The problem is that Roberts fails to make this distinction between money, and money tokens, and so between money as the measure of value, universal equivalent form, and money tokens, currency used not to provide an ideal measurement of value, but as the means by which transactions themselves are undertaken. The two functions of money, here, come into conflict one with another, whenever the amount of money tokens put into circulation does not conform to the laws described in relation to their function of representing money itself. Precisely because, these money tokens, unlike gold, or silver or copper, cannot be driven from circulation, to be melted down etc., the only way this conflict can be resolved is by each token itself being devalued, and so being manifest as a rise in prices.
“The difficulty in grasping this relation is due to the fact that the two functions of money – as a standard of value and a medium of circulation – are governed not only by conflicting laws, but by laws which appear to be at variance with the antithetical features of the two functions. As regards its function as a standard of value, when money serves solely as money of account and gold merely as nominal gold, it is the physical material used which is the crucial factor. Exchange-values expressed in terms of silver, or as silver prices, look of course quite different from exchange-values expressed in terms of gold, or as gold prices. On the other hand, when it functions as a medium of circulation, when money is not just imaginary but must be present as a real thing side by side with other commodities, its material is irrelevant and its quantity becomes the crucial factor. Although whether it is a pound of gold, of silver or of copper is decisive for the standard measure, mere number makes the coin an adequate embodiment of any of these standard measures, quite irrespective of its own material.”
(ibid)
Roberts ignores this crucial distinction set out by Marx, and simply takes the volume and nominal value of money tokens in circulation as being equal to the money in circulation. That is seen by his comment, and the data he provides in relation to money supply.
He says,
“But the monetarist theory has been proven wrong, particularly during the Covid slump. During 2020, money supply entering the banking system rose over 25% and yet consumer price inflation hardly budged and even slowed.”
What he actually should have said is that the quantity and nominal value of money tokens entering the banking system increased by 25%. But, Roberts argument is that, on this basis, this increased quantity of money tokens should have led to a 25% increase in inflation, whilst, he argues, inflation not only did not rise, but even fell. How is this to be accounted for? According to Roberts it is accounted for by the fact that, the velocity of circulation of M2 money supply contracted sharply, during the period of lockouts.
Well, of course, this follows from what has been discussed above. The velocity of circulation of currency depends upon essentially two factors. Firstly, the speed at which transactions take place in the economy. In a vibrant economy, sales may take place at a more rapid pace, and so the exchange of currency in these transactions is also speeded up. In essence this cancels out, because on the one hand the increased currency required to finance a greater quantity of transactions, is mitigated by the increased velocity of circulation, resulting from the more rapid performance of transactions. Secondly, it is determined by the technical conditions of the monetary and banking system. The ability to pay for goods using a bank card, for example, which deposits money in the sellers account instantaneously, and so makes that money available for the seller to use for their own purchases speeds up the velocity of circulation. But, it also, by the same process, increases the rate of turnover of capital, and makes available capital for purchases more quickly, and so increases the rate of transactions and level of economic activity. But, this also illustrates another point referred to previously, which is that an increased level of economic activity may result in an increased level of commercial credit, which does not require currency, except for the purpose of the payment of balances.
In other words, if MV = PT, and T declines, which it did, as a result of lockouts preventing people buying stuff, then it follows that V must also fall, for the same reason! Lots of people were handed money tokens, by the state, many of which remained in their bank accounts, or even went to pay off some of their existing credit card debt. Roberts is right to point to this as against the Monetarists who fail to take into account changes in the velocity of circulation. Its what Keynes talked about when he said that, in the 1930's, when economic activity was contracted, it could not be increased simply by printing more money tokens, as this would amount to the same thing as pushing on a piece of string. Firms who saw no likelihood of selling their existing output were not going to borrow money to invest in additional output, simply because the state made liquidity more available to them.
But Roberts' statement that money supply increased, whilst consumer price inflation didn't is facile, for the reason that Marx describes above. That is that ideal prices are a function of money as unit of account. If we have a money commodity, gold, then 1 ounce of gold might be given the name £1. It has a value of 10 hours of labour time. Its this which acts as the indirect measure of value. So, if the total value of commodities to be circulated is equal to 10 million hours of labour, or, thereby, 1 million ounces of gold, then it is equal to £1 million pounds. But, I could just as easily, replace the gold with a paper note, to which I give the name £1. It is a certificate, giving the owner a claim on 10 hours of social-labour-time, the same as possession of 1 ounce of gold, and is now backed by the state. But, if the state now puts 2 million of these notes into circulation, still with a nominal value of £1 each, it does not change the value of the commodities circulated, but does change their nominal prices, doubling them. But, it does not do so immediately, or evenly, because this change arises from the function of currency. There must be a time lag, during which all of this additional currency first washes into circulation, and so results in this inflation of money prices. Studies suggest that this is around 2 years.
 |
| The astronomical rise in stock indices after 1980, and particularly after 1990 is a rise in their nominal money prices coincident with the huge increase in liquidity injected by central banks during that period, markedly after each financial crash |
He also fails to take into consideration that it is not just the prices of goods and services that can be inflated. Asset prices have been astronomically inflated as a result of printing money tokens. And, the indices of inflation do not take into consideration the effect of this on consumers. For example, no account of the huge rise in house prices that has excluded large numbers from being able to buy a home is taken into consideration. The huge rise in the prices of shares and bonds means that the monthly contributions of workers and companies into pension schemes, buys only a fraction of the shares and bonds they did thirty years, so that the cost of providing for pensions has been massively increased, as all the pension black holes demonstrate. That represents a huge rise in prices faced by workers, which is not reflected in price indices of the cost of living.
No comments:
Post a Comment