Can the World Market Ever Become Exhausted?

A century ago, the belief that the world market was headed for eventual exhaustion was widely accepted among the left wing of the Social Democracy, especially in the German-speaking world. But the refutations of Rosa Luxemburg’s “Accumulation of Capital” and her “Anti-Critique,” based on Marx’s volume II diagrams of capitalist reproduction, pretty much discredited the idea that the world-market could ever face a situation of permanent exhaustion. (1)

Cyclical crises were viewed as being caused by disproportions among the various branches of production. Such disproportions were viewed as temporary. In the long run, the limits of the market were seen as the limits of production.

Yet no less a Marxist than Frederich Engels himself apparently shared the idea that the world market could become exhausted. Engels believed this not only in the days of his youth but at the very end of his life. In chapter 31 of volume III of “Capital,” Marx’ used British export data to demonstrate that each successive peak in the industrial cycle exceeded its predecessor. Engels included in brackets this interesting note, which I will quote in full:

“Of course, this holds true of England only in the time of its actual industrial monopoly; but it applies in general to the whole complex of countries with modern large-scale industries, as long as the world-market is still expanding [emphasis added—SW].”

So in 1894—the year before he died—Engels could still imagine a time when the world market would no longer be expanding. It is significant that the above remarks of Engels appear in volume III of “Capital,” nine years after Engels had brought out volume II of “Capital,” the volume that includes Marx’s famous diagrams of simple and expanded reproduction. Therefore, presumably Engels was throughly versed in Marx’s theories and mathematical diagrams of simple and expanded reproduction, but he apparently didn’t draw the conclusion that so many other Marxists drew from them. That conclusion being that as long as the correct proportions were maintained between the various branches of production, the market would only be limited by production.

Are the limits of the market determined by the limits of surplus value production?

As I explained last week, Henryk Grossman saw no limit to the ability of the market to expand as long as enough surplus value was produced. According to Grossman and his follower Paul Mattick (2), the problem of realizing the value of commodities—including the surplus value they contain—is not a problem as long as a sufficient amount of surplus value can be squeezed out of the working class. Once the limits of surplus value production are reached—both within an industrial cycle and the final historical limit set by the maximum size the surplus value-producing working class can ultimately reach—the market will become “overstocked,” but not until then.

But couldn’t the ever-growing exploitation—cyclical fluctuations aside—of the working class that is absolutely necessary for capitalism’s survival—as Grossman so brilliantly demonstrated by extending Bauer’s diagram to the 36th year—so limit the ability of the working class to consume that the market would become exhausted? This idea goes all the way back to the Swiss economist Sismondi (1773-1842), the contemporary of Ricardo, who can be considered the father of crisis theory.

The problem with the idea of “underconsumption,” whether as a theory of cyclical crises or as forming the ultimate limit to capitalist production, is that besides playing down the “unproductive consumption” (3) of the capitalists and their hangers-on, it ignores the productive consumption that the capitalists are obliged to undertake on an increasing scale as capitalism develops. (4)

Indeed, as we saw last week in Bauer’s diagram of expanded reproduction, where he abstracted the rising rate of surplus value, the entire consumption of the capitalists ends up as productive consumption by the 35th year. The capitalists consume so many means of production and so much labor power—which they use to produce still more surplus value—that they have no surplus value left over for their personal consumption.

Since a situation where the personal consumption of the ruling capitalist class has fallen to zero is clearly nonsense, in the real world the capitalists must increase the rate of surplus value in the course of capitalist development precisely because they must increase their productive consumption of surplus value while leaving something—actually quite a bit—for their—and their hangers-on—personal consumption.

Inevitable cyclical crises

So whether we are dealing with Marxists of the Bauer type, or the followers of Grossman and Mattick, aren’t we sliding into Say’s Law? Didn’t Bauer, Grossman and Mattick all forget that commodities must be purchased or paid for not with (non-money) commodities but with money?

In examining cyclical crises, I demonstrated how not only can there be a shortage of monetarily effective demand—this becomes theoretically possible as soon as a separate money commodity emerges—but there must be shortages of monetarily effective demand on a periodic basis once capitalism has developed to a certain point. And what is that point?

Capitalist cyclical crises begin to appear once the productive forces have developed to the point that sudden rapid increases in production can occur. Such sudden increases in production mean that the capitalists are pretty much forced to throw their previously idle hoards of money onto the market. (5) This leads to a sudden rise in monetarily effective demand, or what comes to exactly the same thing, a sudden expansion of the market, as previously hoarded money is thrown into circulation. Demand rises even faster than production can be increased causing prices measured in terms of money material to rise above the actual values of commodities.

Once the prices of commodities have risen above the values of commodities, the production of money material becomes both relatively and absolutely less profitable. The production of money material will then begin to decline as capital is withdrawn from the industry that produces money material and flows into more profitable branches of production. (6)

A crisis does not break out at this point. Idle hoards of money are drawn into circulation increasing the velocity of circulation of money, banks create more and more loans—and bank deposit credit money—on a narrower and narrower cash reserve. Clearing agreements—especially among banks—mean that cash is only necessary to make the payments that don’t offset one another. The development of the credit system, clearing agreements, and so on make it possible to expand the market far beyond what would be possible on a cash bases alone. But the expansion of credit inevitably reaches a limit. At the end of the day, one piece of money cannot pay two debts at the same time.

What determines the level of production of money material?

Therefore, the growth in the market is governed by the level of the production of money material. If by chance the production of money material were to grow faster than the level of commodity production, this would lead sooner or later to a powerful economic boom. This boom would inevitably raise the prices of commodities. At some point, the prices of commodities will rise above the values of commodities rendering the production of money material increasingly unprofitable. The production of money material, therefore, will begin to lag behind the production of commodities.

Once the development of the credit system has been developed to the maximum extent possible and with it the whole system of “over-trading” that conceals the overproduction of commodities relative to money material, the heretofore concealed overproduction that has been building up over a considerable period of time suddenly manifests itself in the form of a financial “crash” or “panic.” Credit vanishes and overproduction finally comes out into the open as unsold commodities pile up in warehouses.

This, however, does not happen until the “artificial system of payments and the means of settling them,” as Marx put it, has “fully developed.” This is why, though the essence of crises is the generalized relative overproduction of commodities,” each crisis at the beginning appears to be a credit—or sometimes initially a currency—crisis.

Since the crisis appears to begin in the sphere of currency or credit, the bourgeois economists always attempt to find the “cure” for crises through reforms in the currency and credit systems. This is continuing today, though the bourgeois economists after about 165 years of such reforms are beginning to run out of ideas!

Overproduction is temporary

However, the generalized overproduction of commodities—the exhaustion of the market—in a cyclical crisis is only temporary. Indeed, a cyclical crisis is nothing but a sudden and forcible halt of the (relative) overproduction and its replacement by a period of underproduction.

With the outbreak of the crisis, prices measured in terms of money material fall and the purchasing power of the existing mass of money material expands. In addition, the lower prices of commodities—assuming that the values of both money and commodities remain unchanged—make the production of money material both relatively and absolutely increasingly profitable. Eventually, the production of money material starts to rise once again.

At first this increasing production of money piles up in the form of idle bank reserves. The banks are awash in cash and interest rates are low. But the material basis for the next “sudden expansion of the market” that will initiate a new vigorous cycle of capitalist expanded reproduction is now laid. This potential “sudden expansion” of the market becomes an actual sudden expansion once the overproduced commodities and surplus means of production are either sold off, written down or physically destroyed.

Therefore, the growing mass of money material—gold—forms the material basis of the expansion of the market that Marx indicated was an absolutely necessary condition if capitalist production was to continue. Next week I will examine exactly why this so.

Concrete economic history indicates that money material must be produced in ever greater quantities if the market is to expand at a rate sufficient to prevent a long-term rise in the rate of unemployment. At least since 1850, when annual statistical estimates of gold production began, whenever the production of money material—gold—has entered into a period of protracted decline, the capitalist economy has fallen into a serious crisis of mass unemployment. (7)

We saw this during the late 19th-century “Great Depression,” and the years preceding the super-crisis of 1929-33. We saw it again during the decline in gold production that occurred in the 1970s, which was followed by the double-digit unemployment of the early 1980s. And we are seeing it once more. Gold production peaked in 2001, and eight years later even the official unemployment figures in the United States have again returned to the double digits.

On the “supply side,” capitalism must increase the production of the mass of surplus value embodied in an ever-growing mass of commodities. On the “demand side,” it must increase the—much smaller—mountain of money material that consists of the commodity—which also must contain surplus value—that serves as money.

It is often said that capitalism’s thirst for surplus value is unquenchable. This is true, but with this qualification. It is capitalism’s thirst for profit—surplus value realized in money form—that is unquenchable. Capitalism has no interest whatsoever in producing surplus value that cannot be realized in money form. Therefore, the “mountains” of commodities and money—though the money “mountain” is much lower than the “commodity mountain”—must both grow without limit if capitalist production is to continue . (8)

The two main functions of cyclical crises

In the capitalist system, the cyclical crises of overproduction have not one but two basic functions. The first is to periodically replenish the industrial reserve army of the unemployed and underemployed. (9) If the reserve industrial army is too small, the industrial capitalists will not be able to achieve the rising rate of surplus value that is absolutely necessary for the survival of the system, because if there were no crises, the balance of forces would favor the sellers over the buyers of the surplus value-producing commodity labor power. This aspect of cyclical crises was well understood by Grossman and Mattick.

The other major purpose of cyclical crises under capitalist production is to periodically depress the prices of commodities below the values of commodities so that the production of money material is in the long run sufficient to ensure that the value and surplus value contained in the ever-growing—cyclical fluctuations aside—mass of commodities that capitalism must produce can be realized in the form of money and monetary profit.

The need to realize, not simply produce, surplus value was stressed correctly by Rosa Luxemburg. Where Luxemburg went wrong was she didn’t correctly understand how surplus value is actually realized under capitalist production. Henryk Grossman and Paul Mattick completely overlooked the problem of realizing surplus value, assuming wrongly that if the problem of producing surplus value was solved, the problem of realizing surplus value would automatically be solved as well.

It is important to emphasize that the periodic crises of overproduction became inevitable once capitalism had developed its ability to suddenly increase production, not because the world was running out of gold. Even if we assumed that the quantity of gold in the Earth’s crust was available in an infinite quantity—an obvious material impossibility—periodic capitalist crises of the generalized overproduction of commodities would still be inevitable.

Gold production today

The January 2009 edition of the bourgeois publication National Geographic features an article “The Real Price of Gold,” by Brook Larmer.

Larmer explains that “the Spanish, whose lust for gold … spurred the conquest of the New World.” That was of course the period Marx called, with his devastating irony, “the rosy dawn of the era of capitalist production.” But what about the production of gold today?

“Gold is not vital to human existence; it has, in fact, relatively few practical uses,” Larmer writes. (10) Except, of course, for its function as money material—a very “practical use” for vampire-like capitalism, which uses dead labor for the sole purpose of extracting an ever-greater mass of unpaid living labor that must then be realized in money—gold—form.

“Humankind’s feverish attachment to gold,” Larmer complains, “shouldn’t have survived the modern world.” Larmer is, of course, correct here. But what Larmer does not explain is the reason why “humankind’s feverish attachment to gold” has survived.

The survival of the lust for gold is an inevitable result of the survival of the capitalist mode of production, where highly socialized global labor must be treated as private labor because the product of today’s globalized, socialized labor is appropriated privately by a class of capitalist exploiters.

While our modern bourgeois economists, as well as well-meaning observers like Larmer, can deplore the “irrational” lust for gold, only Marxist economic science can explain it, as well as prescribe the medicine that can cure it, a world socialist revolution.

“Every country in the world … has done away with the gold standard,” Larmer observes, “which John Maynard Keynes famously derided as a ‘barbarous relic.'” But, Larmer writes, “gold’s luster not only endures … it grows stronger.”

Larmer documents that the modern gold industry is an environmental disaster as well as a devourer of human lives, including the lives of children. Not so much has changed since the 16th century in this regard.

“For all its allure, gold’s human and environmental toll has never been so steep,” Larmer reports. “Gold mining … generates more waste per ounce than any other metal,” he goes on to explain. “These gashes in the Earth, are so massive they have been seen from space.”

The gold mining industry, Larmer shows, is one of the worst abusers of labor of children in the world. Like the god Moloch of ancient times, the gold industry is destroying both the natural environment—what the economists call land—and the lives of children, as well.

But how long can capitalism keep on squeezing ever more of the stuff out of the earth in order to make sure that the capitalists can continue to realize in the form of profit the increasing mass of surplus value that it must squeeze out of the workers of the world?

Well, even Mother Earth has her limits.

The November 14, 2009, edition of the London Daily Telegraph reported that Aaron Regent, president of the Canadian gold mining giant Barrick, had said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run. “There is a strong case to be made that we are already at ‘peak gold,'” Regent told The Daily Telegraph at the annual gold conference of the Royal Bank of Canada held in London.

CNBC quotes Sean Brodrick, natural resources analyst for Weiss Research’s Uncommon Wisdom Daily newsletter, on Nov. 20, 2009: “Despite the fact that gold has been marching higher for years, global gold mine production is actually going down. The reason is they aren’t finding these big elephant-sized deposits.”

“There’s a real squeeze coming on,” Brodrick claims. “If we’re not at peak gold, we might be approaching it.”

Peak gold?

We have all heard of peak oil. Peak gold would imply a situation where no changes in prices—that is, no fall of commodity prices measured in terms of gold—would be able to increase the production of gold. While up to now, falling commodity prices in terms of gold have sooner or later led to increased gold production—paving the way for a period of declining unemployment—this would no longer be true after peak gold.

Needless to say, we cannot necessarily take the words of Regent and Brodrick at face value. Mr. Regent is, after all, an active industrial capitalist whose commodity happens to be gold. And gold’s use value is largely to function as money material. He may simply be trying to keep the current dollar price run-up of gold bullion going a little longer—while he plays the “bear” side of the market for all I know.

I am not accusing Mr. Regent of doing this—I have no evidence indicating that this is true—but such things have happened many times in the storied history of capitalism. I have no idea of the general reliability of Mr. Brodrick, but I admit I am in no position to vouch for his reliability either. I am certainly not in a position to encourage anybody to speculate in gold based on the comments of these gentlemen.

But let’s assume for the sake of argument that Regent and Brodrick are telling the truth about “peak gold.” What is peak gold?

Like oil, gold is a non-renewable resource. The rocks that consolidated to form the Earth 4.6 billion years ago contained only so much gold. Most of the gold like other “heavy metals” sank to the Earth’s core, where no foreseeable technology can ever reach it. Convective forces gradually cycled gold from the Earth’s interior regions to the crust, but this process is very slow, working over geological eons, much like oil is gradually produced from organic material over tens of millions of years.

There is speculation asteroids—rocky objects that orbit around the sun—may be rich in gold and other metals and might one day be mined. Unlike planets, asteroids are too small to have enough gravity to suck heavy metals—including gold—into their cores. But the mining of asteroids by capitalist for-profit mining companies is still very much the stuff of science fiction. (11)

Today, the costs of launching rockets to send mining equipment to even nearby asteroids is prohibitively expensive. While it is dangerous to make assumptions about the future evolution of human science and technology, it is far from certain that it will ever be profitable to mine asteroids for gold or other metals under the capitalist mode of production. In any case, if this ever comes to pass it is decades in the future.

So what would happen if we are approaching or are already at “peak gold”? We have seen what has happened when gold production has experienced temporary declines. Declining gold production has been accompanied or followed by “long waves” of capitalist economic stagnation—severely impaired expanded reproduction, or even the complete suspension of expanded reproduction for years on end—and rising unemployment. This has been true regardless of the monetary system—whether gold standard, gold-exchange standards or paper money systems.

In every case up to now, capitalism has not gotten out of such periods of retarded expanded reproduction and soaring unemployment without a very considerable rise in gold production. Up to now, this rise in gold production has occurred as falling price levels in terms of gold has made it profitable to once again increase gold production.

After peak gold, gold production would decline no matter how much commodity prices measured in terms of gold declined. At most, declining commodity prices measured in terms of gold could only slow the decline in gold production, just like after “peak oil” no increase in oil prices could increase oil production.

Peak gold would not mean that there would be a permanent crisis of overproduction. After “peak gold,” the prices of commodities in terms of gold would fall—to a much greater extent than before peak gold—which would tend to increase the purchasing power of gold. And even if gold production was declining, the total supply of gold on the world market would continue to increase, though at an ever-slowing rate.

Capitalism, therefore, would not “break down” completely. But we would expect that the industrial cycles that would follow “peak gold” would be quite different than those that we have experienced up to now. For one thing, we know from economic history that periods of temporary declining gold production have seen a strong rise of unemployment. After peak gold, the tendency for unemployment to rise would presumably be permanent. It would only be a matter of time before the unemployment situation would become intolerable.

Isn’t this the exhaustion of the world market that Frederich Engels saw as a possibility in the note he inserted in volume III of “Capital” and that Rosa Luxemburg thought was coming? True, if “peak gold” comes to pass, the “exhaustion” of the world market would be not for the reasons that Luxemburg thought it would be in her “Accumulation of Capital” and “Anti-Critique.” For example, there is no reason why such an exhaustion—actually a greatly impaired ability of the world market to expand that would follow “peak gold”—would not occur long before all simple commodity producers have disappeared.

Or would it?

But aren’t I overlooking something? Can’t any commodity in principle serve as the universal equivalent? Why wouldn’t capitalism simply find a new universal equivalent—money commodity—that would allow the expansion of the market to resume?

Well maybe, but things aren’t so simple.

Gold didn’t become the money commodity because some international monetary conference like that which was held in Bretton Woods, N.H., in 1944 decided that gold would make a nice money commodity. Gold emerged as the money commodity through a process of “natural selection” over thousands of years. But aren’t there many commodities that have been used as money commodities that are no longer used as money material?

Leaving aside the case of commodities like cattle (12) that were used as money commodities in the earliest stages of commodity production and have no relevancy to the question I am discussing here—in the past, commodities that have served as money commodities and later lost that role have done so because of a dramatic decline in their value not a dramatic rise in their value. The most recent example is silver, which for thousands of years functioned as a money commodity alongside gold.

After ‘peak gold’

If “peak gold” should occur—either now or sometime in the future—gold’s value would not decline. Instead, it would start to rise dramatically, and there would be no way to lower its value—or prevent it from continuing to rise. Whether it is peak oil or peak gold, a given quantity of the commodity whose production has peaked due to the worsening natural conditions of production would represent an ever-greater quantity of abstract human labor.

Marx pointed out that gold among other things functions as a means of accumulation—that is, a means of hoarding. This is a consequence of its functioning as an independent existence of exchange value—exchange value that can be carried around in your pocket. Or as the bourgeois economists say, gold is an excellent “store of value.”

As a means of hoarding, gold’s function would in no way be impaired after “peak gold.” Quite the contrary. The higher its value rose, and the less likely a dramatic drop in its value in the future would seem—the more “hoardable” it would become. The capitalists—just like would happen if they ran out of labor power in a “Grossman-type of breakdown”—would increasingly act like the misers of old, seeking to maximize their accumulation of gold rather than as capitalists proper who carry out the circuit of M—C—P—C’—M’. Hasn’t this been observed during periods of temporary declining gold production? Wouldn’t the tendency of the capitalists to revert to acting like misers be much stronger if gold production were declining on a permanent basis?

In a world after peak gold, the capitalists would grasp onto the gold that already has been mined and refined. New gold would still be produced but in ever-smaller quantities. With the buying power of gold ever increasing—leaving aside the inevitable cyclical fluctuations—and the prospects of selling commodities at a profit—in terms of gold—tending to decrease over time, the capitalists would also tend to revert to the role of misers. In this case, they would do so not because they couldn’t produce additional surplus value but because they would increasingly be unable realize it.

Even if we aren’t anywhere near peak gold, but it turns out that prices measured in terms of gold have to fall much more than in the past to cause major upswings in gold production, the consequences could be dire because cyclical crises would have to be much more severe, and or of much longer duration, than they were in the past to restore gold production.

In the next post, I will present a final overview of the forces that work to historically limit the lifetime of the capitalist mode of production.

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1 In the United States during and immediately after the Roosevelt recession of 1937-38, the idea that capitalism—especially U.S. capitalism—was facing a situation of “secular stagnation” gained a following among some economists. However, these economists, who were strongly influenced by Keynes’s newly published “General Theory,” were far removed from the Marxist concepts that were the basis of the controversy provoked by Luxemburg’s “Accumulation of Capital” in the old Social Democracy. One of them, the British left Keynesian economist Joan Robinson, did write a generally favorable introduction for the English edition of Luxemburg’s “Accumulation of Capital.”

Essentially, Robinson saw Luxemburg as a kind of forerunner of Keynes. However, Robinson’s understanding of Marxist economics was rather limited, to say the least. The theory of secular stagnation was largely forgotten among mainstream bourgeois Keynesian economists during the post-World War II period of capitalist prosperity.

However, Paul Sweezy, who was strongly influenced by the Keynes-inspired stagnation theories of the late 1930s, as well as by Marx, tried to show in his 1942 “Theory of Capitalist Development” that there was a built-in tendency toward an overproduction in Department II, the department that produces the means of personal consumption. He was criticized for assuming what he was attempting to prove.

In his later 1966 book, “Monopoly Capital,” which he co-authored with Paul Baran, he and Baran developed a theory of a tendency toward secular stagnation based on the growth of capitalist monopoly but made no attempt to link it up with the older controversies based on Marx’s diagrams of simple and expanded capitalist reproduction.

The biggest difference between Luxemburg, on one side, and later radical Keynesians like Joan Robinson and Keynesian Marxists like Sweezy, on the other, was that Luxemburg rejected the idea that non-capitalist consumers of surplus value—the hangers-on of the capitalists and non-productive (of surplus value) workers—could in any way solve the problem of realizing the surplus value. Rosa Luxemburg insisted that only independent commodity producers could provide the markets to realize that part of the surplus value that a pure capitalist economy, according to Luxemburg’s theory, could not provide.

In contrast, the Keynesian-inspired economists saw and see the consumption of the non-productive consumers of surplus value as key to overcoming the inadequacy of monetarily effective demand—the market—that would otherwise characterize the capitalist system.

2 Paul Mattick (1904-1981) was a self-educated German worker who moved to the United States in 1926. He was a follower of Grossman’s economic theories but not his politics. Mattick believed that the Soviet Union was a form of “state capitalism” and was very critical of Lenin’s Bolsheviks, as well. Grossman, who had been a member of the Polish Communist Party in the 1920s, did not join the German Communist Party when he moved to Germany in the 1920s to escape the repression in his native Poland, nor did he become a member of the U.S. Communist Party when he moved to United States in the 1930s to escape Hitler’s dictatorship. However, unlike Mattick, he remained a supporter of the Soviet Union.

Grossman, who died in 1950, was forced to leave the United States at the end of the 1940s due to the growing anti-Communist witch hunt that was then sweeping the United States. He moved to the new German Democratic Republic—East Germany—where he obtained employment as a professor of political economy at the University of Leipzig. Grossman joined the newly formed German Socialist Unity Party (SED), a party that was formed by a merger of the German Communist Party with elements of the German Social Democratic Party. The Socialist Unity Party was the ruling party of the German Democratic Republic.

Mattick, perhaps because he was not a supporter of the Soviet Union, was able to remain in the United States until his death in 1981.

3 The underconsumptionists hold that capitalism tends to produce more commodities than can be sold at a profit because the workers are paid wages that are inadequate to fully buy back the commodities that the workers produce. It is true, as Marx pointed out, that the workers are always overproducers relative to the commodities they can afford to buy. If the workers did not produce more commodities than they can buy back with their wages, there would be no surplus value, no profit, and no capitalist production. If production were solely for the needs of the worker-consumers, the relative overproduction of commodities where more commodities are produced than can be sold at a profit would not occur.

But as Engels wrote, this would not explain why there was no capitalist-style crises of the generalized relative overproduction of commodities in earlier class societies and in early capitalism, as well, although there, too, the workers always produced more than they could consume. In addition, Marx pointed out that wages tend to be highest just before a crisis breaks out.

The underconsumptionists ignore not only the personal consumption of the capitalists and their hangers-on but the productive consumption of the capitalists of both the elements of constant capital as well as the commodity labor power.

4 The Ukrainian liberal semi-Marxist economist Mikhail Tugan-Baranovsky (1865-1919), basing himself on Marx’s diagrams of expanded capitalist reproduction, became infamous for his insistence that there was no limit whatsoever to the expansion of the market, and thus the ability of capitalist production to grow as long as the correct proportions of production were maintained. Not surprisingly, Tugan-Baranovsky held that socialism would have to triumph as a moral idea and not due to any economic necessity.

5 These idle hoards of money are for the most part held in the banks. It is not necessary to actually withdraw the money from the banks in order to spend it. Instead, the banks can use the idle hoards of money that have been entrusted to them—whether this money consists directly of metallic money or state-issued token money—to create additional credit money that is used as a means of purchases and payments.

Since the amount of token money that can be created without its depreciation is ultimately limited by the amount of metallic money in a given country and on the world market, the amount of metallic money with a given degree of development of the banking and credit system will determine the amount of credit money that can be created by the banking system. No development of the banking and credit system can allow the creation of credit money in amounts that is not ultimately limited by the amount of metallic money available on the world market if we measure the “amount of money” in terms both of the metallic money—real money—it represents as well as in terms of its purchasing power.

Only in the trivial sense that the amount of money as measured in terms of dollars, euros, yen, and so on without regard to what a dollar, euro, yen and so on can actually buy can money be created in unlimited amounts.

6 During the 1980s and 1990s, many articles appeared in the capitalist financial press explaining how gold was losing its luster. Gold mining shares that had been the best performers on the stock exchanges during the 1970s were now among the worst investments. While the media pointed to the dismal performance of gold shares as a sign that gold was finally becoming de-monetized and the age of “non-commodity” money was finally dawning, making prosperity permanent, the decline of the profitability and thus of stock market prices of the gold mining and refining corporations was actually a confirmation of gold’s continuing monetary role and the best indication that the “Great Moderation” was just a passing phase.

7 The only exception to this rule was the decline in gold production associated with World War II. But the World War II decline followed the rapid increase of gold production accompanied by sharply falling prices that occurred during the Depression decade. When World II broke out, the world was awash in idle money capital, a situation that persisted well into the post-World War II era. This shows just how much the Depression and World War II disrupted the normal process of expanded capitalist reproduction. Under these historically unprecedented conditions, it took a long time before “the artificial systems of payments and the means of settling them” could again be “fully developed.”

In contrast, when World War I broke out, “the artificial system of payments and the means of settling them” were already stretched pretty close to their limits.

Marx noted in volume III of “Capital” that a drain of precious metal from a country is relatively ineffective if it does not occur at the critical stage of the industrial cycle. The same is true of slumps in global gold production. A downturn in global gold production is relatively ineffective if does not occur when the credit system and the “artificial method” of settling payments is not already stretched to the limit. Or what comes to exactly the same thing, a global downturn in gold production is “relatively ineffective” when it does not coincide with a “critical stage” of the global industrial cycle.

8 The two “mountains” are of very unequal heights because a single piece of money—gold—can circulate a much greater amount of value than the amount of value that a given piece of money contains. Clearing agreements—especially among the banks—greatly reduce the amount of money that would otherwise be necessary to circulate the ever-growing—cyclical fluctuations aside—mass of commodities. Assuming that prices in terms of money material remain unchanged, to the extent that the velocity of circulation can be increased, the amount of credit money created on the basis of a given amount of metallic money can be increased, clearing agreements can be extended, and the “mountain” of metallic money can grow more slowly than the “mountain” represented by non-monetary commodities. To the extent the velocity of circulation and the development of the credit system, clearing agreements and so on approach “perfection,” the mountain representing “metallic” money must grow by the same percentage—though still much slower in absolute terms—than the “mountain” represented by “commodities.”

9 The reserve industrial army must not be confused with the official number of unemployed people that is calculated on a monthly basis by capitalist governments. The official count of the unemployed consists only of those people who have actively sought work over the preceding four weeks. It does not include those who are involuntarily underemployed. The reserve army of the unemployed consists of all those people who would accept a job if work was really available for all those who desire it.

10 Remember, Marx explained that the commodity that serves as money—once the earliest stages of commodity production have been left behind—has relatively few use values.

11 Even if it should one day be profitable to mine gold from asteroids under the capitalist mode of production—and assuming gold continues to serve as money material—this would do nothing to eliminate cyclical crises, which would continue to be inevitable.

12 Marx explained that the first money commodities were usually the primary forms of wealth—such as cattle—of a given society. But as commodity production developed, the commodity that was the chief form of wealth was replaced by a commodity that had very few use values except to serve as the universal equivalent that measures in terms of its own use value the exchange values of all other commodities.

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