Capital III, Chapter 30 - Part 14

“The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values. Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only bullion, metal coin, notes, bills of exchange, securities. Particularly in centres where the entire money business of the country is concentrated, like London, does this distortion become apparent; the entire process becomes incomprehensible; it is less so in centres of production.” (p 490)

But that is what central banks have attempted to do, in another form, by the implementation of QE.  The central banks have not attempted to buy up the actual commodities, but they have bought up the financial assets, the fictitious capital, of states and corporations, which are traded as commodities on global financial markets, that have become more or less worthless.  It has been financed in the UK and EU, by the states which stand behind those central banks implementing policies of austerity, which thereby suck aggregate demand out of the economy, and undermines real capital.

The reason the bank cannot simply buy up these commodities is because of the distinction between money and money-capital, elaborated in the preceding pages. The problem here is not a shortage of money, but an overproduction of capital. If the bank simply prints money to buy up this excess of commodities, it thereby devalues the money tokens it has printed, which pushes up other prices. Consequently, the prices that have to be paid to buy the materials and labour-power, i.e. productive-capital, required to reproduce that consumed in the commodities now bought by the bank, rise so that they still exceed the proceeds from the sale of those commodities.

This is one reason Keynesian intervention could not work in the 1970's, and simply resulted in increasing levels of inflation. But, its also why monetarist intervention, currently, cannot work either, because it simply leads to increasing levels of personal indebtedness, as individuals are led to make up for inadequate incomes with increased borrowing to sustain their consumption. This is the situation that was created from the late 1980's, and hangs over developed economies today like a sword of Damocles.

Similarly, QE devalued the money used to buy up the fictitious capital of states, corporations and wealthy individuals.  The consequence has been a massive hyper-inflation of the prices of those financial assets, which then results in a corresponding reduction in the yield produced by them.

The fact that there was an overproduction of capital is the same as saying that labour-time was expended that was not socially necessary, or at least socially necessary within the confines of capitalism. Labour-time was expended producing commodities for which there was no demand at prices that reproduced the capital consumed in their production, and so that labour-time was not socially necessary. The value it appeared to create, therefore, did not really exist, and the crisis brings the appearance into alignment with that reality.

It does so by forcibly reducing the value of all those commodities that have been overproduced. But, these commodities form the commodity-capital of the capital that produced them, or of the merchant capital that bought them. As the prices of these commodities are forcibly reduced, so the value of those firm's capital is thereby reduced.

“... commodity-capital is in itself simultaneously money-capital, that is, a definite amount of value expressed in the price of the commodities. As use-value it is a definite quantum of objects of utility, and there is a surplus of these available in times of crises. But as money-capital as such, as potential money-capital, it is subject to continual expansion and contraction. On the eve of a crisis, and during it, commodity-capital in its capacity as potential money-capital is contracted. It represents less money-capital for its owner and his creditors (as well as security for bills of exchange and loans) than it did at the time when it was bought and when the discounts and mortgages based on it were transacted. If this is the meaning of the contention that the money-capital of a country is reduced in times of stringency, this is identical with saying that the prices of commodities have fallen. Such a collapse in prices merely balances out their earlier inflation.” (p 490-1)

Marx inserts a short comment here to note that the incomes of the unproductive classes and those in fixed incomes are basically stationary during periods of inflation. By unproductive classes, I assume he means here the unemployed, disabled, retired and so on, rather than the exploiting classes. Generally, the incomes of the exploiting classes rise sharply during periods of inflation, because along with rising prices go rising profits, rents, interest and taxes. But, for the former,

“... their ability to replace that portion of the total reproduction which would normally enter into their consumption. Even when their demand remains nominally the same, it decreases in reality.” (p 491)

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