09 Great Recession. Clearly something dramatic occurred in the last half of the 20th century.

Read more …

Advertisements

Three Books on Marxist Political Economy (Pt 9)

August 14, 2017

Last month, we saw that Shaikh’s view of “modern money” as “pure fiat money” is essentially the same as the “MELT” theory of money. MELT stands for the monetary expression of labor time.

The MELT theory of value, money and price recognizes that embodied labor is the essence of value. To that extent, MELT is in agreement with both Ricardian and Marxist theories of value. However, advocates of MELT do not understand that value must have a value form where the value of a commodity is measured by the use value of another commodity.

Supporters of MELT claim that since the end of the gold standard capitalism has operated without a money commodity. Accordingly, prices of individual commodities can be above or below their values relative to the mass of commodities as a whole. However, by definition the prices of commodities taken as a whole can never be above or below their value.

Instead of the autocracy of gold, MELT value theory sees a democratic republic of commodities where, as far as the functions of money are concerned, one commodity is just as good as another. Under MELT’s democracy of commodities, all commodities are money and therefore no individual commodity is money.

Read more …

Three Books on Marxist Political Economy (Pt 7)

July 10, 2017

“The real net rate of profit,” Shaikh writes, “is the central driver of accumulation, the material foundation around which the ‘animal spirits’ of capitalists frisk, with injections of net new purchasing power taking on a major role in the era of fiat money.” This sentence sums both the strengths and the basic flaw in Shaikh’s theory of crises, and without too much exaggeration the whole of his “Capitalism.”

By “net rate of profit,” Shaikh means the difference between the total profit (surplus value minus rent) and the rate of interest, divided by total advanced capital. This is absolutely correct.

But now we come to the devastating weakness of Shaikh’s analysis. Shaikh refers not to the net rate of profit but the real net rate of profit. “Real” refers to the use value of commodities as opposed to their value—embodied abstract human labor—and the form this value must take—money value. While real wages—wages in terms of use values—are what interest workers, the capitalists are interested in profit, which must always consist of and be expressed in the form of exchange value—monetary value (a sum of money).

In modern capitalism, as a practical matter the money that makes up net profit or profit as a whole consists of bank credit money convertible into state-issued legal-tender paper money that represents gold bullion. The fact that legal-tender paper money must represent gold bullion in circulation is an economic law, not a legal law. (More on this in next month’s post.) When Shaikh refers to real net profit, he does not refer to profit at all but rather to the portion of the surplus product that is purchased with the money that makes up the net profit.

Read more …

Three Books on Marxist Political Economy (Pt 6)

May 21, 2017

Shaikh’s theory of money

Shaikh deals with money in two chapters—one near the beginning of “Capitalism” and one near the end. The first is Chapter 5, “Exchange, Money, and Price.” The other is Chapter 15, “Modern Money and Inflation.” In this post, I will concentrate on Shaikh’s presentation in Chapter 5. In Chapter 15, Shaikh deals with what he terms “modern money.” I will deal with his presentation in this chapter when I deal with Shaikh’s theory of inflation crises that is developed in the last part of “Capitalism.”

In Chapter 5, Shaikh lists three functions of money—considerably fewer than Marx does. The three functions, according to Shaikh, are (1) money as a medium of pricing (p. 183), (2) money as a medium of circulation, and (3) money as a medium of safety. Shaikh deals with money’s function as a means of payment under its role as a means of circulation. The problem with doing this is that money’s role as a means of payment is by no means identical to its role as a means of circulation and should have been dealt with separately.

Anybody who has studied seriously the first three chapters of “Capital” Volume I will be struck by how radically improvised Shaikh’s presentation here is compared to that of Marx. It is in the first three chapters of “Capital” that Marx develops his theory of value, exchange value as the necessary form of value, and money as the highest form of exchange value. He does this before he deals with capital. Indeed, Marx had to, since the commodity and its independent value form, money, is absolutely vital to Marx’s whole analysis of capital.

Read more …

Three Books on Marxist Political Economy (Pt 5)

April 23, 2017

Shaikh’s wrong theory of interest rates

“The interest rate is the price of finance,” Shaikh writes at the beginning of Chapter 10, “Competition, Finance, and Interest Rates.” Shaikh treats the rate of interest as fluctuating around the price of production of the “provision of finance.” Late in Chapter 10, Shaikh indicates he was confused on this subject in the 1970s and the early 1980s but brought to his current views by the Sraffrian-neo-Ricardian Italian economist Carlo Panico. Is this the correct approach to ascertaining what actually determines the rate(s) of interest? I believe it is not.

Do interest rates really fluctuate around a “price” of the provision of finance the way market prices fluctuate around prices of production? Strictly speaking, price is the value of one commodity measured in terms of the use value of the commodity that serves as the universal equivalent—money. According to this definition, interest rates are not prices at all.

It is true that we often use price in a looser sense. For example, we talk about the prices of securities that are in reality legal documents that entitle their owners to flows of income. Another example is the price of unimproved land whose owners hold titles to flows of ground rent. It would be absurd to talk about the price of production of unimproved land if only because unimproved land is a form of wealth produced by nature and not by human labor.

Some other ‘non-price’ prices

Another example of a price that is not a real price is the dollar “price” of gold. This very important economic variable is not really a price at all but instead measures the amount of gold that a dollar represents at any moment. Other examples of “non-price” prices are the “price” of one currency in terms of another—exchange rates—and the price of politicians.

Read more …

Can Trump Become the Next U.S. President?

March 27, 2016

In the “super-Tuesday” primaries held March 15, Donald Trump solidified his lead in the struggle for the Republican nomination for the U.S. presidency. He knocked right-wing Republican Senator Marco Rubio of Florida out of the race.

Rubio had been considered one the best hopes of the pro-Wall Street establishment Republicans in their increasingly desperate struggle to stop Trump. The only bright spot for the Republican leadership was that John Kasich, the establishment Republican governor of rust-belt state Ohio defeated Trump in that state’s primary.

However, Kasich has few delegates pledged to him. In normal circumstances, that would mean that he would have virtually no chance of winning the nomination for the presidency. He would simply be a “favorite son” candidate who would be expected to release his delegates to vote for the eventual winner. At most, Kasich might hope to win the vice-presidential nomination.

The super-Tuesday results barely keep alive the hopes of the Republican leadership that Trump might still be denied enough delegates to clinch the nomination before the Republican convention to be held this coming July in Cleveland, Ohio. If this proves to be the case, there remains the possibility a majority of delegates might be scraped together to nominate a more traditional Republican for president, but who that might be is anybody’s guess at this point.

The only other Republican besides Trump and Kasich still officially in the race is Texas Senator Ted Cruz. Cruz mixes extreme “neo-liberal” economics with an appeal to the religious fanaticism of the so-called Christian Right. His colleagues in Republican Party leading circles consider him personally obnoxious. They also fear that he is likely to lose big time in November to the presumed Democratic nominee, Wall Street darling Hillary Clinton, due to his neo-liberalism combined with his support of extreme sectarian Protestant Christian religious fundamentalism.

While it is possible that Trump has considerable support among the coupon clippers in the country club locker rooms—I don’t know, since I don’t personally move in these circles—serious political strategists of the U.S. ruling class, whether Democrat or Republican—what Marx called the “political bourgeoisie“—consider Trump completely unqualified to assume the U.S. presidency. This is not because they doubt Trump’s loyalty to the capitalist system. On the contrary, Trump is a multi-billionaire and therefore has a personal stake in the survival of capitalism greater than all but a handful of his fellow billionaires.

Read more …

Capitalist Economists Debate ‘Secular Stagnation’ (Pt 4)

August 16, 2015

How gold production drives expansion of the market

Here I assume that gold bullion serves as money material unless I indicate otherwise.

In a previous post, I indicated that there cannot be an overproduction of gold in its role as money material. This has been more or less the received view among Marxist writers over the years.

However, in thinking about this question more carefully I think my earlier post was incorrect on this point. I was correct in stating that from the viewpoint of capitalists as a whole there cannot be “too much” gold as far as the realization of value of (non-gold) commodities is concerned. The more gold there is relative to the quantity of other commodities, everything else remaining equal, the easier it will be for industrial and commercial capitalists to sell their commodities at their prices of production and thus realize the surplus value contained in them in the form of profit.

But what is true for the non-gold producing capitalists is not true for the gold producing capitalists. Indeed, from the viewpoint of an individual industrial capitalist there can never be too much of the commodities produced by their suppliers. As a productive consumer, industrial capitalist A can hope for nothing better than that supplier industrial capitalist B overproduces as much as possible. When B overproduces, all other things remaining equal, A gets to pocket some of the surplus value contained in B’s commodities. But from B’s point of view, the overproduction of B’s commodity is an absolute disaster.

True, the (non)gold producing capitalists do not consume gold, insomuch as gold serves as money material as opposed to raw material. But it is absolutely essential for them that gold is produced in adequate quantities if the value, including the surplus value, contained in their commodities is to be realized.

Even if gold bullion played no role whatsoever as raw material, a certain level of gold production would still be necessary for capitalist expanded reproduction to proceed. And capitalism can only exist as expanded reproduction.

How much gold capitalism needs—with the development of the credit system, banking, clearing houses, and so on being given—depends on the level and vigor of expanded reproduction at a particular time. The greater the possibilities of exploiting wage labor and the higher the rate of surplus value and the potential rate of profit in value terms, the higher the level of gold production must be if the process of expanded capitalist production is to proceed unchecked.

Read more …

Capitalist Economists Debate ‘Secular Stagnation’ (Pt 3)

July 19, 2015

Secular stagnation and the Greek crisis

Many on the left have expressed acute disappointment that the Syriza government has agreed to accept more “austerity” in the wake of the No! vote of the Greek people. We must remember that the Syriza government is not a revolutionary socialist government—a dictatorship of the proletariat—and a socialist revolution is not, or rather is not yet, unfolding in Greece or anywhere else in Europe at the moment. The logic of the class struggle does point in the direction of a European socialist revolution, but we are not yet there. This blog will not attempt to lay out strategy and tactics for Greek revolutionaries during the present acute crisis.

Instead, I am interested in another question: Why is the “troika” so unreasonable in its dealings with the Syriza government? The government leaders have made it clear that they are determined to remain within the European Union and the Eurozone. Their program has always been quite modest—an end to the relentless austerity that has led to a depression worse in terms of both the unemployment rate and duration than the early 1930s super-crisis was in the United States or in Germany.

The super-crisis proper of the early 1930s lasted “only” three and a half years in the U.S. and Germany. The Greek crisis has lasted six years. A brief rise in the Greek GDP late last year had already given way to renewed recession before the crisis that shut down the Greek banking system for two weeks. The agreement between Syriza and the troika for still more austerity in exchange for loans that will enable the gradual reopening of the Greek banks threatens to further prolong the Greek slump.

It has been almost 50 years since the May-June 1968 General Strike in France. The French government of the day, headed by General Charles de Gaulle, largely conceded the economic demands of the strikers in order for the ruling class to hold on to power. The French government was prepared to do this through civil war if necessary. De Gaulle’s willingness to wage civil war to uphold capitalist rule combined with a willingness to make concessions in the economic sphere prevented a prolonged social and political crisis in France in 1968 of the type that is now unfolding in Greece. Why isn’t the troika, the de Gaulle of today, following the same policy for Greece that worked so well for de Gaulle and the French capitalists in 1968?

Last week, in a special post on Greece, I explained that behind the hard-line policies pursued by the troika lies the current “tightening” phase of the U.S. Federal Reserve Board monetary policy. This tightening phase is, in turn, rooted in the extraordinary policy of “quantitative easing” that the Fed followed in response to the near collapse of the U.S. banking system in the fall of 2008. But they could not continue this policy indefinitely without incurring a fatal crisis of the dollar system sooner or later.

As the quantity of U.S, dollars has begun to grow relatively more scarce than in the years of quantitative easing, there have been a few shocks—for example, the recent Chinese stock market panic. But for now, the crisis in Greece is the most dramatic. So in order to understand the deep roots of the Greek crisis and the troika response to it, we have to understand the causes of the crisis of 2008 and the quantitative easing it led to. The “Great Recession” itself was embedded in a more chronic problem of prolonged slowing economic growth that economist Larry Summers calls “secular stagnation.”

Read more …

Che Guevara and Marx’s Law of Labor Value (Pt 2)

March 29, 2015

Bourgeois value theory after Ricardo

As I explained last month, the rising tide of struggle of the British working class obliged Ricardo’s bourgeois successors to abandon the concept of value based on the quantity of labor necessary on average to produce a commodity of a given use value and quality. They were forced to do this because any concept of labor value implies that profits and rents—surplus value—are produced by the unpaid labor performed by the working class. The challenge confronting Ricardo’s bourgeois successors was to come up with a coherent economic theory that was not based on labor value. Let’s look at some of the options open to them.

Malthus, borrowing from certain passages in Adam Smith, held that the capitalists simply added profit onto their wage costs. Like Smith and Ricardo, Malthus assumed that what Marx was to call constant capital could be reduced to wages if you went back far enough. Therefore, constant capital really consisted of wages with a prolonged turnover period—what the 20th-century “neo-Ricardian” Pierro Sraffa (1898-1983) was to call in his “Commodities Produced by Means of Commodities” “dated labor.”

Malthus held that since capitalists are in business to make a profit, they simply added the profit onto their costs—ultimately reducible to the price of “dated labor,” to use Sraffa’s terminology.

The idea that profits are simply added onto the cost price of a commodity is known as “profit upon alienation.” This notion was first put forward by the mercantilists in the earliest days of political economy. In this period, preceding the industrial revolution, merchant capital still dominated industrial capital. After all, don’t merchants make their profits by buying cheap and selling dear?

But what determined the magnitude of the charge above and beyond the cost of the commodity to the capitalist? And even more devastating for Malthus, since every capitalist was overcharging every other capitalist—as well as working-class consumers who bought the means of subsistence from the capitalists—how could the capitalists as a class make a profit? If Malthus was right, the average rate of profit would be zero!

But perhaps we don’t need the concept of “value” at all? Why not simply say that the natural prices of commodities are determined by the cost of production that includes a profit? But then what determines the prices of the commodities that entered into the production costs of a given commodity? Following this logic to its end, the natural prices of commodities are determined by the natural prices of commodities. This is called circular reasoning.

We haven’t moved an inch forward from our starting point. To avoid a circle, we have to determine the prices of commodities by something other than price. There is no escaping some concept of value after all.

Read more …

Che Guevara and Marx’s Law of Labor Value

March 1, 2015

This March marks the 30th anniversary of the election of Mikhail Gorbachev to the post of general secretary of the then-ruling Communist Party of the Soviet Union. At first, the election of Gorbachev seemed to involve a long overdue shift of power to a new generation of Soviet leaders. As we now know, it involved a lot more.

A process was unleashed that was soon to be called “Perestroika.” In the name of “radical economic reforms,” the Soviet planned economy was progressively dismantled. Perestroika ended not only with the restoration of capitalism but the breakup of what had been the Soviet federation.

The combined process of the restoration of capitalism and breakup of the Soviet federation was accompanied by a massive collapse of both industrial and agricultural production. The living standards and life expectancy of the working class plummeted. A generation later, the economies of not only the Russian federation but the economies of the other former republics are yet to recover.

Perestroika led to a wave of capitalist counterrevolutions that in 1989 swept through eastern Europe with the active support not only of imperialism, as would be expected, but also the Gorbachev government. As part of this process, Germany was reunited on a capitalist basis while staying in NATO. The former socialist countries that had been members of the now dissolved Warsaw Pact joined NATO as did the former Soviet Baltic republics of Latvia, Lithuania and Estonia. The Georgia Republic—Stalin’s homeland—is very close to NATO and openly striving to become a formal member, while the new right-wing government in Ukraine has joined NATO in all but name.

Perestroika, therefore, resulted in a massive expansion of the U.S. world empire into the one area of the planet—the Soviet Union and its allies—that remained outside the Empire after World War II.

The destruction of the Soviet Union and the Soviet bloc and their planned economies would have been enough if that was all that was involved. But it was not. The capitalists and their spokespeople everywhere pointed to the Soviet collapse as final proof that “socialism had failed.” The result was a wave of demoralization that spread through a workers’ movement that was already in retreat before the neoliberal capitalist offensive symbolized by such political figures as Ronald Reagan and Margaret Thatcher.

National liberation movements were also pushed back, though the hopes of political figures such as Ronald Reagan and George W. Bush that the old-fashioned colonialism that had dominated the world in 1914 would return—with the difference that the United States and not Britain or France would be the chief colonizer—has not been so easy to achieve.

Between November 7, 1917, when the Bolshevik-led Congress of Soviets seized power, and the election of Gorbachev as general secretary of the CPSU Central Committee in March 1985, the peoples of the oppressed nations got accustomed to the idea that they should be independent and not colonial slaves of the West. Therefore, attempts by the U.S. world empire to push these nations and peoples back into something like pre-1914 colonial relationships have met, to the chagrin of the imperialists, unexpected and growing resistance.

Read more …