Imagine how horrific this might look if Trump had won…
(Looking at you, Andrew.)
Imagine how horrific this might look if Trump had won…
(Looking at you, Andrew.)
For the past two years or so, Washington has pumped almost 6 trillion dollars of deficit spending into the so-called US economy.
Yet after this staggering bout of mind-boggling unprecedented stimulus, the Federal Reserve still can’t decide when it should begin tapering its bond buying program — much less try to move away from the notorious zero lower bound on interest rates.
Can someone tell me what monetarist textbook this insane policy is based on?
Can someone tell me why, despite the fact that Washington is running both fiscal and monetary policy at full-bore open throttle, inflation is barely registering on the dial and wage employment continues to falter?
Bonus points, if you can explain the implications.
I have been reading a paper, Marxist Political Economy in the Age of Inflation, by Marxist theorist, Vytautas Liutkus (VL). At least in part, the writer seems to offer an explanation for post-World War 2 inflation in the monetary system that is consistent with Marx’s labor theory of value. This is my fifth post on VL’s paper.
Previously, I argued that a theory of inflation that would be consistent with Marx’s labor theory of value is not as simple and straightforward as it seems. I suggested it would take a roadmap of sorts to get there. The reason for this is probably obvious: in Marx’s labor theory of value, unlike bourgeois economics, a description of the way the mode of production works begins with production, not exchange.
This fact hints that an explanation of inflation that would be consistent with labor theory likely should begin on the production side of the mode of production as well.
This where VL’s discussion of Paul Mattick’s ideas on inflation enter the picture. Mattick proposes that inflation is an expression of a crisis of profitability; part and parcel of an effort to raise the rate of profit. VL, while not disagreeing directly with Mattick on this point, points out that, first, such a strategy could only be possible once the gold standard was abolished. Second, VL points out that, even with the abolition of the gold standard, inflation would not alter the distribution of the social product between classes.
In the previous post, I offered a hypothesis to answer VL’s objection regarding the end of the gold standard that did not depend on state policy, but relied instead on Mattick’s idea that inflation has its roots in capitalist crisis, specifically in the Great Depression of the 1930s. Evidence shows that the owners of commodity money, including national governments, abruptly began to withdraw commodity from circulation beginning around the 1930s and hoarding it. This is a process that continued until 1971, when the last remaining currency tied to a commodity money, the dollar, was finally debased by the United States.
But this was only step one of our roadmap in answer to the objections raised by VL: accounting for the end of the age of commodity money. This accounting does not yet explain inflation, although it provides a necessary precondition for inflation. Still less does it explain how inflation might be used to alter the distribution of the social product between capital and labor to raise the rate of profit above zero — an argument made by Mattick in his essay.
The critical next step on our roadmap may be to discuss the implications of the withdrawal of commodity money from circulation for the mode of production because some of them may not be so obvious.
I have been reading a paper, Marxist Political Economy in the Age of Inflation, by Marxist theorist, Vytautas Liutkus (VL). At least in part, the writer seems to offer an explanation for post-World War 2 inflation in the monetary system that is consistent with Marx’s labor theory of value. This is my fourth post on VL’s paper.
As anyone reading this post likely knows, unlike bourgeois neoclassical economic theory, Marx’s labor theory of value begins with production not exchange, when describing the normal operation of the capitalist mode of production.
In bourgeois economics, newly produced commodities enter circulation without value. After this, the forces of supply and demand establish an equilibrium price for them at the time of sale. Ideally, this equilibrium price includes, among other things, the wages paid to the workers, the profit of the capitalist and the costs of necessary inputs.
In labor theory, the process is a bit more complicated.
The capitalist purchases the labor power of the worker and the necessary means of production. Under his direction, the two are combined in an act of production that creates a social product. A portion of this social product simply embodies the value (i.e., the socially necessary labor time) originally advanced by the capitalist for the labor power of the workers and the means of production. Another portion embodies an increment of surplus value (i.e., an increment of unpaid surplus labor time). This social product enters into circulation as commodities. When it is sold, the surplus value produced in the act of creating commodities is realized in the exchange as profit.
How does this difference play out in the bourgeois economic theory and labor theory notions of inflation?
I have been reading a paper, Marxist Political Economy in the Age of Inflation, by Marxist theorist, Vytautas Liutkus (VL). At least in part, the writer seems to offer an explanation for post-World War 2 inflation in the monetary system that is consistent with Marx’s labor theory of value. This is my third post on VL’s paper.
At the end of part two, we have come now to what looks like an apparent irreconcilable theoretical disagreement between VL and Mattick Sr. about post-war inflation, so let’s take a moment to sum up:
I have been reading an paper, Marxist Political Economy in the Age of Inflation, by Marxist theorist, Vytautas Liutkus. At least in part, the writer seems to offer an explanation for post-World War 2 inflation in the monetary system that is consistent with Marx’s labor theory of value. This is my second post on VL’s paper.
I have been reading an paper, Marxist Political Economy in the Age of Inflation, by Marxist theorist, Vytautas Liutkus. At least in part, the writer seems to offer an explanation for post-World War 2 inflation in the monetary system that is consistent with Marx’s labor theory of value. In doing so, he makes an effort to, in his words,
“… develop further our examination of the historical evolution of the credit-system – with particular emphasis on the emerging importance of the role played by the central banks – until this system, initially built upon gold as the money-commodity, is finally stripped of all material direct links with the precious metals.”
Intrigued by his effort — I follow his work a lot — I began making notes on it, collected below. This is part one of that reading.
The format is as follows:
Excerpts from VL’s paper are in quotes.
[My comments on that text follow in brackets]:
Wikipedia has this discussion of the formula Grossman introduces in his reconstruction of Marx’s labor theory of value concerning the number of years down to what is referred to in the entry as the absolute crisis of capitalism:
Discussion of the formula
The number of years n down to the absolute crisis thus depends on four conditions:
- The level of organic composition Ω. The higher this is the smaller the number of years. The crisis is accelerated.
- The rate of accumulation of the constant capital ac, which works in the same direction as the level of the organic composition of capital.
- The rate of accumulation of the variable capital av, which can work in either direction, sharpening the crisis or defusing it, and whose impact is therefore ambivalent.
- The level of the rate of surplus value s, which has a defusing impact; that is, the greater is s, the greater is the number of years n, so that the breakdown tendency is postponed.
The accumulation process could be continued if the earlier assumptions were modified:
- The rate of accumulation of the constant capital ac is reduced and the tempo of accumulation slowed down.
- The constant capital is devalued which again reduces the rate of accumulation ac.
- Labour power is devalued, hence wages cut, so that the rate of accumulation of variable capital av is reduced and the rate of surplus value s is enhanced.
- Finally, capital is exported, so that again the rate of accumulation ac is reduced.
These four major cases allow us to deduce all the variations that are actually to be found in reality and which impart to the capitalist mode of production a certain elasticity …
Much of the remainder of Grossman’s book is devoted to exploring these “elasticities” or counter-crisis tendencies, tracking both their logical and their actual, historical development. Examples of each would include:
- Depressed interest rates, investment capital transferred to unproductive speculation, e.g. housing stock, art objects.
- Enlarged state sector bleeds value from the accumulation process via taxes. Wars destroy capital values.
- The reserve army of labour (unemployed) created to discipline wage claims.
The second section refers to four condition under which the accumulation process could continue if assumptions made by Marx were modified. The most important of these is 3., the devaluation of labor power. If wages were cuts, say the authors of this entry, the rate of accumulation of variable capital would slow and the rate of surplus value would increase.
Grossman had in mind a continuous reduction of wages below the value of labor power, with wages being cut continuously.
“I have shown that even if all conditions of proportionality are maintained and accumulation occurs within the limits imposed by population, the further preservation of these limits is objectively impossible. The system of production described in Bauer’s own scheme has to breakdown or the conditions specified for the system have to be violated. Beyond a definite point of time the system cannot survive at the postulated rate of surplus value of 100 per cent. There is a growing shortage of surplus value and, under the given conditions, a continuous overaccumulation. the only alternative is to violate the conditions postulated. Wages have to be cut in order to push the rate of surplus value even higher. This cut in wages would not be a purely temporary phenomenon that vanishes once equilibrium is re-established; it will have to be continuous. After year 36 either wages have to be cut continually and periodically or a reserve army must come into being.”
But Grossman thought this was not possible politically, because the working class would rise up in rebellion in the face of such wage reductions:
“A continuous deterioration of wages is only possible theoretically; it is a purely abstract possibility. In reality the constant devaluation of labour power accomplished by continual cuts in wages runs up against insuperable barriers. Every major cut in its conditions of life would inevitably drive the working class to rebellion.”
Unfortunately, what Grossman missed (and this is not his fault because no one could have foreseen it) is that the very same crisis that forced money wages to be reduced below the value of labor power would also force the state to debase its currency from gold (commodity money), effectively severing the currency from exchange value. In fact, what happened is that labor power was devalued, as Grossman argued, when wages were effectively reduced to zero in exchange value terms by one and the same act.
As Keynes later explained, after that debasement it was a simple matter of letting inflation eat away at the subsistence wages of the working class one or two percent a year. The Federal Reserve continues that same policy even today with its two percent inflation target.
This is the real implications of debasing the currency from gold in 1933 — the part missed by the authors of the entry.
Shekel or sheqel is an ancient Near Eastern coin, usually of silver. A shekel was first a unit of weight—very roughly 11 grams (0.39 oz)—and became currency in ancient Tyre and ancient Carthage and then in ancient Israel under the Maccabees. The word shekel is based on the Semitic verbal root for “weighing” (Š-Q-L), cognate to the Akkadian šiqlu or siqlu, a unit of weight equivalent to the Sumerian gin2. Use of the word was first attested in c. 2150 BC during the Akkadian Empire under the reign of Naram-Sin, and later in c. 1700 BC in the Code of Hammurabi. The Š-Q-L root is found in the Hebrew words for “to weigh”, “weight” and “consideration”.
The picture above shows an ancient shekel, a minted commodity money coin composed of silver said to circulate in circulate in Carthage between 310 BC and 290 BC, almost 2000 years before the rise of capitalism. As a circulating medium, it suggests there was already an established simple commodity production system well in advance of the capitalist mode of production as Engels stated in his supplement to Capital, volume 3.
For some reason this sort of commodity coin, and commodity money in general, disappeared from circulation throughout the entire world market in a blink of an eye between 1929 and 1971, after having a stable presence since at least 2150 BC — nearly 4200 years. No scholar in the value-form school seems to be able to explain why this happened, although Marx predicted the event about 100 years before it occurred.
I spent two days debating the issue with Marshall Solomon, trying to get him to offer some explanation of this event that is consistent with the value-form theory of money.
The results are below.