The critical role of gold in labor theory analysis

by Jehu

1. Was Marx fundamentally wrong in his theory of money

Does the end of Bretton Woods and of the gold standard invalidate Marx’s argument on money? (When I say ‘gold’ in this case, of course, I mean any commodity serving in the role of money.) This is the question raised by George Caffentzis, in a 2009 paper, Marxism After the Death of Gold. Caffentzis writes:

“Marx clearly argues that gold is necessary for the functioning of capitalism; but since Nixon’s decision to “shut the gold window” on August 15, 1971, gold has played a peripheral role at best in the managing of national or international transactions. The last thirty-seven years have seen many crises in capitalism without, however, a crisis of capitalism (to use Lebowitz’s distinction) (Leibowitz 2003). Capitalism is surviving without the working class’s “cross of gold” in the same way it survived the end of chattel slavery. What might have seemed essential at one point in capitalist history has been shown to be a mere “accident” in the case of chattel slavery. Does the same error apply to gold as money? I.e., does the end of gold (and indeed of any precious metal) as the money commodity constitute the crucial negative experimental test of Marxism?”

marxgoldThis begs a question for labor theory analysis of post-1971 economic events: Who said gold was no longer a commodity money? It is by no means unprecendented to have an entire territory where an inconvertible debased state issued fiat created out of nothing serves as the currency of that territory. Indeed, inconvertible fiat dates at least to 13th century China.

“The most famous Chinese issuer of paper money was Kublai Khan, the Mongol who ruled the Chinese empire in the 13th century. Kublai Khan established currency credibility by decreeing that his paper money must be accepted by traders on pain of death. As further enforcement of his mandate, he confiscated all gold and silver, even if it was brought in by foreign traders.”

Did the establishment of inconvertible paper currency in China displace gold as a money commodity? Of course not. So the argument Caffentzis makes in his paper must be that because all nations have dispensed with commodity money as the standard of price, somehow this makes gold no longer a commodity money. Nothing happened to gold in the interim, the only change was what nation states defined as currency in the territories they control.

Restated, the argument that gold is not money means the fascist state determines what is money. This proposition is not consistent with labor theory. Mr. George Caffentzis, however, thinks labor theory must be ‘stretched’ to include the possibility of non-commodity money in analysis. He does not explain why this has to be done, however.

Paper money was already common in Marx’s day as was credit money. Marx called these two forms of money higher forms than commodity money, i.e., money representing a higher level of development of productive forces. Since Marx was already familiar with both money forms and assumed they represented higher forms of money than gold, the only question is why he still insisted money had to be a commodity. That is the question Mr. George Caffentzis needs to address, before he even begins to ‘stretch’ labor theory to explain valueless fiat.

Dumbass Marxist academics think money is to be determined by the material which the state designates as currency and miss that, in the final analysis, the material serving as money is determined by society, not the state. So the real question is why society itself removed gold from circulation as money. The United States finally abandoned the gold standard in 1971 because it was forced off of it by the rest of the world. Nixon had no choice but to close the gold window because he could not satisfy the redemption demands of US trading partners.

But I like Caffentzis’ paper because it does the one thing I find irresistible: It puts labor theory in the position of defending itself or collapsing. Only when a theory is driven against the wall, when the question of the day strikes at its fundamental assumptions, can it prove itself. In 1971, Nixon stated Marx was full of shit, that his entire notion of value was garbage. For 42 years the world market has seemingly confirmed Nixon’s verdict. If Nixon was right, there is no law of value and nothing Marxists babble on about to avoid this conclusion is going to work.

There is no alternative: either Marx was wrong, or something has really fundamentally changed since 1971 that must be accounted for already in labor theory itself. The defense of gold (commodity money generally) as irreplaceable measure of value is critical to labor theory. I would go so far as to say gold in this function of money is the necessary precondition for all Marxist empirical work. I would not trust any Marxist empirical research in which gold is not being used as measure of value or that relies on state issued fiat. You have already lost the debate when you employ fascist state issued currency as measure of value in your argument.

And this helps to explain why the question of the importance of commodity money in labor theory analysis is really a big fucking deal, folks!

2. The institutional bias of Marxist scholarship against commodity money

All Marxist research in the last 40 years has employed currency not money. I cannot emphasize enough that the very foundations of Marxist empirical analyses after 1971 are fundamentally unsound. This flawed empirical research has given rise to an entire cottage industry of unreliable Marxist scholarship that is tied to notion inconvertible state issued currency is money in the sense Marx defined that category. All of the work of any number of Marxist academics is based on this conception of the dollar and there is a lot of it out there. Thus Marx’s definition of money faces a huge lobby of Marxist academics whose work would become worthless overnight if gold is reestablished as a money commodity in labor theory. All of this research accepts the idea that nothing changed in capitalism on August 13, 1971.

To be clear, this means that, since 1971, all of the empirical work on the rate of profit, the immiseration thesis, even of cycles of depression and expansion are ‘garbage in garbage out’. Now, try telling that to the typical Marxist academic who has spent some greater or lesser part of the last four fucking decades in empirical research. This includes such well know writers as Andrew Kliman, Michel Husson, Fred Moseley, Michael Roberts, Gerard Dumenil and Dominique Levy — all of whom have been engaged in an ongoing, sometimes quite antagonistic, debate over the rate of profit. You might as well tell them they have been playing the role of Oedipus for forty years and that their loving wife is really their mother.

I cannot even begin to describe the quantity of Marxist empirical research, and arguments built on it, that are likely worthless, but to give you an idea, here is GDP as measured by the Bureau if Labor Statistic from 1970 to 1981:


GDP denominated in dollars, 1970-1980 (source BLS)

And here is that same GDP as measured in ounces of gold 1970 to 1981:


GDP denominated in gold, 1970-1980 (source BLS, Kitco)

Marxist academics will try to say there is nothing significant in the data presented in the two charts. But all of their research indicates the 1970s was a period of prolonged crisis that is a watershed between the long expansion following World War II and the so-called neoliberal period beginning around 1980.

So here is my question: Which one of those two fucking charts shows a prolonged crisis?

There is four decades of worthless Marxist work out there and these academics will fight to the death to protect it. This guy Caffentzis has work going back at least to 1989 and perhaps back to the 1960s based on the assumption dollars and gold behave the same way under the capitalist mode of production — an assertion that has never been demonstrated by even one piece of empirical research.

Caffentzis makes the argument labor theory can (and must) be stretched to account for inconvertible debased fiat currency. The collapse of Bretton Woods may not invalidate labor theory but made it necessary for the theory to evolve beyond Marx’s obsession with gold. To show why this is the case Caffentzis begins by explaining how Marxarrives at the conclusion gold must serve as money in labor theory analysis.

Marx assumes in Capital that money is gold, but this, Caffentzis asserts, was problematic since few nations were on the gold standard at the time of his book. Gold only became a universal standard in 1900. In 1867 gold was marginal to both international and domestic transaction. For some reason, here Caffentzis equates the gold standard with whether gold was money in 19th century society. This is a conflation that he should not be falling into, but he does. Moreover he conflates gold as a money commodity with whether gold is present physically in transactions — which is unforgivable.

Finally he states this:

“if we see money as having three different sources (and supporting institutions)–the fiat source (state), the commodity source (market), and the credit source (banks)–then in Marx’s time the commodity aspect of money was relatively small and diminishing.”

This statement has no meaning at all: Marx’s critique of fetishism explicitly argues money is a social relation established by individuals in act of production, not an object of any sort.

As Marx argued, Money is not gold, but gold is money. So, unlike bourgeois economists, Marx would never argues there were three sources of money, because the only ‘source’ of money is society. What object filled this role — manifested the social relation — must, of course. vary in different places and time. So in the 19th century silver served as the standard of prices in certain countries, gold served as standard in others, and there were states where both together filled this function. Nor was it at all remarkable that gold and silver served as the price standard alongside credit money and state issued fiat almost everywhere and that these latter money forms had a greater role than the former in everyday activity. Again, these are only manifestations of a social relation established by individuals in the act of production — while each may be money, money is none of them.

The pervasiveness of money in our economy owes itself to the pervasiveness of a certain sort of production relations in society, not the pervasiveness of the objects serving in the role of money. To think otherwise leads us into the arms of the fascists, particularly the Keynesian and monetarist school who posit the lack of money or money-demand as the cause of depressions. In this particular case, Caffentzis arrives right in the arms of the fascist state, because he, like Keynes or Friedman, thinks money is what this state says it is.

Caffentzis concedes Marx did not neglect the various forms of money in his day and was completely familiar with money in all of its forms. However, despite his familiarity with these various forms of money and despite his acknowledgement that credit money was the critical capitalistic form of money, Marx ‘hesitates’ when it came to acknowledging credit money can serve as measure of value. At this point Caffentzis introduces his peculiar version of the more general charge against Marx that he was inconsistent or contradicted himself. (To hear some Marxists tell it, these guys Marx and Engels were inconsistent on everything.) In Caffentzis peculiar version, Marx bases his argument on the flawed dichotomies of Hegelian philosophy, which do not address the advance in science since the 19th century.

I will turn to this silly charge next.