The critical role of gold in labor theory analysis (part 2)

by Jehu

In the first part of this series, I make the following statements:

  1. The role of a commodity money in labor theory analysis is not determined by the material the state designates as money in the territory under its control, but by society.
  2. Gold (commodity monies generally) still performs the function of measure of value and standard of price despite this function not being recognized by any state within the world market.
  3. It is critical to labor theory analysis that commodity money is recognized as the only money that can serve as measure of value in analysis.
  4. There is an institutional bias, however, within Marxist scholarship, produced by decades of empirical research based on the mistaken idea fiat dollars are money in the full sense of the term and can serve as money in labor theory analysis. This fallacy serves to block recognition of commodity money as the only measure of value appropriate to labor theory analysis.
  5. Thus there has been a complete failure on the part of Marxists academics to recognize the significance of the collapse of Bretton Woods in 1971.
  6. Even a cursory examination of the empirical data using gold as measure of value and nominal measures of economic activity produce starkly different results that have yet to be explained by Marxist academics.

These starkly different results demonstrate that state issued fiat money does not behaveus-dollar-worried at all like commodity money and, moreover, there is no research (nor could there ever be research) that demonstrates state issued inconvertible debased fiat created out of nothing (“fiat” for short) can ever behave like commodity money for the ridiculously simple reason that while no institution in society determines what serves as money, the state alone creates fiat and forces it into circulation.

Money does not simply manifest the production relations of individuals engaged in a certain sort of social production, it implies those production relations are outside the control of the individuals creating them. Because the production relations individuals enter into are not mastered by them, these relation’s manifest themselves as an independent force standing over against them in the form of money.

It follows from this that gold did not formerly play a role in managing national or international transaction, as Caffentzis argues, but, rather, expressed the fact the relations of production and exchange were entirely unregulated.

3. Non-commodity money and value exchange

Despite the charge Caffentzis levels against Marx, historical scholarship indicates Marx was completely familiar with non-commodity forms of money; knew gold did not serve as the standard of prices in many countries in his day; and even believed it was possible to have an economy where only non-commodity monies were used in circulation. Despite this, says Anitra Nelson, Marx explicitly stated only a commodity money should be used in labor theory:

“Although Marx frequently refers to non-metallic kinds of circulating medium, which he acknowledges even predominated in England in his time, he is adamant that theoretical models ought to assume a purely metallic money.”

This is not a small matter. As I will show, it results, not from an obsession with gold on Marx’s part, but from his analysis of the very nature of the changes imposed on the monetary system by the capitalist mode of production.

Since an examination of the historical record makes it impossible to conclude Marx insisted on commodity money out of ignorance, Caffentzis tries another tack: Marx made the Hegel-inspired mistake of assuming there is only one necessary expression of the socially necessary labor time required for production of commodities.

To take considerably less space than Caffentzis, his argument boils down to this analogy: Heat is only the expression of an abstraction: the average kinetic energy of the atoms composing an object. Since we cannot know in detail all of the separate energy states of all of the atoms composing the object, and thus arrive at an average energy state for the whole object, we can only apprehend the average energy state of all the atoms in the form of the temperature of the object itself employing a thermometer.

But, asks Caffentzis, is the heat of the object the only way to apprehend the average kinetic energy of all of the atoms composing the object? What about even the nearest star — which obviously we cannot directly measure using a thermometer? It turns out we can also measure the average energy state of a distant object by the frequency or color of the light emitted by it. It turns out the average energy state of an object can have multiple expressions.

Applied to value, Caffentzis suggests the socially necessary labor time required to produce a commodity may have any number of expressions overlooked by or completely ignored by Marx, who, in his 19th century mindset, believed there was only a single form for the appearance of the value of a commodity.

This is an interesting argument that, nevertheless, overlooks an important point: commodity money does not simply express the value of a commodity, in a transaction it entirely replaces that value with its own value. When the commodity is exchanged for money, the value contained in the commodity does not leap from the body of the commodity into the body of the money. If the money itself has no value, the result of the exchange is that an object with value is exchanged for an object without any value. The object used as money in the exchange is not itself a value, but a nominal placeholder for value — a fiction.

This fact may not be apparent to the parties in the transaction, but this is still the result. If this misconception is not itself a mere expression of commodity fetishism in its more developed form, where a nominal placeholder for value is taken for a thing with value simply because the fascist state declares it to be money, I don’t know what is. Only so long as the valueless object remains in circulation as a placeholder for an actual value, can it maintain this fallacy. When the circulation of commodities is interrupted, these nominal placeholders are immediately revealed to be fictions in the form of financial crises and are destroyed.

Thus Marx states:

“As materialised labour-time gold is a pledge for its own magnitude of value, and, since it is the embodiment of universal labour-time, its continuous function as exchange-value is vouched for by the process of circulation. The simple fact that the commodity-owner is able to retain his commodities in the form of exchange-value, or to retain the exchange-value as commodities, makes the exchange of commodities, in order to recover them transformed into gold, the specific motive of circulation.”

The function commodity money plays as measure of value depends, in the final analysis, not only on its own character as a material having itself value and on universal recognition of this character. It is the material form in which the value of a commodity can be retained by the seller after the commodity itself has been sold to the buyer. And retaining the value of the commodity constitutes the aim of the transaction.

Simply stated, we are concerned here not only with the character of the object serving in the function of money, but with the aims of individual members of society. To use Caffentzis’ analogy, if our aim is to merely measure the temperature of an object, we can use the frequency of the light emitted by the object, or, perhaps, any number of measures. However, if our aim is to stay warm, simply knowing the temperature of a distant star is not going to help.

4. Credit money as a signal of the disintegration of capitalist relations

Caffentzis looks at the events of August 13, 1971 and, apparently, doesn’t grasp the true significance of that event for labor theory analysis. Instead he arrives at the completely unsupported observation of the bourgeois apologist that, at root, money never necessarily had to take the form of a commodity in the first place:

“I remember quite clearly watching with comrades in a Capital study group on Sunday August 15, 1971 the broadcast of Nixon’s announcement that he had ordered the “closing of the gold window.” Given that we were reading for the previous few months passages like the following from Capital: “money–in the form of precious metal–remains the foundation from which the credit system, by its very nature, can never detach itself” (Marx 1994:606), we left each other that night with the thought that either Capitalism or Marxism was coming to an end before our very eyes!”

Actually Marx was already quite clear on the implications of credit money for labor theory analysis in his day. The very existence of credit money, and its preponderance in actual exchange even in Marx’s day, suggested the necessary function of money as the material expression of the value of commodities was already being progressively undermined in the 19th century through the expansion of the credit system itself. Thus, according to Anitra Nelson, Marx believed headlong expansion of the credit system prefigured the demise of capital itself:

“Marx suggests that the credit system is the most complex manifestation of capitalist relations which develops on ‘the monopoly possession of the social means of production’; credit is ‘an immanent form of the capitalist mode…and…a driving force of its development into its highest and last possible form’. The monstrous credit system, composed of ‘fictitious’ interest and dividend-bearing capitals, represents the socialisation of profit, the shared capital of a class, and mediates the mobility of capital and therefore its progress. It also ultimately signals the disintegration of capitalist relations, which result from endogenous contradictions in production, and are exhibited most violently in crises. Credit, writes Marx, ‘abolishes the private character of capital and thus inherently bears within it, though only inherently, the abolition of capital itself.'”

However, despite this observation by Marx, it has since become ‘clear’ to Caffentzis that the end of the gold standard was not the effective end of capitalism. How does Caffentzis arrive at this conclusion? Labor theory is clear on this, and Marx, as Caffentzis acknowledges, make the point quite explicitly: commodity money remains the foundation from which the credit system, by its very nature, can never detach itself. So rather than concluding from this that the credit money system, by detaching itself from commodity money, became purely fictitious, Caffentzis concludes Marx must have made an error resulting from his obsession with gold.

My God! Save us from imbeciles!

The idea the Nixon shock requires an alteration of labor theory’s analysis of the category money to overcome some blunder brought on by Marx’s obsession with gold or his lack of familiarity with other forms of money is the dominant interpretation that is widespread among Marxist academics. It stands in sharp contrast to the interpretations of a small group of labor theorists like Robert Kurz, who describe the current credit system as now entirely fictitious. In 1995, Kurz linked this fiction to unproductive labor, the tertiary sector, state debt, speculative bubbles, derivatives, and so forth — all problems facing Marxist analysis of this crisis that have so far eluded a coherent Marxian argument.

Despite Kurz’s theoretical contribution, in 2009 Caffentzis was still wondering whether Marx committed some incredible blunder in his analysis of money — and this, amazingly,  even as fascist state economic policy was collapsing under the weight of fictions of capital right in front of him.

Marx blundered because, according to Caffentzis, “for Marx, without gold there would be no prices, and what would capitalism be without prices?”

Is this statement true? Of course not.

The absence of a commodity standard for a currency has no impact whatsoever on whether commodities have prices. What it does mean, however, is that these prices have no standard — which is to say, a price realized in a transaction of a commodity for some quantity of dollars does not imply the seller of the commodity has realized the value of the commodity he sold.

With fiat, the value of the commodities themselves cannot be realized in any exchange, no matter the price nominally realized in this exchange — whether this price is one dollar or one billions dollars. To give an example: A defense contractor makes a drone and sells it to Washington. The state simply credits the account of a vendor with some quantity of dancing electrons, while the vendor hands over his commodity containing actual value in return. The price realized through the exchange is a pure and simple fiction containing no exchange value whatsoever. Months later the same transaction shows up in Bureau of Labor statistics as some increment of GDP, and gets imported uncritically into the empirical research of Marxist imbeciles.

If we examine the argument Marx makes carefully, there is nothing to suggest an economy cannot function entirely on nominal prices like this. So long as we understand these nominal prices denominated in valueless fiat without a commodity standard are not actually exchange values. In labor theory it is already assumed the seller of a commodity may not realize all or part of the value of the commodity he sells for any of a number of reasons — for example, there may be no buyers, or the labor time expended on its production may only in part represent socially necessary labor time, or the labor time expended, although entirely socially necessary, may be sold into a saturated market, etc.

However, with fiat the possibility a commodity’s value may not be realized becomes objective fact already given in the money itself employed in the exchange that contains no value at all. While production of commodities always carries the risk the value created may not be realized, in this case realization is completely impossible. In the relevant chapter of Capital, Marx treats this sort of risk associated with the production of commodities only as a mere possibility. This is entirely correct, since he has not yet developed the conditions where this possibility is converted into an inevitability. The conversion of the mere possibility a commodity’s value is not realized into the actual failure of the commodity’s value to be realized under any circumstance arises from the laws of capitalist production itself, not from relations of exchange.

Since the material impossibility of converting the value of the commodity into exchange value in a pure fiat money system arises from capital, not relations of exchange, it would seem the replacement of commodity money by state issued fiat should have forced labor theorists to investigate how and under what condition capital forced society to abolish commodity money. This, however, never happened; rather than figuring out how capital forces society to abolish commodity money, almost all labor theorists set about looking for ways non-commodity money could be forced into Marx’s theory of money as an independent measure of the value of commodities.

If Nelson is to be believed, capital from its beginning necessarily takes the form of non-commodity money in its movement. Thus, if Marx says all money is at root a token of commodity money, he is also saying capital in its movement increasingly strips money of its commodity character. This stripping of money of its commodity character is so pronounced that in the end money itself is reduced to a mere slip of paper or dancing electrons at a computer terminal. Bourgeois simpletons and simple-minded Marxist academics following after them, believe valueless scrip can serve as money, without ever investigating the implications of the events of 1971.

I will turn to those implications in the final part of this series.