How does fascist state fiat affect capitalist accumulation?

by Jehu


An important question was raised about my last post that goes to the heart of labor theory.

“So what is the M that becomes M’? What is the medium through which value is valorized?” –R

Well, it turns out I have a hypothesis about this.


In labor theory, we assume the self-valorization of capital begins with a quantity of money M and concludes with another quantity of money M’. The result of the valorization process is such that

M’ > M,

the difference (M’ minus M) being the profit of the capitalist. The initial money advanced by the capitalist M is a quantity of exchange value, while M’ is another, larger quantity of exchange value.

But note the problem this implies for fascist state fiat currency: in our scheme the capitalist advances a quantity of fiat. This fiat has no value of its own, it is not a commodity and requires only a negligible quantity of socially necessary labor time to produce.

This means, in the initial exchange, where the money of the capitalist is advanced for labor power, the value of the labor power is expressed as if it has zero exchange value. Fiat lacks value and any commodity exchanged for fiat is basically being exchange for nothing in exchange value terms. Previously, an exchange of a commodity for a state issued currency is an exchange of values only because the currency itself is tied to a commodity. Once the currency is debased from commodity money, i.e., once it no longer represents (stands in for) a definite quantity of commodity money, it expresses the exchange value of all commodities as zero in transactions.

This is not to say the commodities have no value, but the values of commodities is expressed in a material that itself has no value. For purposes of exchange (but not for production), once debased fiat is introduced, effectively, the exchange values of commodities no longer exists. It is as if the values of commodities have been muted, their prices no longer announce their values.

A commodity with a price of $10 and another commodity with the price $100 have the same exchange value in any transaction: zero. Another way to say this is that the prices of the two commodities no longer tell us the values of those commodities, the quantity of socially necessary labor time (SNLT) embodied in them. We have no way to tell if a commodity with a price of $10 contains the same, more, or less SNLT than a commodity with a price of $100. We can assume they do, but since we cannot see the value of a commodity, we are likely being misled by price differences that tell us nothing about their relative labor times.


In place of Marx’s schema for the circulation of capital, M-C-M’; we get this new schema: 0-C-0′; where 0′ represents a larger quantity of fiat than 0, but identical quantities of exchange value: namely none. The values of commodities are no longer expressed in transactions because as exchange values the commodities now constitute a barrier to the circulation of the commodities as capital. Another way to say this is that the conditions of capitalist production for profit now violate (stand at loggerheads with) the conditions of commodity production. For capitalist production to continue, we have to violate the premises of commodity production. (Grossman)

And what are the premises of commodity production? The premise of commodity production is the assumption that commodities are exchanged at their values, at their relative labor times.

Marx’s theory predicts the conditions of capitalist production would eventually violate the conditions of commodity production and predicted it would lead to the collapse of production based on exchange value. Simply stated, at a certain point in the development of the forces of production, production for profit cannot continue on the assumption that labor power is sold at its value. This event is also the basis for the Marxian prediction that capital would drive the working class into abject poverty, i.e., the immiseration thesis. Finally, the depression of wages below the value of labor power also constitutes what Marx called “one of the most important factors checking the tendency of the rate of profit to fall.” (Capital, V3, c14)

How does this argument relate to the discussion of money and fiat?

If labor power now has to be sold below its value, this cannot happen with a commodity money. Commodity money has the “defect” that, transitory fluctuations aside, it always and everywhere expresses the value of the commodity. If labor power is exchanged below its value, the quantity of commodity money in circulation would simply decline proportionally. The owners of commodity money would withdraw their bullion from circulation as happened in the 1930s and again in the 1970s. The only basis on which labor power could be sold below its values is to employ a money that doesn’t express the values of the commodities.

The three events — breakdown of production based on exchange value, immiseration and withdrawal of commodity money — are thus linked.


With debased fiat currencies the labor values of commodities are always expressed as zero exchange value no matter their prices.

  • The exchange value of a candy bar: zero.
  • The exchange value of a home: zero.
  • The exchange value of the GDP of the United States: zero.

In other words, what counts for purposes of economic analysis isn’t the values of commodities, but their prices.

So, has Marx been refuted? Not so much.

In first place, Marx’s labor theory predicts this breakdown of the relation between values and prices would happen 80 years before it actually happened. In second place, the breakdown of production based on exchange value supports his fundamental contention that capitalism is a historically limited mode of production of material wealth. In third place, the breakdown of production based on exchange value forces the state to assert control over the forces of production — a prediction to be found nowhere else in economic theory but Marx’s labor theory.

Far from being refuted by the emergence of debased fiat currencies, Marx’s theory was confirmed and alternative theories were falsified. Marx’s theory alone predicts not only that money must be a commodity, but also that eventually a commodity money could not function as capital, could not be employed to purchase labor power and thereby become real capital.


But this still leave the problem posed by the original comment: if money (i.e., exchange value) is no longer the starting and ending point of capital’s self-valorization, what is? We no longer have M-C-M’, but this other thing that no one can describe and which, when stated in exchange value terms look something like this:


Where 0 (zero) and 0′ (zero prime) are the value contained in the debased fiat. This is an irrational schema that tells us nothing about the socially necessary labor times of the capital now circulating in the economy. However, if we substitute the term “economic policy of the state” for the term “0”, it may be clear that the capitalistic valorization process now begins and ends not with exchange value (money), but with fascist state policy.

Fascist state economic policy has no impact on the production of value, but it can influence the accumulation of surplus value. How so?

Picture a scenario where the production of corn cannot yield a profit. Under these circumstances capitalist  production for profit would halt. The state can, however, step in and purchase the excess corn employing its fiat currency and temporarily restore the profitability of corn production. Another example is that the state can devalue its currency and thus reduce the real subsistence of the working class in gold terms.

I did not choose these two examples at random: they were in fact the first measures Roosevelt implemented to end the Great Depression: The first was called the Agriculture Adjustment Act of 1933, when Roosevelt simply stepped in, purchased all the excess crops and destroyed them to support crop prices. The second example was Executive Order 6102, where, to reduce wages in a comprehensive fashion, rather than slashing them factory by factory, Roosevelt simply devalued the currency from $20.67 to $35, where they stayed until the United States debased the currency altogether in 1971.

These measure were made possible because when gold was withdrawn from circulation by its owners in the 1930s, the state’s currency was the only money form still able to circulate. Once the state’s fiat effectively monopolized exchange, exchange relations themselves effectively fell under the control of state economic policy. Since the circulation of capital has to pass through the exchange phase, it has to pass through the domain of state economic policy.

This means the state through its fiat can enforce the condition that commodities do not exchange at their values. It can drive down wages below the value of labor power and it can raise prices above prices of production. The state can do this because its valueless fiat currency does not express the values of the commodities for which it is exchanged.

Between these two mechanisms, the state can intervene to ensure that the national capital achieves at least a minimum level of profitability.