Inexplicable Privilege: Guglielmo Carchedi and the creation of money out of nothing

by Jehu

It is curious how Marx phrased this:

“Suppose then, that by some inexplicable privilege, the seller is enabled to sell his commodities above their value, what is worth 100 for 110, in which case the price is nominally raised 10%. The seller therefore pockets a surplus-value of 10. But after he has sold he becomes a buyer. A third owner of commodities comes to him now as seller, who in this capacity also enjoys the privilege of selling his commodities 10% too dear. Our friend gained 10 as a seller only to lose it again as a buyer. The net result is, that all owners of commodities sell their goods to one another at 10% above their value, which comes precisely to the same as if they sold them at their true value. Such a general and nominal rise of prices has the same effect as if the values had been expressed in weight of silver instead of in weight of gold. The nominal prices of commodities would rise, but the real relation between their values would remain unchanged.

If I ever write a book on the political economy of barbarism, I am going to call it “Inexplicable Privilege: The Political Economy of Barbarism” and cite this passage.

9547247-making-money-with-your-computerIn a critical followup to his rejection of the idea that profit can be gained by selling commodities for more than their value, Marx explains, the buyer who can, owing to some privilege, buy commodities below their values, had to have previously sold his own commodities below their values. Once he has become a seller himself, he would not realize any net advantage from buying commodities below their values.

“Let us make the opposite assumption, that the buyer has the privilege of purchasing commodities under their value. In this case it is no longer necessary to bear in mind that he in his turn will become a seller. He was so before he became buyer; he had already lost 10% in selling before he gained 10% as buyer. Everything is just as it was.”

The point here is important: in the argument Marx makes here, we have to account for the money the buyer used in the purchases of commodities below their value. Marx assumes throughout Capital that no one has the means to make purchases unless he has previously sold his own commodity. Marx is very exacting in this condition, and never veers from it throughout Capital — any purchases are always preceded by a sale. Without this condition, we cannot account for the money a buyer has in his hands.

This might seem like a unimportant point in the whole of that Volume, but it is not as insignificant as it appears in the case of barbarism.

Where does the state get the means it uses to make a purchase? Leaving aside the producers of money commodities, everyone in the economy comes into the means to buy only after having first sold. The State, however, enjoys an “inexplicable privilege”: it can create the means to buy out of nothing. At a computer terminal, the state can create 895,000,000 dollars and use these electronic tokens to buy a B1 Bomber. According to labor theory, the state has actually paid nothing for the B1 bomber.

Owing to its inexplicable privilege, the state, unlike all other players in the market, can buy without having first sold because it can create the means to buy out of nothing.

Some Marxists object that the state can’t create money out of nothing: Guglielmo Carchedi asserted just this in his paper, “Could Keynes end the slump? Introducing the Marxist multiplier”. In the paper Carchedi argues:

“Some Keynesian authors propose to stimulate demand neither through redistribution nor through investments but by increasing the quantity of money. The assumption is that the ultimate cause of crises is lack of demand so that a higher quantity of money in circulation would stimulate demand. The argument against this view is not so much whether these policies are inflationary (as Austrian economists hold) or not.

Rather the objection is that by printing money one increases the representation of value rather than value itself. The economy cannot restart if the surplus value produced relative to the capital invested is unchanged. Moreover, by printing and distributing money, one redistributes purchasing power. But we have seen that neither pro-labour nor pro-capital redistribution is the way out of the slump. But usually, by “printing money” one understands granting credit. The notion that credit is money is almost universally accepted and yet fundamentally wrong. By creating credit, one does not “create money out of nothing”, an absurd proposition. Out of nothing, one can create nothing. (my emphasis)  Simply by creating credit one creates debt. So the crisis is postponed to the moment of debt repayment.”

Carchedi may be correct that money cannot be created out of nothing, but his point is absolutely irrelevant. It is absolutely true the fascist state does not create money out of nothing, but it can create means of exchange out of nothing. The means necessary to purchase a commodity can be any token of money, and in this function money itself is only a token. What the state creates are means to purchase commodities — dollars — not money.

Carchedi and other Marxist academics need to reconsider this point. Clearly the fascist state enjoys an inexplicable privilege — what the French called an exorbitant privilege — owing to it control of the dollar.