As I have stated in previous posts, the real problem facing Greece – and other European peripheral economies, like Spain, Portugal and Italy – is not a lack of money, but of capital. That is one reason, for example, why Ireland, which has a relatively large, modernised sector of its economy has been able to recover quickly from the crisis of 2010, a point also made by Paul Mason. It has a significant number of capitals involved in high value production that are internationally competitive, and able to make sizeable profits, which can be accumulated or provide revenue to finance other economic activity. Greece, by comparison, as Paul points out,
“...can’t manufacture its way out of trouble because it is an agricultural and tourism economy, not an industrial powerhouse.”
The Greek government does not face an immediate crisis resulting from a lack of capital, because given the harshness of the austerity it has already faced, the government is running a current budget surplus. It can pay its current bills, because its receipts from taxes are greater than its current spending. The government faces a problem not in covering this spending, but in covering the repayments due on borrowing undertaken by previous governments. The real problem facing Greece as an economy, as with other peripheral economies, is a longer term problem of lacking sufficient capital.
That is, what they lack is industries like those in Ireland, which are both globally competitive, and which produce high volumes of profit. Both things are required. In the end, businesses can only realise large profits if they can sell what they produce, and they can only sell what they produce if the price of their products is competitive. To sell in the large quantities required today, that means being able to sell at prices competitive with every other producer in the world.
But, there is no use selling what you produce, at competitive prices, unless those prices provide you with a large mass of profit. Anybody can sell things cheaply, but if the price you sell at is lower than your costs you will not stay in business long. If the price only barely covers your costs you will not make the mass of profit required to be able to accumulate capital so as to be able to produce more efficiently and expand.
This is a problem faced by all developing economies that lack this adequate mass of capital. Contrary to the view of the Keynesians, who suggest that the physical destruction of capital in wars and other disasters is beneficial to capital accumulation, because it somehow provides a basis for a higher rate of profit and accumulation, it is also the problem that economies face when they suffer such physical destruction of capital. It was a major problem for the USSR after WWI, and its Civil War, for example. Some Marxists, following the incorrect views of Rosa Luxembourg have also put forward a similar idea, for example, with the so called Permanent Arms Economy thesis, or the Stalinist explanation for capitalist expansion in the long post war boom, being the destruction of capital in WWII. Such ideas are totally alien to the theory put forward by Marx, who specifically rejected this idea in relation to the physical destruction of capital.
In order to understand the difference between money and capital, its necessary to look at the real economic relations.
In Theories of Surplus Value, Chapter IV, Marx says that all commodities are money. What he means is that all commodities have exchange value, and money is exchange value incarnate. In this chapter, Marx distinguishes clearly between value and exchange value, in criticising the ideas of Ganilh. Value is labour and measured by time. Exchange-value, by contrast is only relative, it is the value of one commodity expressed in a quantity of some other use value. Many people confuse value with exchange value, including Lenin, who wrote,
“Exchange-value (or, simply, value), is first of all the ratio, the proportion, in which a certain number of use-values of one kind can be exchanged for a certain number of use-values of another kind.”
This is actually closer to Ganilh's description of exchange value, than Marx's, which is that exchange value is the value of one commodity expressed as a quantity of some other use value. Without, this specification, we are left, as Marx says in criticising Ganilh with the basis of a theory of subjective value, in which it is purely these exchange relations, which are determinate, without first defining that it is the existence of value, separate from exchange, which makes the comparison possible in the first place. But, Lenin's definition is a completely wrong description of value, which as Marx states exists independently of exchange, and is measured not by the relation of one use value to another, but by the labour-time required for production.
Because every commodity has exchange value, it can perform the function of money, and many different commodities throughout history have performed that function. The functions of money are as unit of account, means of circulation, means of payment and store of value. Every commodity as an exchange value can perform these functions.
As a unit of account, it is just as possible to measure the value of wheat, in a storehouse, in terms of quantities of copper, silver or gold, that represent an equal amount of value. All of these metals have been used as a money commodity in the past, as well as other commodities like cattle. Such commodities can also thereby act as means of circulation, i.e. being accepted immediately in exchange for some other commodity, and as means of payment, i.e. used at some point after an exchange to pay an outstanding amount, balance and so on.
Every commodity within the limits of its own natural durability can act as a store of value, which is why, in the past, wealth has been measured by the quantity of cattle, camels etc. that was owned.
An example of this fact, that every commodity is money, can also be seen by examining some basic economic relations, which also illustrate the nature of capital as distinct from money. Marx, in Capital III, and Theories of Surplus Value, says that the reason why the French Physiocrats were able to understand that surplus value is created in production, whereas the English Mercantilists believed it arose in exchange, was because the French economy was based on agricultural production, and these relations were laid bare in front of them.
If we consider those relations, which, as Marx discusses, are codified in the Tableau Economique, what we see is this. Capitalist farmers possess constant capital in the form of seeds, cattle and so on. This constant capital is the product of last year's harvest, and in the case of livestock the production of years before that. For the fixed capital, like livestock, it is both used up and replaced only gradually. For the circulating constant capital, such as the seeds, it must be physically replaced, on a like for like basis, each year.
As Marx says in Capital I, for much analysis the value of the constant capital can, for this reason, be set to zero, because its value is determined not by the labour-time physically embodied in it, at the time of its production, but by the labour-time currently required for its reproduction. On that basis, and because this capital must be replaced on a like for like basis (at least in terms of effectiveness) Marx says, whatever value it transfers to current production, it must equally take out of current production to cover its own replacement.
In this way, the Physiocrats were not led astray by historic money prices, in understanding this fundamental economic relation. Similarly, Marx shows that this agricultural production, analysed by the Physiocrats, discloses the true nature of variable capital. That is that variable capital should properly be understood not as a sum of money, which is used to pay wages, but as the capital-value of those commodities required for the reproduction of labour-power. Like all commodities, the value of these commodities rises and falls with changes in social productivity, and so the value of the variable-capital, although conceived as a fixed sum, is only so conceptually.
In the agriculture analysed by the Physiocrats, the variable capital was not just conceptually a fixed sum, but actually a fixed sum, as with the constant capital, because it was considered in terms of use values. The constant capital existed not as an amount of money, but as quantities of seed, livestock and so on, extracted from previous production and used in current production, out of which it would again be physically replaced. The variable capital similarly existed not as a sum of money, to pay out as wages, but as quantities of food, which is paid out AS wages, to workers, to cover their subsistence, as well as other agricultural produce such as wool, which they require for their domestic production of cloth etc.
In other words, in the Physiocratic world, the variable capital exists as a fixed sum, because it comprises this fixed quantity of use values, required for the workers reproduction, and which is provided for them out of production, to ensure the reproduction of their labour-power.
It was for this reason, Marx says, that it was the Physiocrats who first correctly understood the nature of surplus value as created in production. They saw production taking place where a certain quantity of use values comprised the constant capital, another certain quantity comprised the variable capital and both of these quantities of use values were physically replaced out of current production, whilst that production also resulted in an additional quantity of those use values, a surplus product that had arisen in the production process.
The Physiocrats, Marx says, were misled by these same relations into viewing value as use value rather than labour, but within the confines of this system, that did not matter. The two essentially coincided in practice. But, they also thereby failed to understand that it was labour that was the source of the surplus value, rather than, as they believed, the productivity of the land, provided as a free gift from nature. The fact remained that they had exposed the source of the creation of surplus value in production, and thereby of capital itself, because capital as self-expanding value, involves the application of commodities – means of production and labour-power – for productive purposes, i.e. to produce other commodities with a greater value than those used for their production.
The question for Greece, as for any other economy, therefore, does not revolve around whether there is money or enough money – because all commodities are money – but whether it has commodities that can act as capital. The farmers in the Physiocratic system did not need money, either as bits of coloured paper with numbers and symbols on them, or as bits of precious metal, or digital bits stored in a computer. Their capital existed in physical form, they replaced their means of production directly from current output, they paid the wages of their workers again in physical commodities taken from past production.
The only function that money has to play here is to facilitate the process of exchange, when this commodity production extends on a much wider scale than just that of agricultural production. But, in reality, for that purpose, so long as the currency conforms to a set of basic principles, it can be just any old piece of paper that mediates these exchanges of commodity values. So, for example, Bills of Exchange were used by the sellers of commodities as a legal document showing they were owed a certain value, and they could use these like money, by endorsing them so as to use the Bill to make payments themselves.
In terms of capital, therefore, the issue comes down to this - does an economy, like Greece, have a store of commodities to act as means of production (buildings, machines, materials) that can be effectively used as capital in production? Secondly, does it have a store of commodities to act as means of consumption for its workers (food, clothing, shelter) which can be paid to those workers as wages? Thirdly, does it have a supply of workers who can be employed, with those means of production, paid wages in the form of the store of means of consumption, and thereby create commodities which can be sold at competitive prices, whilst realising sufficient profits so that accumulation of capital can take place?
If all those things exist, the question of money is, to be honest, an irrelevant distraction, because it comes down only to providing some mechanism by which these exchanges can take place, and yet all too often it plays a significant role and leads to crises. In reality, if all the things above exist, the only function of money required is to mediate the process of exchange, and if they do not exist, no amount of money can create capital out of thin air. It is essentially no different to the introduction of money economies in place of barter. As described above, in relation to the Physiocrats, a money commodity is not necessary for commodity exchange, in fact such a commodity only arise after a long period of commodity exchange has already taken place.
The agricultural labourer sells their commodity – labour-power – to the farmer. The farmer does not give money to the worker, but gives him another commodity in exchange, of equal value, i.e. a quantity of food of various types. In Spain, over the last few years, a return to this kind of arrangement could again be seen, and during the Civil War in Russia, when their was starvation in the towns and cities, workers went back to the villages, where they could at least try to provide themselves with a minimum of food outside a money economy. For a long time, these kinds of arrangements formed the basis of barter.
Part 2 will follow tomorrow.
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