The argument that needs to be explored is that between 1867 and 1971 an essential category of Marx’s Capital disappeared. In 1867 money was a commodity with value, transactions involving money were exchanges of value, exchanges of socially necessary labor times; by 1971 this was no longer true. Its disappearance was predicted by Marx’s labor theory of value, but has not been recognized by the Marxist school of political economy.
The Marxist school have refused to recognize this change, its cause and its implications. For the life of me, I cannot understand why they are so stubborn on this. Even if you don’t agree with my view on this, it is a testable counterfactual: the dollar in 1867 was pegged to gold, today it is not. Both gold and the dollar continue to exist today. We know gold is money. And we know why it is money. The question is whether currency is money apart from its relation to gold.
To test the counterfactual that currency in circulation today is not money, all you have to do is compare dollar prices since 1867 to gold prices since 1867. If the relation between the two is unchanged since 1867, my counterfactual argument is falsified. Not a single Marxist who has challenged Marx’s theory of money has ever provided any empirical proof for their claim. They will provide charts and graphs to prove any assertion except the one that says fiat currency behaves like gold.
Mind you the implications of debased fiat currency are staggering: if my counterfactual is falsified, Capital Volume 1 can be thrown in the trash. There is no more Marx’s labor theory of value. And no need to ever speak of it again. All it takes to completely discredit Marx is a single empirical demonstration that fiat prices and gold prices behave the same way.
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Why might the gold/fiat counterfactual be important apart from me wanting to expose Marxists for being pitiful charlatans? In Marx’s theory, gold is the universally recognized embodiment of exchange value. In this function gold (commodity money generally) expresses the socially necessary labor time required for production of commodities. Fiat is not money precisely because it cannot express the socially necessary labor time required for the production of commodities. If fiat cannot express the socially necessary labor time required for production of commodities, it would be nice to know what it does express, right?
If fiat can’t express the values of commodities, what function is it fulfilling when it serves as means of exchange? We know it is not a measure of the values of commodities according to Marx. This means wages paid in this fiat currency are not a measure of the value of labor power. Groceries paid in fiat are not the measure of the values of the groceries. And, if they are being paid in valueless counterfeit, they are using valueless counterfeit to purchase groceries. Which means, as things now stand, neither labor power nor any other commodity have exchange value.
Essentially, paying for commodities in fiat currency is the same as handing them out for free!
Do you think the working class might just want to know their wages don’t express the value of their labor power? Do you think the working class might want to know they being paid in valueless counterfeit? Do you think they might want to know that paying for necessities with fiat is the same thing as handing them out for free?
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What evidence do I have for the proposition that paying for commodities with fiat is the same getting them for free? Simple, when the fascist state paid for its new aircraft carrier, the Gerald R Ford, it simply “printed” the currency up and paid for it. Another example: When the financial system began to collapse, Bernanke simply “printed” currency up and bought outstanding toxic assets. In both case, the fascists raised no taxes and had to borrow no capital for these items, they simply printed up what they needed. The fascist state could do this because it is the sovereign issuer of the currency.
This is just not limited to aircraft carriers and toxic assets; the fascists can purchase anything, from labor power to corn. And they do this without paying anything for the commodities.
This should immediately raise a question: if the fascists can print up money and bail out banks why can’t they print up money and hand out UBI? Why can’t they print up money and hand out free healthcare or free college education? Why can they print up money and pay off the student debt of millennials? Do you think there are millions of folks out there who might want to know the answers to these questions? Just maybe?
But we can’t get to why the state buys toxic assets but won’t buy up student debt because we have a bunch of fucking Marxist academics who insist fiat is fucking money!
You can’t print money, you have to dig it out of the ground; which means, you can’t hand out UBI, free healthcare, free education or pay off student loans with money. But you can do all of this and more if you can just print up as much valueless currency as it takes. Bernie Sanders and a host of reform-minded fascists propose programs like this and Marxist academics have nothing to say about it because they base their own arguments on obsolete assumptions. Bernie Sanders comes off looking like the radical and Marxists come off looking stupid.
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And here is the kicker: if you can just print up currency and pay for any commodity, you can just as easily abolish prices outright. Which is to say, if you print up currency to pay for healthcare, you really don’t need to pay for healthcare at all; if you can print up currency and pay for labor power, groceries, healthcare and education, all these things could be provided free. There is no reason for wages and thus no reason for any other commodity purchased by wages to have a price.
Now, I don’t know what that sounds like to you, but to me that sounds like full communism.
The same argument that argues the counterfactual — namely, that fiat is not money — also implies a fully developed communist society is possible right now. We could possibly have a society based on the old communist ideal of “from each according to ability, to each according to need”. Thus, by falsifying my counterfactual argument, it is possible not only to refute Marx, and discredit Capital, but also to show why a fully development communist society is not possible now.
To put this another way: our ability to determine how close we may be to fully communistic society hinges on the capacity of fiat to accurately tell us how much of the social labor day at present is socially necessary. The communization theory argument that it is possible to move directly from capitalism to a fully communistic society largely depends on evidence for a very large mass of unnecessary labor time that can be converted directly into free time for all members of society. Only a money commodity can tell us how much of the present working day is unnecessary, because only a money commodity can express the socially necessary labor time required for production of commodities.
Fiat currency can serve as means of exchange, but it cannot tell us the values of the commodities for which it is exchanged. It is possible, therefore, for fiat prices to conceal a rather large amount of socially unnecessary labor time within the social labor day and none of us would be the wiser.
Potentially, fiat prices could even conceal unnecessary labor that, on the surface, appears to be socially necessary like, for example, the steel used to build an aircraft carrier. Few Marxists would argue that aircraft carrier production is necessary labor, but how many realize that the steel that goes into the production of the aircraft carrier is also unnecessary precisely because it ends up in production of the aircraft carrier? All of the labor expended on all of the commodities going into the production of the aircraft carrier and all of the new labor expended directly on it’s production is unnecessary because the final product, the aircraft carrier, is unnecessary to material production.
Despite this, however, the production of aircraft carriers can be extremely profitable for capital; more profitable in fact than any other production because none of the outlay of capital for its production can possibly add to the subsistence of the workers, nor does it reenter the circulation of capital as new additional capital.
But let’s not get ahead of ourselves counting our communist chickens before the capitalist eggs have even been laid.
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Given the huge stakes here, I can’t understand why none of these fiat loving Marxists don’t just go ahead and falsify my counterfactual argument. All you academics who think Marx was wrong about money, here is your chance to make a name for yourself by proving him wrong. Take the gold and dollar prices of 100 commodities since 1867 — iron, cotton, labor power, shoes, etc — and show that the prices of these commodities denominated in gold and dollars track one another within the limits of accurate measurement.
- There goes your next book, Andrew Kliman.
- There goes your next book, Michael Heinrich.
- There goes your next book, David Harvey.
- There goes your next book, Michael Roberts.
- There goes your next book, Gerard Dumenil.
- There goes your next book, Chris Arthur.
- There goes your next book, Anwar Shaikh.
- There goes your next book, Fred Moseley
Make a real name for yourselves by showing conclusively, based on real empirical data, that Marx was wrong about money.
The Real Movement 
in 1867 there was the greenback, so it’s not like there are no precedents of the inconvertible dollar. Kautsky incidentally mentions it: https://libcom.org/library/money-matters-karl-kautsky
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One nuance worth mentioning is the Bretton Woods system, which effectively pegged the all capitalist economies to the dollar and thus to gold. When the dollar was finally decoupled from gold, none of the other participants bothered to re-establish gold standards for various reasons, instead choosing to remain pegged to the dollar.
Since the American monetary hegemony never actually ended, and nobody else has the means to end it by re-instituting a gold standard, we have not seen the sort of shock that ended previous fiat currencies – just a creeping rise in superfluous labor as the capitalists seek to expand their profits in perpetuity.
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The history is somewhat uneven. Greenbacks were fully redeemable in gold, but this was suspended after 1861. To prevent decline, Washington promised to pay interest on the tokens and accepted them as payment for duties.
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But my point is that inflation and non-convertible currencies were phenomena well-known and debated since before Marx’s time. Capital vol. 1 chapter 3 mentions the laws of state paper money. So what exact questions do you want to see addressed? (given that I’m co-editing a book with Marxist essays on money – I like to take any suggestions on board). The main thing is to no longer pose the problem as commodity money vs. inconvertible paper (which is how it is posed by a lot of the names you listed) – that fact is simply repeated over and over by everyone – but to pose it as state paper money vs. credit money, which connects to an old debate among bourgeois economists (Currency vs. Banking schools).
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What is the source of the inflation? In neoclassical theory it is believed the the source of the inflation is the imbalance between the growth of the supply of currency and the growth of the values of commodities in circulation. I don’t accept this explanation. I believe inflation has to be traced to what Postone calls superfluous labor time. Production prices of commodities are increasing not because the supply of currency is increasing but because the actual labor time of society is increasing relative to socially necessary labor time. This requires the constant increase of the supply of currency.
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A few minor typos and fixes:
First section, paragraph 1:
The argument that need[s] to be explored
Third section, paragraph 3:
This should immediately raise a question: if the fascists can print up money and bail out banks why can[‘t] they print up money and hand out UBI?
Fourth section, paragraph 3:
We could possibly ha[ve] a society
paragraph 6:
Potentially, fiat prices could even conceal unnecessary labor that, on the surface, appears to be socially necessary like, for example, the steel used to build an aircraft carrier[.]
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Thanks, John.
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Fascist governments certainly have the legal ability to print up whatever amount of money they like, and as you pointed out Jehu, they make use of this legal ability from time to time (of course, always in the narrow interests of certain segments of the capitalist class; never in the interest of workers).
However, do you think there would be no consequences if this were extended more generally? I would contend that even their limited printing already has consequences, albeit ones that take some time to be expressed in superficial phenomena. The long-term devaluation of the dollar vs. gold that you cite is one such consequence.
Let’s imagine that, by some freak accident of history, there is a sweep of the Presidency, senate, and house by some new hard-left political party that is hell-bent on implementing an open-ended “People’s QE.” This government passes a bill to end the formal independence of the Federal Reserve and subordinates it completely to the Secretary of the Treasury, so that the government can legally print as much as it likes without any bourgeois “experts” tellin’ them nuthin’ ’bout it.
The new government solicits petitions and referenda to see what people want. People want universal healthcare. So this government cranks up the printing presses. Done. People want to run Kraft Foods and McDonalds and Olive Garden and Oscar Mayer and a thousand other food companies as public co-ops. The government cranks up the printing presses until it has enough to buy them all out. Done. People want to end homelessness. The government cranks up the printing presses and buys out every vacant property and opens them up as dorms for the previously homeless. Done. And so on.
My question is, what do you think will happen in this scenario? How far can it progress without a violent, revolutionary confrontation?
Here’s what I see happening pretty early on in this sequence: people would begin to refuse to sell their assets voluntarily to the government at any price in dollars, fearing that those dollars would soon be worthless. Furthermore, all money capitalists would cease extending any loans denominated in dollars. Many would, instead, hoard gold. Others would transact in a (non-hyper-inflating) foreign currency instead and begin using that as their unit of account. Private money capital in terms of dollars would dry up.
Despite the government running the printing presses, dollars would suddenly paradoxically seem scarce, especially with people raising the dollar prices of their assets, meaning that more dollars would be needed to purchase the same assets as before. To compensate and replace that lost purchasing power to the public, the government would run the printing presses even more. That would cause private money capital to dry up even more and prices to increase even more, requiring the government to run the printing presses even more to replace the lost purchasing power..and so on to hyperinflation, at which point no government printing of dollars would matter because people would not be willing to part with assets at any price in dollars. If the government still wanted to fulfill its “People’s QE” promises, it would have to forcibly take over the assets and institutions that the people demanded.
However, I think your premise that there is just tons of superfluous labor out there and that society is already easily productive enough to offer all this stuff for free (“too cheap to meter”?) would suggest that the whole scheme above should work out just fine. No hyper-inflating dollar. Investors perfectly willing to part with their assets for printed dollars. How does that not follow?
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Via your reductio ad absurdum, you are actually making Jehu’s point for him. Fiat currency is valueless and the only thing that gives it any kind of value is its (apparent) scarcity coupled with the power of the state. The former is only an illusion, since fiat currency can be printed at will, but the latter is a reality to anyone who has ever had an encounter with the police.
Refusal to sell out assets doesn’t come from fear of the dollar losing value; it comes from class interest. What patriotic property-owning capitalist would want to become just like the rest of the unwashed masses who have nothing to sell but their labor power? It’s not hyper-inflation that would make the dollar “worthless” but the fact that in a world where “Kraft Foods and McDonalds and Olive Garden and Oscar Mayer and a thousand other food companies” are public co-ops, universal healthcare is a reality, and vacant homes are free to be used by those that need them, there would be no return on investment because everything everyone needed would already be free. When a world of artificial scarcity inverts itself to be a world of plenty, currency — whether it be gold or fiat — would cease to have value altogether. Which should be a communist’s goal, after all.
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I fear that you fetishize the power of the U.S. government. The government is merely a collection of tax collectors, soldiers, bureaucrats, etc. serving as the executive committee of the capitalist class. Those functionaries, in order to be persuaded to continue loyally enforcing the dictates of the state, must be paid—not just in dollars (that is not sufficient!), but more importantly in a certain amount of purchasing power. If they should ever miss out on those payments of purchasing power, they will desert the state in the blink of an eye.
But how could this ever be a threat? The U.S. state can, after all, print all of the dollar it wants. Doesn’t that mean that it can print all of the purchasing power it wants? No. The U.S. government is, I would argue, in the exact same position as any municipal government, in that the U.S. government cannot print purchasing power (to do that, it would need to be able to print gold). It can only print dollars that will lose purchasing power as fast as the government prints them. Even after the end of the gold standard, the U.S. government is still subordinate to the Law of Value—so long as society continues to exist on a foundation of commodity production rather than use-value production.
Therefore, just as municipal governments are powerless to implement unlimited public housing, unlimited public food co-ops, and universal healthcare, so is the U.S. state. Because, should the U.S. state try to do such a thing, it will find that it is merely the plaything of the capitalist class, who in turn are merely the plaything of the Law of Value (not even the capitalists are free from its vise-grip, its imperative to accumulate or be out-competed!)
Capitalists would quickly refuse to sell to the government, unless paid in gold—yes, because of fear of the dollar losing all purchasing power, and yes, because of their class interest and fear of becoming proletarians. The two are not mutualy-exclusive. If these capitalists were “properly” compensated in terms of purchasing power, they would have no fear of becoming proletarians from selling off their assets to the government, because they would then be in the possession of a new asset with its own equal purchasing power. But a hyper-inflating dollar will not have this purchasing power.
At a certain point, the Federal Reserve could offer to credit some vendor of assets a googleplex of dollars (after all, $10^100, or $10^10^100, what would it matter…it’s all a matter of a few keystrokes…all just as easy to do), but it would not matter. The U.S. government would find no sellers wanting to sell assets for that googleplex of dollars, because those dollars would—finally at that point—be truly worthless. They would exchange for an infinitesimal fraction of gold ounces on the open market—and thus an infinitesimal faction of labor hours.
But that is not yet the case. Dollars still have exchange-value. Exactly how much you can determine by looking at the fraction of an ounce of gold a dollar currently buys in the open market. And accordingly, as of now, the government can indeed print a limited amount of dollars that will still have purchasing power to purchase assets from willing investors (although every time the government does this printing, it leaves the aggregate purchasing power of dollars unchanged and thereby decreases the purchasing power of each dollar by a small amount—the pain of which is borne by every other holder of dollars who did not just obtain some of the newly-printed dollars with which the dollar pool was diluted).
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I fear that you fetishize bourgeois ideology too much. It doesn’t take a lot of prevaricating about hyper-inflation to explain why the capitalist class isn’t going to willingly give over their capital in the name of socialism. Hyper-inflation is just a boogey man created by capitalists to illustrate to the working classes that everyone can’t have ice cream cones all the time. It’s bullshit, food and housing are plentiful, yet they want us to give back to them the scraps of paper they gave us in the first place.
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I don’t deny that food and housing are plentiful. If they were produced as use-values, with a workers’ state administering the production and distribution of those use-values (with transparency, accountability, and immediate recall to force that workers’ state to do so in a way that served workers’ interests rather than those of the state bureaucracy), then the problem would be solved.
But food and housing are not produced as use-values currently, but as commodities. And so, to paraphrase John Lennon, “all I am saying, is don’t give peace a chance.” Don’t expect that you will be able to cleverly use the ready-made power to print currency in the existing state to trick capitalists into handing over their assets. As long as things are produced as commodities, the the Law of Value is in effect, and the Law of Value will dissuade them from selling off their commodities for printed dollars, even if they don’t understand the Law of Value beyond its superficial appearances. All they will know is, the gold value of the dollar is plummeting, and they would be better off hoarding their assets or hoarding gold than selling those things for dollars. That’s all they need to know.
So, if you try to go the “People’s QE” route, you will just end up making yourself look dumb, discredit Marxism, and hand the initiative to the capitalists. Sadly, there’s no alternative that I can see for doing it the hard way—revoking capitalists’ legal claims to their assets outright and prepping for the violent counter-attack.
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I try to reply to your question in my latest post: https://therealmovement.wordpress.com/2017/03/09/towards-a-hypothesis-of-the-final-collapse-of-capitalism-4/
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“I believe inflation has to be traced to what Postone calls superfluous labor time. Production prices of commodities are increasing not because the supply of currency is increasing but because the actual labor time of society is increasing relative to socially necessary labor time.”
The critical point that can be made with the concept of SNLT is that actual labor time worked in factories with a productivity below the (social-necessary) average does not count as value. A Postone-student expressed this with a provocative adage, iirc: “China doesn’t produce value” (I did a translation of an article-series on international exchange that made this point as well). Normally (under a gold currency) if SNLT declines, prices should decline too. A declining SNLT was a fact also under gold currency, yet we saw no (extraordinary) price rise then.
You understand SNLT in terms of productive vs. unproductive (and by ‘productive’ you understand socially utility). There are proponents of such an interpretation or defenders of such a position (Keen wrote about this), but generally in orthodox Marxist tradition (debates in the soviet journal PZM) this was rejected as opening the door to marginalism, etc..
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I do not understand “productive” in terns of use value, although I will admit i do not always make this clear in my confused and often obscure writing. I do address this issue in my latest post, however, where I restate the problem of inflation as the decline in the density of the social labor day. It might help to explain what I am trying to argue.
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why run the printing presses, if you can nationalize everything. then you end up with the USSR of A, and we know how this ends.
Libertarian rejoinder, though: bring us back to gold standard, and many things will be as cheap as possible. Keynes dreams realized by anti Keynesianism.
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Great post, Jehu. This has been extremely insightful since I have been trying to reach an effective critique of Bitcoin with Marx’s money theory from Capital 1 ch. 3. If Marx was wrong about the value of money having to be gold-based, would this make correct the Austrian economic theory around money (Menger, von Mises), i.e. that it is simply abstract representation of value without intrinsic-value?
Are there any references you know of that develop more around this topic? Thanks
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