Chapter Two – Money or Simple Circulation, Measure of Value - Part 6 of 14

Inflation also takes the form of speculation in assets, on the basis that the price of those assets will continue to rise. So, QE, for example, not only resulted in higher share, bond and property prices, because central banks directly bought those assets, to raise their prices, but, by increasing liquidity, in this process, they also created an inflation that was directed into these specific prices. In doing so, they encouraged others to speculate in these assets, diverting money tokens away from the real economy into the purchase of these assets, in the expectation of paper capital gains, resulting from a continual inflation of these asset prices.

The argument that QE did not create inflation, and that Marx's analysis of inflation as a monetary phenomenon is wrong, simply fails to take into consideration this hyperinflation of asset prices, not to mention, the large falls in the values of commodities, resulting from high levels of productivity growth in the 1980's and 90's.

“But because prices convert commodities only nominally into gold or only into imaginary gold – i.e., the existence of commodities as money is indeed not yet separated from their real existence – gold has been merely transformed into imaginary money, only into the measure of value, and definite quantities of gold serve in fact simply as names for definite quantities of labour-time. The distinct form in which gold crystallises into money depends in each case on the way in which the exchange-values of commodities are represented with regard to one another.” (p 68)

Commodities, before the existence of money, confront each other in their dual form as both use values and as exchange-values. As use values, they are incommensurable. In terms of use value, it is impossible to equate apples and oranges. There is no way to say that a kilo of apples equals 2 kilos of oranges. Marginalist theory attempts to do this by means of indifference curves, whilst the Austrians simply state that “people act”, making instantaneous, subjective preferences in relation to choices. But, the marginalists were unable to come up with any measure of such cardinal utility, such as “utils”, even on the basis of subjective preferences, having to rely, instead, on infinite ordinal rankings of commodities by consumers.

Moreover, if we take indifference curves, this tells us, supposedly, not what the value of each commodity is, but only the relative preference of consumers, abstracted from all other considerations. It provides us only with a theory of consumer behaviour, i.e. of demand. But, Marx himself described that as far back as 1858, in The Grundrisse, where, in relation to demand, he states clearly that it is a function of use value/utility, and so governed by quite different laws than those that determine value and supply.

“Here a great confusion: (1) This identity of supply, so that it is a demand measured by its own amount, is true only to the extent that it is exchange value = to a certain amount of objectified labour. To that extent it is the measure of its own demand -- as far as value is concerned. But, as such a value, it first has to be realized through the exchange for money, and as object of exchange for money it depends (2) on its use value, but as use value it depends on the mass of needs present for it, the demand for it. But as use value it is absolutely not measured by the labour time objectified in it, but rather a measuring rod is applied to it which lies outside its nature as exchange value.”

(Grundrisse, p 412)

Moreover, long before the theory of marginal utility, and demand elasticity, Marx had explained that too, saying in Theories of Surplus Value, Chapter 20,

“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.”

Going back to indifference curves, as soon as the abstraction has to confront reality this becomes obvious. The indifference map provides an infinite set of alternative options between 2 commodities that could provide a basket that optimises the utility of the buyer, but, then, determining which of these combinations actually maximises the utility of the buyer requires that it be confronted with a budget constraint line, which sets the price of commodity A on one axis, and the price of B on the other. In other words, even in order to determine what the demand for each commodity will be, it is first necessary to determine the price/value of each commodity of each, which is the determinant of supply! What it gives us is not an explanation of price or value, but only a theory of demand once values are already determined, and Marx had already done that by 1860!

Back To Part 5

Forward To Part 7

Dealing With Energy Prices

As I wrote, last week, the current high energy prices could be ended overnight. An element of them is due to the general inflation that has arisen from vast amounts of money tokens thrown into circulation during the idiotic lock downs, and the answer to that is to stop printing additional money tokens, but a large part is due to the actions of NATO imperialism in attempting to block and boycott exports of Russian oil and gas. However, we have no immediate means of changing that, so we have to consider other immediate solutions. Those solutions, to be effective, can only be collective class based solutions.

So, campaigns like “Enough Is Enough”, which are basically petty-bourgeois, individualist and liberal consumerist solutions, can never provide such a solution. Whilst, of course, there are going to be individual households who actually cannot pay their energy bills, as there always are, and always have been, and that number will undoubtedly increase, what this campaign seeks to do is to put the onus on those individual households to respond in an atomised manner, to their position by refusing to pay. Well, if you can't pay, being told to refuse to pay isn't really helpful is it? What the campaign really is aimed at is a campaign of civil resistance, of actually not just those who can't pay, but of others along with them, who can pay, but who are then encouraged to refuse to pay. This kind of consumer boycott, is pure liberal individualism. Its not even like a rent strike, where all tenants in a building or community can join together to provide solidarity to each other.

The real immediate solution for households suffering poverty – and as I've written before there is no such thing as fuel poverty, or food poverty and so on, there is just poverty full stop – is to increase their income. That might be from increasing wages, or by increasing pensions and benefits for those not in work. Those solutions are ones that can be achieved by collective action. Workers by joining trades unions, and taking action can demand and win higher wages, and that is particularly the case when, as now, there are labour shortages throughout much of the economy. Workers as a whole, via the TUC, can take action, and demand a much higher Minimum Wage, on behalf of all of their comrades who are in jobs where organisation is difficult to achieve, and where the workers have less leverage, and, similarly, they can take action to demand a large rise in pensions and benefits for those that have retired, or who are unemployed.  Similarly, they can take action with workers across Europe to demand that NATO scrap its sanctions against Russian energy exports, and that the EU agrees to pay for gas in Roubles, and that Germany open up Nordstream 2, which would end the crisis overnight.

Given the current high level of inflation, such general class action could also demand that all of these wages, pensions and benefits be indexed each month to a workers' cost of living index, calculated by trades unionists and socialist economists. Of course, alongside that general class action to protect workers from high energy prices, and inflation, we should also continue to point out the actual causes of that inflation, rooted in the astronomical amounts of money tokens that central banks have printed over the last 40 years, whose primary goal was to inflate asset prices, so as to protect the paper wealth of the ruling class, as well as in the actions of NATO imperialism in blocking huge amounts of cheap energy entering the European market. Simply reversing the German decision not to open the Nordstream 2 pipeline would reduce gas prices overnight, and provide Europe with huge amounts of cheap energy, for example.

The petty-bourgeois nature of “Enough Is Enough”, is also manifest in this statement by one of its backers – Anti-Capitalist Resistance. Susan Paskoff, reviewing Labour's strategy writes,

“Not allowing the energy price cap to rise is a good thing”.

But, as I set out recently, that is not true. It would mean that even more of the energy distributors would go bust, as they could not recoup their own massively increased costs of buying energy from producers. That would throw UK energy supply into chaos, doing no good to anyone - not to consumers who would lose supply, not to energy supply workers who would be thrown out of a job!

And, Paskoff admits that the only way this would work would be if the state itself stepped in to provide massive subsidies to those energy supply companies, to cover their additional costs. Labour only has plans to provide such funding until next April. The real answer, to that, is not such massive subsidies, which would cause government borrowing to rocket, but is the kind of rise in wages, pensions and benefits described earlier. 

At the very least, individual groups of workers, as they already are doing, can organise and take action to demand rises in their own wages, and that requires no reliance on the government pursuing the kinds of polices to restrain prices, and so on that the consumerists are calling for. Successful action for much higher wages – which, with Citigroup now forecasting RPI inflation of 21%, now means wage rises of around 25% - would itself spread over into other groups of workers, giving them confidence to take action, as is already happening. And, even smaller firms would not be able to resist raising wages in such a climate, because, otherwise, they would simply lose workers to other much higher paying employers.

In such conditions of generalised strike action, including in that action demands for higher pensions and benefits, for a much higher Minimum Wage, becomes simply a logical extension of that class wide action, in away that consumerist campaigns for boycotts, payments strikes and so on never can. The very name of Anti-Capitalist Resistance, of course, gives the clue to its petty-bourgeois nature, whose policies are based on that kind of reactionary, Sismondist approach of antagonism to large-scale capital, and attempts to constrain it within limits of things such as price controls etc.

After all, what would “Enough Is Enough” say in response to households not being able to pay for their weekly food bill? Don't pay at the check-out? At least, in the 19th century, the Chartists, here, in North Staffordshire, responded to such situations by marching en masse, in collective class action, down to the canal wharves, and liberating supplies from the canal boats transporting goods to wholesalers. But, the real power of workers resides in the workplace itself, at the point of production. It is there that we can act collectively, not only to demand the higher wages required to cover higher prices, but from where, when undertaken on a class wide basis, can force capital as a whole to act, via its state, to provide the required class wide increases in benefits etc.

But, more important than that, even these actions can only be effective at certain times, like those now, where labour is relatively scarce. At other times, workers do not have the leverage to win higher wages etc., no matter how militant their action. Its hard to demand higher wages, when the employer is laying you off, and a dozen unemployed workers are waiting to take your job. So, all of these immediate actions are only themselves partial solutions within capitalism. The real solution, as Marx sets out in Value, Price and Profit, is to replace capitalism, and the wages system along with it. But, it is, again, in the workplace where that lesson is learned, and where the potential to implement it arises.

It is, after all, workers who already run capitalism. We do not need capitalists, just as when capitalist farmers arose, there was no need for landlords any longer. Its not just workers who run capitalism by producing all of the goods and services, it is workers, as managers, administrators, accountants, and so on, who organise and supervise all of that production, and the operation of financial systems too. It is workers, today, who do all of the jobs in that regard that the private capitalist used to do in the 18th and 19th century. What is more, the vast majority of industrial capital in the economy is socialised capital, not private capital. In other words, it is capital that is owned by the firm itself as a legal entity. The firm simply borrows money to operate, whether it borrows that money by issuing shares, or bonds, or borrowing from a bank, or by borrowing from its own workers, as happens with a workers cooperative. In all events, the company is its associated producers – the workers and managers – and it is they that collectively own it.  It is absurd that they do not control it, and yet shareholders who do not own it, do not play any active part in production do control it!

Explaining this reality to workers, is the first step in getting them to also demand control of their own collective property, rather than that control being in the hands, improperly, of people that do not own it – shareholders. A situation like that we have now, of millions of workers taking action to protect their living standards, is precisely the time, where, in the workplace, this lesson can be learned, so that the longer-term interests of workers can be advanced, by not just seeking higher wages, but also demanding industrial democracy, and control over their collective property.

These are the real solutions that should be advanced, but, in the meantime, there are also real human beings involved, and some of them cannot wait over this Winter.  It is always necessary to deal with the world as it is, rather than how we would like it to be.  I would love for us to have already created Socialism so that these problems did not exist, and where the power to deal with any problems resided directly in our own hands, but that is not the case, and is a longer-term goal.  More immediate solutions are also collective, class based solutions, and in the rash of strikes, they are emerging, but are not yet achieved.  Most immediately, then, individuals need to be able to survive.  So, let me give some practical advice, on survival tips, learned over several decades, from growing up in an old, damp, cold terraced house with only a single coal fire, to living in a cold damp flat, with only electric fires for heating, to some later experiences that only some might be able to utilise.

Individual choices are always limited, and the poorer you are, the more they are limited.  That means that for the very wort off, they really are going to be dependent on class based solutions providing them with relief.  But, there are always are choices, no matter how unpalatable, such as eating or heating, and in that choice, eating is always a priority, because its possible to live without heating, but not without eating.

When I was a kid, my parents house, as stated, was cold and damp. Ice would form on the inside of windows overnight in Winter. It was heated by a single coal fire in the living room, supplemented by inefficient electric fires, when required.  Obviously, we huddled in the living room around the coal fire, and used lots of blankets and Eider Downs (in the days before duvets) on the bed, along with hot water bottles. If you use a hot water bottle, make sure you wrap it in something so as not to get burned. That kind of limited, but immediate, heat can be useful to keep you warm, rather than needing to warm an entire room. Later we were able to buy electric blankets, which were a more effective means of achieving that objective.

Similarly, we bathed in an old zinc bath in front of the fire, once a week on a Sunday night.  The bath was filled with buckets of hot water heated in an old boiler used also for washing clothes in the dolly tub.  the bath was topped up with kettles of hot water, and all four of us in the family shared the same bath water.  In the 1970's drought, people were also encouraged to share baths to save water.  In fact, during lockdowns, my shower wasn't working properly, and isolating I decided not to have a plumber come and fix it, so for the last two years, instead of showering or bathing, I have managed perfectly well with having an all over wash with water from the basin, using a face cloth, which saves both in water usage, and in the cost of heating a much smaller volume of water required.

Similarly, the first year my wife and I lived in our flat, it was so cold and damp that she ended up getting pneumonia and a collapsed lung. We only had electric fires. But, we found that, again, a sensible solution was to move into just one room, rather than needing to heat a bedroom. That way, it could be heated, and the heat retained in it. In both cases, using home made draught excluders from stuffed tights and so on, curtains hung over doorways etc., made a big difference in keeping out cold draughts. Also, if you need quick heat to warm up, a fan heater seems to do the job, whereas, an oil filled radiator, can retain heat more effectively. That is useful if you do need to use another room like a bathroom for short period, to shower.  Use of high tog duvets to wrap in whilst sitting, also prevents heat loss, and a hat, even in doors stops a lot of heat loss through your head.

Various people have talked about using public buildings for the retired and unemployed, during the day time, as they are heated, and avoid needing to heat your own home. I'm not convinced. Firstly, when you come back home, you then have to heat it from stone cold, and you have yourself got cold from being out in it. Then, for the elderly, there is the risk of accidents in bad weather. If you can get together with others to share accommodation, and so heating costs, that is preferable, as well as encouraging solidarity and companionship.

But, lots of people are not in such absolutely dire straits as that.  I see lots of people walking around engrossed in their latest iPhone, and so on.  I was amazed when someone told me that they had paid £800 for one, and yet such things appear ubiquitous.  I don't even have a mobile phone of any kind.  If its a choice not of eating or heating but smart phone or heating, I know which I would choose, which makes some of the talk about the additional costs somewhat hypocritical.  Again, when I hear lots of people talking about going out to eat or to the pub, an average amount spent, per person, per night seems to be around £50.  Even just once a  week that is £2,500 a year, which would cover most of the increase in energy costs.

Now, I am not at all saying that people should not be able to have smart phones, or be able to go out.  Obviously they should, and preferably much, much more, and under Socialism that would be the case, but dealing with current reality, and not some future condition, its necessary to deal with real choices, here and now.  The working-class is not homogeneous, and the position of working-class households in terms of incomes and savings differs considerably, even if negligibly compared to the position of the bourgeoisie.  We have to try to address the different conditions of all workers.

When we were working, and our kids were young teens, we found that they had gone a bit beyond more toys and stuff. We started, saving up holidays to add to the annual Xmas break, so as to have enough for at least a two-week and sometimes longer holiday in The Canaries. At that time, before the Internet, we used Ceefax, to find very cheap last minute deals. In Xmas 1999, we managed to book a 2 week holiday for the four of us, with two studio apartments, for just £600, and we have the video of the Millennium fireworks display from the top of a hill in Gran Canaria to prove it.

That might not seem like a solution for all, and it clearly isn't.  It might even seem frivolous compared to starting this post talking about an inability to pay for heating and other basic items, but I have included it for a specific reason.  Given the extent to which energy prices are rising, when you consider your saving on energy, saving on what you would have spent on Xmas, and what you might have spent for a holiday at another time of year, the figures begin to stack up, and getting some sunshine in the dark days of Winter provides huge health benefits.  Again, obviously, there are lots of people who cannot afford holidays at any time of year, just as some can't afford smart phones, or going to the pub, so this does not apply to them, but the reason I have included it, is there is a tendency on the Left, especially amongst catastrophists, to talk as though the entire working-class is comprised of paupers, and semi-paupers, which it isn't.

I used to speak to lots of old retired miners, when I used to go to the council gym and sauna, who went away to Benidorm for several weeks, on pensioners breaks over the Winter. Some for as long as 3 months.  These were not affluent people at all, most of them living on the old Miners Estate.  Its reported that energy bills could go to over £6,000 a year, and most of that is going to be for energy used over the Winter months, mainly January and February. If you are going to be spending even £3,000 on energy to stay in cold, dreary conditions in Britain, why not, instead, put that £3,000 towards a long stay holiday in the Canaries, or the Costa Blanca? You can book 28 nights in Costa Blanca, in January, half-board, now, for as little as £600 per person, in Portugal for less than that. There are reports that, already, an increasing number of pensioners are choosing this option, to escape the misery of Brexit Britain over the Winter, even if some of them might have voted to impose that misery in the first place!

Clearly, those in the direst of straits are not going to be able to do that, which is why I began by talking about the general class actions required, to raise wages, pensions and benefits.  In that respect, it would be useful if Starmer and his reactionary Blue Labour, would actually get out on picket lines and support striking workers rather than sacking Labour MP's for having done so.  But, even with this energy crisis, its only a minority in such severe dire straits, and as socialists we should speak to all workers, rather than only talking as if the condition of the most deprived is typical to all, otherwise we alienate the majority of workers.

In Marx's day there was a growing absolute number of paupers, whose ranks grew whenever unemployment struck, but they were not typical of the working-class itself, indeed, they formed a relatively shrinking proportion of it, and Marx and Engels never based their opinions or their politics on them.  They sympathised with their plight, but, in fact, they saw them as forming the ranks of those that often made up the dangerous class, used against the organised workers.  Marx and Engels, always framed their politics and vision, not on them, but on the more advanced sections of workers, the more educated, skilled and organised.  Indeed, as Engels describes in his History of the Communist League, its members were not only these better educated, skilled workers, but were themselves largely petty-bourgeois, self employed artisans.  It was this latter fact of their relationship to the means of production, rather than them being more affluent, better educated workers that was their limitation, Engels explains.

"On the one hand, the exploiters of these artisans was a small master; on the other hand, they all hoped ultimately to become small masters themselves. In addition, a mass of inherited guild notions still clung to the German artisan at that time. The greatest honour is due to them, in that they, who were themselves not yet full proletarians but only an appendage of the petty bourgeoisie, an appendage which was passing into the modern proletariat and which did not yet stand in direct opposition to the bourgeoisie, that is, to big capital — in that these artisans were capable of instinctively anticipating their future development and of constituting themselves, even if not yet with full consciousness, the party of the proletariat. But it was also inevitable that their old handicraft prejudices should be a stumbling block to them at every moment, whenever it was a question of criticizing existing society in detail, that is, of investigating economic facts."

(History of The Communist League)

Finally, there is the question of what to do about tariffs. Personally, the rise in prices has not affected me, yet. For the last two years, I had a fixed price tariff that was well below where the price cap came out at, and it only ran out a couple of months ago, so, with my heating now off until the Winter, my energy usage is minimal. But, I've decided not to go for another fixed price tariff. For one thing, those offered were way above the current variable rate. As I might well take advantage of the ending of lockdowns, and having been fully vaccinated, to go away for several weeks to the sun, I should escape the heavy energy usage period.

Moreover, I expect that the EU will end up having to drop its current energy boycott against Russia, so that cheap gas will start to flow again, and prices will crash. For one thing, I expect that Russia is now going to entrench its positions in Donbas, and Southern Ukraine, leading to some form of agreement being reached to end the fighting. With any such pretext, Europe will be keen to get that gas flowing, to open Nordstream 2, and so on, in which case, gas prices could fall by around 80-90%, at which point, you certainly would not want to be tied into a fixed rate tariff determined by today's prices.

Fighting Inflation With The Wrong Tools

Central banks say they are committed to reducing inflation. To that end, they are raising their policy rates. That misunderstands inflation, and means they are using the wrong tools to deal with the problem.

Inflation is a monetary phenomenon. Let me set it out plainly as Marx does in A Contribution To The Critique of Political Economy, and do so using the historical method he uses. First of all, we have products that have individual values, produced by primitive communes for their own consumption. Then some of their surplus products get exchanged with other tribes/communities, and as this trade leads to them being produced, specifically, to be traded, they become commodities rather than products. The individual values of products become aggregated into a single average market value for each type of commodity, as a result of competition between producers of these commodities. The market value of one type of commodity when compared to that of other types of commodity determines the exchange value of these commodities, one to another, i.e. 1 metre of linen equals 1 litre of wine.

Fairly quickly, single commodities whose value is well known, and which are traded regularly, come to be singled out in this process of exchange, and are used as a means of indirectly measuring the value of all other commodities. It becomes the money commodity, and the exchange values of all commodities, as measured against this single commodity, becomes their price. The classic example of such a commodity is gold, but many others have been used in the past.

So:

1 metre of linen = 10 hours labour

        

1 litre of wine = 10 hours labour

1 ounce of gold = 10 hours labour

1 metre of linen = 1 lite of wine = 1 ounce of gold

Gold is singled out as money commodity, so

1 metre of linen = 1 ounce of gold

1 litre of wine = 1 ounce of gold

As money, 1 ounce of gold has the name £1.  So,

The price of 1 metre of linen = £1 

The price of 1 litre of wine  = £1

 But, if the £1 is reduced to 1/2 ounce of gold = 5 hours labour:

The price of 1 metre of linen = £2

The price of 1 litre of wine = £2

If the £ is merely a paper note, with no connection to gold, its value is determined by the amount of social labour it represents, just the same, but this amount per note, depends on the quantity of them put into circulation.   Money is the equivalent form of the value of all these other commodities., i.e. if total commodities is 1 metre of linen, and 1 litre of wine, whose total value is then 20 hours of labour, its money equivalent is also 20 hours of labour in the form of 2 ounces of gold. If the total value of commodities in an economy is then equal to 1 million hours of labour, its money equivalent must also be 1 million hours of labour, and so, if the value of an ounce of gold is 100 hours of labour, the money equivalent of all commodities is 10,000 ounces of gold.

In terms of the money required in circulation, to act as currency, this then depends on the velocity of circulation of each ounce of gold. If, on average, each performs 10 transaction in a year, 1,000 ounces of gold will be required in circulation. The amount of gold money in circulation is then a function of the value of commodities to be circulated. It increases if the total value of commodities rises, and vice versa. If the average value of commodities stays the same, but 10%, more of them are produced, i.e. the economy expands, then its value will be 1.1 million hours, and its money equivalent rises accordingly to 11,000 ounces of gold, 1,100 required as currency. If the total amount of commodities remains constant, but a fall in social productivity means that the value of each rises by 10%, then, again, the total value of these commodities rises to 1.1 million hours, and so an appropriate amount of money and currency is the necessary consequence. The opposite applies if the economy shrinks, or if the value of commodities falls due to rising social productivity.

Already, therefore, what is wrong with current policies to deal with inflation can be seen. If the economy shrinks, then the money equivalent of this economy shrinks, and less money is required in circulation. But, the policies being adopted by central banks are indeed to, if not shrink the economy, then to have it grow only slowly. That is their purpose in raising interest rates. They are intended to dissuade consumers from spending, and instead to save, and to dissuade firms from investing, and producing more. But, if that is successful, and the amount of money tokens in the economy – which, today, as notes, coins and credit takes the place of actual money – remains the same, then that means that there are too many of those money tokens in circulation, compared to the reduced total value of commodities. In response to a smaller economy, the amount of money is also reduced as its equivalent form, which means that the amount of notes, coins and credit, which acts in its place, should also be reduced. If not, each token becomes devalued, and the manifestation of that is not a reduction of inflation but an increase in inflation, because the measure of value has itself been depreciated. That is the road not to a reduction of inflation, but to stagflation.

In fact, given that there is already a huge excess of liquidity in the system, the way to deal with the inflation that results from it, is not to try to slow the economy, and to create a recession, but is to rapidly expand the economy, without expanding liquidity further alongside it. If we take a situation in which the amount of gold money in the economy, as set out above, should be 1,000 ounces of gold, each called £1, and is replaced by £1 notes, but where, instead 2,000 such notes have been put into circulation, then each £1 note can only be worth £0.50, because, in total, they can only be the equivalent of 1,000 ounces of gold. Because, each note continues to represent itself as £1, rather than £0.50, the only way this fall in its value can be manifest, is by the prices of commodities themselves doubling.

So, where, previously, the value of output was equal to 1 million hours of labour, or 10,000 ounces of gold, i.e. £10,000, now, each of these commodities would double in price, so that the total of prices rises to £20,000. That is inflation. To restore prices to their original level, the number of notes in circulation would need to be reduced to 1,000. But, that does not happen, because it would cause economic disruption, once prices have risen, or started to rise. However, if the amount of notes in circulation remained 2,000, but the quantity of commodities in circulation itself doubled, then this would also reduce prices to their original level. If previously, there were 1 million commodities, each with an average price of £0.01, giving a total of prices of £10,000, which rose to an average price of £0.02, and a total of prices of £20,000, as a result of the increase in liquidity, then, if the total output rises to 2 million commodities, then with a total of prices of £20,000, the average price per commodity falls back again to £0.01.

So, what central banks should be doing, is to correct the huge increase in liquidity they injected over the last 40 years, not raising interest rates, whose effect they anticipate as being to slow economic activity, which is not the same thing as reducing inflation. The reason they believe it is is that they think that inflation is caused by an imbalance of aggregate supply and demand, and in particular from rising wages, even though, currently, its obvious that wages are lagging way behind price rises, and have been doing for years. Its why they continually talk about needing a higher rate of unemployment.  

What is required, is not measures such as rises in interest rates to slow the economy, but measures from governments to stimulate economic activity, so that the excess liquidity in the system is absorbed by it. But, they are not going to do that, in current conditions, because there are relative labour shortages causing wages to rise and begin to squeeze profits, as well as rising demand for capital causing actual market rates of interest to rise, which leads to asset prices falling.

Last week FOMC member Esther George, interviewed on Bloomberg, at Jackson Hole, repeated the mantra arguing that the inflation was a result of an imbalance of aggregate demand and supply that had to be corrected by higher rates.  But, its nonsense.  There can be a balance of aggregate demand and supply as easily at an index level of prices equal to 200, as there is at 100.  All it requires is that the standard of prices, i.e. the Dollar, be devalued by 50%.  If I put two equal weights on either side of a scale, them balancing is not at all affected by the fact that I measure their individual weights in kilos rather than pounds!  That is exactly the position where the Dollar falls in value, and so it measures the elements of demand and supply merely in changed nominal amounts.

What George's argument amounts to is the old idea that arose in the debates between Lowndes and Locke, about the standard of prices being some fixed quantum of value.   The same debate was held a century later between Thomas Attwood, and the Birmingham "Little Shilling" Men, against Robert Peel.  The dogma that the standard of prices such as £, $ and so on is some kind of absolute fixed quantum of value, then believes that it is only the values of commodities that change.  But, if we take say a £ as being equal to 1 ounce of gold, it is clear that the value of this £ can itself change for one of two reasons.  Either the value of gold might change, because less labour is required for its production, or else the £ itself might come to contain less than 1 ounce of gold, or both.  In either case, it represents less social labour-time, and when gold backed currencies are replaced by fiat currencies the value of each note is simply also a proxy for an amount of social labour-time that amount being diminished by the quantity of notes thrown into circulation.

In fact, both of these factors have been seen throughout history as devaluing the standard of prices, as the above debates illustrated.  It is ludicrous to claim that the standard of prices remains constant, therefore, and that all the world changes around it.  Moreover, as Marx describes, when these gold £'s come to be replaced by paper notes, what determines the value of these notes, is not any value of their material content, of which they have essentially none, but is solely the quantity of them thrown into circulation.  In total, their value cannot be greater than the total of social labour-time they represent, divided by their own velocity of circulation.  So, if there is a balance of aggregate demand and supply, with a price level indexed at 100, which rises to an index level of 200, because the standard of prices has been devalued by 50%, there should still be a balance of demand and supply, and any measures to change it, will itself result in an imbalance!

Its true that central banks have tentatively begun to also end their programmes of QE that pumped trillions of Dollars of liquidity into the global economy, and even to begin a process of Qualitative Tightening, by selling some of the bonds sitting on their balance sheets, but that is minor compared to the total excess liquidity that has been created, much of which still sits in the form of grotesquely inflated prices of assets of all kinds from shares, to bonds, to property, to works of art and on. Moreover, in conditions of global economic expansion, a large part of the liquidity comes from an expansion of commercial credit itself, so that, even as central banks sell bonds, liquidity continues to increase, including also from an increase in bank credit, and credit creation by other financial institutions.

If they wanted to reduce inflation, they would vastly speed up the process of selling all those bonds from their balance sheets, so as to reduce excess liquidity. But, they will not do that, because, as still growing economies lead to wages rising, central banks want to enable firms to recover those higher wages in higher prices, rather than suffer lower profits, and a tightening of liquidity would make that more difficult. Of course, if they did do that, and firms found that they could not raise prices further to protect their profits, but were driven to continue to invest, as the economy expanded, they would have to borrow more and that would cause interest rates to rise, which would slash asset prices. That is what central banks are trying to avoid, because the ruling class, today, holds all of its wealth in the form of such paper assets, and seeks to protect them over against the interest of real capital and the real economy.

Nor, in fact, will their minor adjustments of nominal interest rates make any significant difference for the reasons I have previously set out.  With UK inflation set to hit 21%, interest rates of 3-4% are no deterrent to consumers using savings to spend now, to beat the rising prices, nor for firms to spend and borrow to spend on the same basis, and so as to be able to recoup the returns on their current investments at future, much higher nominal prices, and so much higher nominal profits.  The only things such rates will deter is speculation in assets, including property, as the prices of those assets will be reduced by higher interest rates, which will also give anyone thinking of buying a house good reason to hold on to their money, so as to get much more with it, at some future date.  That is the opposite of the conditions of the last 40 years.

Inflation - Inflation and the Money Commodity as Equivalent Form of Value - Part 2 of 2

A given weight of gold is originally given this name, say £1, and acts as the standard of prices, and thus the name remains, but the actual value of this standard falls over time, reflected in a rise in the general level of prices. Not all prices rise proportionally, for the reasons described previously, that the value of each commodity itself changes disproportionately, because productivity rises or falls by varying amounts in each sphere. Periodic large falls in the value of gold, cause a reduction in value of the standard of prices, but, the continual source of its devaluation is the reduction in its actual metal content. That occurs due to the clipping of coins, as well as a deliberate debasement of the coinage by the state, as a means of paying its debts.

As coin, gold initially exchanges with other commodities, at its nominal value, even though the coin may contain 10% less gold. But gold coins can be melted down into bullion, just as gold can be minted into coin. If coins that are 10% light are to be exchanged for gold, then they would be put on the scales, and their actual weight, as opposed to their nominal weight would determine how much gold they would buy.

“Sovereigns are clipped and debased and the surplus gold goes into the melting pot. When 4,672½ gold sovereigns placed on the scales weigh on the average only 800 ounces instead of 1,200, they will buy only 800 ounces of gold on the gold market: in other words, the market-price of gold has risen above the mint-price. All sovereigns, even those retaining the standard weight, would be worth less as coin than in the shape of bars. Sovereigns of standard weight would be reconverted into bars, a form in which a greater quantity of gold has a greater value than a smaller quantity of gold. When the decline of the metal content has affected a sufficient number of sovereigns to cause a permanent rise of the market-price of gold over its mint-price, the coins will retain the same names of account but these will henceforth stand for a smaller quantity of gold. In other words, the standard of money will be changed, and henceforth gold will be minted in accordance with this new standard. Thus, in consequence of its idealisation as a medium of circulation, gold in its turn will have changed the legally established relation in which it functioned as the standard of price. A similar revolution would be repeated after a certain period of time; gold both as the standard of price and the medium of circulation in this way being subject to continuous changes, so that a change in the one aspect would cause a change in the other and vice versa. This accounts for the phenomenon mentioned earlier, namely that, as the history of all modern nations shows, the same monetary titles continued to stand for a steadily diminishing metal content.”

(A Contribution To The Critique of Political Economy, Chapter 2)

This is Gresham's Law, in which bad coin drives out the good. Owners of debased coins would attempt to pass them on at their nominal value, in circulation, whilst those with full weight coins would take them out of circulation, and melt them down into bullion. As Marx says, the result of this is a periodic re-basement of the coinage, so that the coin, officially, is recognised as containing less gold, so that its value falls, and all prices measured by it rise.

Back To Part 1

Next - Inflation and Convertible Money Tokens

Chapter Two – Money or Simple Circulation - Measure of Value - Part 5 of 14

Changes in the value of gold and silver, as money commodity, relative to the value of other commodities, are necessarily limited. Only if gold is replaced by silver is any significant change likely, or, for example, where new gold discoveries brought large supplies of gold at a much lower value. But, as Marx describes, this is not true with money tokens. They can be increased in quantity without limit, and, whereas the quantity of gold in circulation is a function of its value, by contrast, the value of money tokens is a function of the quantity of them put into circulation. So, now, the general price level can be increased or decreased, irrespective of the value of gold, but simply on the basis of an expansion or contraction of the currency.

“If the value of an ounce of gold falls or rises in consequence of a change in the labour-time required for its production, then it will fall or rise equally in relation to all other commodities and will thus for all of them continue to represent a definite volume of labour-time. The same exchange-values will now be estimated in quantities of gold which are larger or smaller than before, but they will be estimated in accordance with their values and will therefore maintain the same value relative to one another.” (p 67)

So, it is impossible to have an absolute measure of exchange-value/price, but nor is such an absolute measure required.

“The fact that, because of the changing value of gold, exchange-values are represented by varying quantities of gold does not prevent gold from functioning as the measure of value, any more than the fact that the value of silver is one-fifteenth of that of gold prevents silver from taking over this function.” (p 67)

However, when paper money tokens are introduced, the potential for their limitless expansion means that the value of each token can fall also without limit, resulting not only in high levels of inflation, but also hyperinflation, such as seen in Weimar, and in recent times in Argentina, Zimbabwe and elsewhere. Under these conditions, the currency itself can cease to function, because it relies on trust that the owner of the money tokens can obtain the equivalent of the universal social labour-time the token purports to represent, and that ceases to be the case. This is also why crypto-currencies can never function as currency, because they are not commodities/use values, and have no value, their price being a function only of gambling causing wide swings, meaning, at any time, their price can go to zero, and probably will.

“Labour-time is the measure of both gold and commodities, and gold becomes the measure of value only because all commodities are measured in terms of gold; it is consequently merely an illusion created by the circulation process to suppose that money makes commodities commensurable. On the contrary, it is only the commensurability of commodities as materialised labour-time which converts gold into money. (p 67-8)

And so, in times of high levels of inflation, and hyperinflation, no one wants to hold the currency, and, instead, they seek ownership of other commodities. Typically, that takes the form of demand for gold and silver, other precious metals, or durable, high value commodities, like diamonds and other gems. But, it also takes the form of demand for consumption goods, particularly those that are more durable, such as canned goods, on the basis that the price of them will be higher a week later. The opposite to that happens in periods of deflation.

With fiat currency, both can be self-reinforcing. In times of high inflation, consumers increase current demand, which, in turn, leads suppliers to raise prices, and also to increase production, meaning they demand inputs, causing those input prices to rise. Central banks increase liquidity so that these higher prices can be passed on by firms without squeezing their profit margins. In times of deflation, consumers reduce demand, causing commodities to be overproduced, and firms to reduce output, money flows into other avenues, such as speculation in assets, which, in turn drains liquidity from general circulation.

Back To Part 4

Forward To Part 6

Northern Soul Classics - You Got What It Takes - Marv Johnson

 

Friday Night Disco - You're My Only Temptation - Roz Ryan

 

Inflation - Inflation and the Money Commodity as Equivalent Form of Value - Part 1 of 2

As set out at the start, prices are exchange-values expressed in terms of the money commodity, and subsequently money tokens that act as representatives of the money-commodity, and finally money tokens in a regime of fiat currency, in which each token represents an aliquot part of total universal labour/social labour-time. As with any exchange value, the value of one commodity is expressed, indirectly, as a quantity of some other commodity, and, is, thereby, a proportional relation between the two. As such a proportional relation, it can change as a result of a change in the value of either commodity, or both.

So, if a litre of wine has a value of 10 hours of labour, as does 1 metre of linen, the exchange value of wine is 1 metre of linen, and, if linen is the money commodity, the price of wine is 1 metre of linen. If the value of wine rises to 12 hours, and the value of linen remains constant, the price of wine becomes 1.2 metres of linen. If the value of linen rises to 12 hours, then the price of wine, is still 1 metre of linen. If, the value of linen rises to 15 hours, the price of wine falls to 0.8 metres of linen.

With gold or silver as money commodity, these relations are the same. If a quarter ounce of gold is given the name £1, and a quarter ounce of gold has a value of 10 hours labour, then it exchanges for a litre of wine, with a value of 10 hours labour, so that a litre of wine has a price of £1, and all the other relations described above can be represented accordingly as £'s, multiples of £'s, or fractions of £'s. The £, is the standard of price, and its value can decline either as a consequence of a fall in the value of gold, or as a result of the £ containing less gold. What distinguishes inflation from a rise in the price of any individual commodity, resulting from an increase in its value, is that inflation is an increase in the general level of prices, resulting from a fall in the value of the £ as standard of prices.

When precious metals, such as gold, were used as currency, both of these effects – a fall in the value of gold, and reduction in the quantity of gold within the standard of prices – were causes of inflation of prices.

“As a result of an historical process, which, as we shall explain later, was determined by the nature of metallic currency, the names of particular weights were retained for constantly changing and diminishing weights of precious metals functioning as the standard of price. Thus the English pound sterling denotes less than one-third of its original weight, the pound Scots before the Union only 1/36, the French livre 1/74, the Spanish maravedi less than 1/1,000 and the Portuguese rei an even smaller proportion. Historical development thus led to a separation of the money names of certain weights of metals from the common names of these weights.”

(A Contribution To The Critique of Political Economy, Chapter 2)

The name of the standard of prices, thereby, remained the same, but the value of this standard fell, as it continually contained less and less of the money commodity, and the manifestation of this was, therefore, higher prices. Similarly, the value of gold itself fell significantly at various times, for example, when Spain looted it from South America, when new gold supplies were discovered in California, and Australia.

Back To Keynesians and Cost-push

Forward To Part 2

Chapter Two – Money or Simple Circulation - Measure of Value - Part 4 of 14

How does this occur in practice? Marx discusses it at greater length in Capital II, where he moves from the discussion of many capitals, in Volume I, to the circulation of commodities, and capital between them.

“It is evident, however, that in countries where gold and silver are produced a definite amount of labour-time is directly incorporated in a definite quantity of gold and silver, whereas countries which produce no gold and silver arrive at the same result in a roundabout way, by direct or indirect exchange of their home products, i.e., of a definite portion of their average national labour, for a definite quantity of labour-time embodied in the gold and silver of countries that possess mines.” (p 66-7)

And, indeed, involved in this process then enters the question of universal labour at an international level, and so differential rates of labour productivity in different countries. These issues are dealt with in Capital II and III, where Marx and Engels deal with capital in general, and the issues of foreign trade, world money, and currency exchange rates. Had Marx had more time, his plan was to go way beyond that, encompassing analysis of competition, and the world market, and the state.

Marx sets out the ideas also contained in Theories of Surplus Value, Chapter 20, that, whereas value is absolute and measured directly by labour-time, exchange value is relative, and measured indirectly by a quantity of some other use value. So, the search for some absolute measure of exchange-value is a fool's errand, because exchange-value can only be measured in terms of some given commodity, and the value of this commodity, as with all others, must constantly change, as a result of constant changes in social productivity.

“Gold must be in principle a variable value, if it is to serve as a measure of value, because only as reification of labour-time can it become the equivalent of other commodities, but as a result of changes in the productivity of concrete labour, the same amount of labour-time is embodied in unequal volumes of the same type of use-values. The valuation of all commodities in terms of gold – like the expression of the exchange-value of any commodity in terms of the use-value of another commodity – merely presupposes that at a given moment gold represents a definite quantity of labour-time.” (p 67)

And, again, here, is manifest Marx's analysis of inflation as a monetary phenomenon. If the value of gold remains constant, then the price of a metre of linen can still rise if the value of linen itself rises, because the exchange-value of linen is determined by the proportional relation between its value and the value of other commodities, and similarly, its price is determined by the proportional relation to the value of the money commodity. If the value of a metre of linen is 10 hours of labour, and of a gram of gold is 10 hours of labour the price of the linen is 1 gram per metre. If the value of linen rises to 20 hours, its price rises to 2 grams per metre. This is not inflation, a rise in the general level of prices, but merely an increase in the value of linen.

Assuming no change in the value of iron, the price of iron, and likewise other commodities, is not changed by it, and so, too, with the general level of prices. If, however, the value of gold falls, then, even though the value of all other commodities remains the same, all of their prices will rise, because their proportional relation to the money commodity has changed – inflation. If the value of all commodities rises, then, this represents a fall in social productivity, in general. But, then, that would also affect the value of gold too. For example, if the value of energy rises that is transferred into the energy required for mining, if steel rises in value that passes into the value of pit props, rails and so on, into mining machines, etc.

So, if the value of linen doubles from 10 hours to 20 hours, as does the value of all other commodities, then the value of gold would be expected to double too. In that case, where the price of a metre of linen was 1 gram of gold, both being equal to 10 hours of labour, the price, now, would still be 1 gram of gold, because both now are equal to 20 hours of labour. This could only vary if the proportional change in the value of gold was different to that for all other commodities, again illustrating the point that inflation is a monetary phenomenon, and one that becomes all the more apparent when money tokens take the place of the money commodity.

“The law of exchange-value set forth earlier applies to changes occurring in the value of gold. If the exchange-value of commodities remains unchanged, then a general rise of their prices in terms of gold can only take place when the exchange-value of gold falls. If the exchange-value of gold remains unchanged, then a general rise of prices in terms of gold is only possible if the exchange-values of all commodities rise. The reverse takes place in the case of a general decline in the prices of commodities.” (p 67)

Back To Part 3

Forward To Part 5

High Energy Prices Could Be Ended Overnight

The world, and Europe in particular, is currently obsessed about high energy prices. But, those high energy prices, and their effects on European economies, have been artificially created by the actions of EU governments, under pressure from US imperialism, and its economic war against Russia and China. There is no economic basis for high energy prices, because there is actually a global surplus of cheap energy over supply, as negative oil prices, of -$37 a barrel in April 2020, demonstrated. There is also plenty of cheap gas, and huge amounts of it were due to be pumped into the EU via the new Nordstream 2 pipeline from Russia, until US imperialism pressured Germany to cancel it. There is no shortage of cheap energy, no reason for consumers and business to be paying astronomical prices for it, or for consumers and business in Europe to be facing blackouts over Winter. Cheap and plentiful supplies could resume tomorrow if Germany would simply decide to open Nordstream 2, and the EU agreed to pay for its energy supplies from Russia in Roubles.

Energy prices, like other primary product prices soared after the commencement of the new long wave uptrend in 1999. As with all such long wave cycles, it prompted a massive increase in investment in exploration and development of new mines and so on, as Marx describes in his long wave analysis in Theories of Surplus Value, Chapter 9. It also saw investment in new technologies to extract and utilise energy more efficiently, such as with fracking and so on. The US became a large exporter of energy on the basis of it. When all of this investment led to new supplies from, generally, more fertile sources of supply, as Marx describes, not only did this additional supply reduce market prices that had been elevated, as demand had exceeded supply, it also reduced the price of production of all these primary products, including energy, causing their prices to fall dramatically, in 2014. As I wrote at that time, given all of this additional lower cost production, at the same time that energy was being used more efficiently, and the use of oil was being phased out in favour of renewable energy, electric vehicles and so on, it was unlikely that oil would again rise above $100 a barrel, in 2014 Dollars.

And, that remains true. Even the current artificial increase in oil prices, which will be temporary, has barely raised the price above $100 in 2014 Dollars, given the fall in the value of the Dollar, in the intervening 8 years. But, even that price, as described, is artificially high, and entirely due to the decision of EU governments to boycott Russian oil, as Ed Morse described a while ago, in this interview with Bloomberg.

As Morse describes, it was the decision of Europe, under pressure from US imperialism to boycott Russian Urals oil that caused them to have to look for alternative supplies, which they could only get from the US. That US oil was much more expensive, and, as US oil companies then shipped oil to Europe, at these higher prices, it reduced US supplies causing US gasoline prices to rise sharply. That immediately, began to hit the poll ratings of Biden and the Democrats, whose position was already weak, given the appalling performance of Biden and the Democrats following his election. It caused Biden to open the spigots on the US Strategic Reserve to try to increase supplies and lower prices, as well as going on his knees to the butchers of Saudi Arabia, pleading for assistance.

In fact, across the West, social-democracy has been forced into increasing contradictions, as it has pursued its imperialist ambitions in its economic war against Russia and China, as I predicted would be the case, some time ago. The US Democrats look certain to lose the Senate, and possibly the House, whilst Biden's standing, like that of Macron before, has collapsed. Boris Johnson fell, before Putin, and now looks set to be replaced by an even more right-wing, petty-bourgeois nationalist. Macron scraped though in France, but with massive active abstentions, and then lost control of the Assembly. In Germany, Scholz won a majority, but as with Biden and Macron, has now seen his popularity crushed, with the Social-Democrats being hammered in recent polls, as Germany sees its energy prices rocket, and the potential for its economy to be crushed come the Winter. German producer prices are rising at over 37% a year!! That is unsustainable.

Why did Europe inflict this damage on itself? There are several reasons, much as with the reasons as to why it inflicted the damage of lockdowns on itself, unnecessarily. One reason is hubris, and belief in its own propaganda. In the 1980's, NATO destroyed a collapsing USSR, by, on the one hand, forcing the USSR to try to spend money it did not have competing with expanding NATO arms programmes, as well as having bogged it down in Afghanistan, where NATO provided Osama Bin Laden and the Mujaheddin with lots of advanced weapons, and, on the other hand, undermining the soviet economy, which had become reliant on oil exports, in a climate of high oil prices, by pressing its Gulf allies to increase cheap oil supplies. It thought it could do something similar again.

But, this is not the 1980's, and Ukraine is not Afghanistan. Already, in 2021, as global economies opened up after the lockdowns of 2020, the masses of liquidity that central banks had pumped into circulation, to finance furlough schemes etc., flooded out into consumption, and as firms ramped up production, and people began to travel, money demand for energy rose sharply. With supply bottlenecks, due to the continued effects of lockdowns, oil prices rose sharply, long before any Russian invasion of Ukraine. When also in 2021, NATO began to implement sanctions against Russia, to try to limit its exports, and so its earnings, it again found that this was not the 1980's. Now, there is China and India, both of whom were prepared to buy Russian oil and gas, where Europe tried to boycott it. Its why NATO is now trying to limit the price that Russia can get for its oil and gas exports, which again will not work.

For 40 years, US and NATO imperialism got used to the idea that it could stride the world unchallenged, and send in its troops, be it Britain to the Falklands, the US to Grenada, and then to Serbia, Afghanistan, Iraq, Libya, and Syria, not to mention all of its covert operations using special forces, intelligence services and proxies. It faces a different world, in what some have referred to as the Thucydides Trap. Whatever criticisms there may be of that hypothesis, it certainly appears to be the case that the US is concerned about growing Chinese influence, not only in the Pacific, but also its economic relations in Africa and Latin America, though China also has extensive direct investments in Europe too, where its involved in many large scale infrastructure projects.

In fact, the history of US and British imperialism in actual military conflicts was not that outstanding even in the 20th century. In WWII, the defeat of Germany was almost entirely down to the role of the USSR after 1941. NATO was fought to a standstill in Korea, the US was defeated in Vietnam, and later in Afghanistan and Iraq. In Libya, its involvement led to a failed state, and that would likely have been the result in Syria were it not for the involvement of Russia and Iran. Britain only just won in the Falklands, being on the verge of running out of ammunition, and certainly would lose such a war today, particularly as, following Brexit, there is greater support for Argentina within Europe, in Spain and so on. Yet, we hear Chief Army Warrant Officer, Paul Carney, telling British military families to prepare for their loved ones being sent imminently to fight and die in Ukraine against Russia!

Of course, given the extent that Starmer has wrapped himself in the flag of petty-bourgeois nationalism, and is flanked by the ranks of petty-bourgeois, nationalists and liberals from the so called Left that have collapsed into social-imperialism, its no wonder they feel emboldened to consider such actions that would inevitably lead to nuclear war and the destruction of mankind.

One reason the EU put itself in this mess, then, is that it thought that sanctions against Russia, along with large amounts of weapons sent to Ukraine, whose population would be asked to fight to the last man, on NATO's behalf, supported by NATO covert operations, would quickly lead to Russia backing down. It didn't. They also seem to have believed their own propaganda.

Had Russia actually intended to try to occupy the whole of Ukraine as NATO and Zelensky claimed, it would indeed have bogged itself down, and been destroyed. But, it never had that intention. Russia knew such a venture would be suicidal, and was, in any case, unnecessary. It only ever needed to secure the Donbas, and, if possible, the Southern coastal areas. The fact that it only ever mobilised sufficient forces for that, and less than were mobilised by Ukraine, is evidence of that fact. It followed the same course it had previously done in Abkhazia and South Ossetia, itself following the same tactics, and using the same arguments as used by NATO in Kosovo.

The fact that NATO's strategy is in tatters was shown by the fact that it quickly reversed its propaganda, earlier in the year, within a matter of days of claiming that Russia was on the verge of defeat, and Putin was about to be toppled! As Russia has simply settled in to the Donbas, and Southern Ukraine, consolidating its position, as it previously did in Abkhazia, South Ossetia and Crimea, the chances of its defeat at the hands of Ukraine, even with the massive amounts of advanced weaponry provided, looks increasingly remote. Indeed, all of those further advanced weapons – which in large part Russia can take out with its bombers and missiles, even before they are deployed – is evidence of the fact that its NATO that has got itself bogged down, at least as much as Russia. The attacks on Crimea, and the recent car bombing of Darya Dugina were almost certainly undertaken with the assistance of NATO special forces, as acts of desperation.

Of course, this does not matter to US imperialism. Its economy is not going to be thrown into recession as a result of energy blackouts. It sells higher priced energy to Europe. Moreover, that is beneficial to US imperialism, because although China is a rising power, it is the EU that continues to be the world's largest economy, and main competitor to US imperialism. Having EU imperialism damage itself in this way, is highly beneficial to US imperialism, rather like SPECTRE, in From Russia With Love, having two of its opponents taking lumps out of each other. The EU adopted its policy of self-inflicted injury, under pressure from US imperialism, no doubt because it thought that it would be over long before it faced the potential of energy blackouts over Winter, but its unlikely that its going to be able to persist with its attempts to boycott Russian gas, even if it finds replacements for Russian oil, as the consequences of that play out in the coming months.

Another reason it adopted this strategy is that, as all of the liquidity pumped out during lockdowns led to inflation, and as economic activity and employment soared, so labour shortages were creating rising wages. The demand for capital, led to rising interest rates, which meant that asset prices started to fall. The ruling class owns all its wealth in the form of these paper assets – fictitious capital, and in the last 30 years has seen its wealth and power reside in their continual appreciation, and capital gains. 

As with lockdowns, the way to avoid such rapid economic expansion, rising rates, and falling asset prices, is to physically limit it. The most obvious and blatant example of that is the actions of the Chinese state in using its zero-Covid policy to repeatedly slow economic activity, as it faces a collapse of its serial asset price bubbles, which it continues to try to inflate by further monetary injections, and which look set to still result in a financial collapse, combined with a period of hyper inflation.

A period of very high energy prices acted in the same way, because they drained household incomes, leaving little left over for additional consumption spending. But, that has failed too. Many households, as a result of furlough payments and so on, built up money reserves, which have been used as lockdowns have ended. So, consumption spending has continued at high levels though it has shifted from the “inside economy” to the “outside economy”. It is seen in the fact that, employment levels have continued to rise, as firms responding to this continued demand have had to employ additional labour. But, also, not only have labour shortages led to rising wages in various sectors, as well as a series of bonuses and recruitment and retention payments, but, as workers have sensed this stronger economic condition, they have also joined unions, and started industrial action to demand compensating wage rises. That again is something that has not happened for forty years, showing that this is not the 1980's.

Rather than high energy prices acting to slow consumer spending, it is just spurring higher wage demands, and industrial militancy. It means that, as consumer spending continues, firms will still need to expand, or lose market share, and that means they demand more capital, especially as they face higher prices for constant capital/energy, along with higher wages. It creates the tie-up of capital being manifest as lower GDP.  That means higher interest rates, and as central banks increase liquidity to enable firms to raise prices to cover these higher costs, so that feeds through into even more inflation, which then prompts the need for higher nominal bank rates, which will cause asset prices to fall further.

So, the strategy of imperialism, and the attempts of social-democracy to implement the same strategies it has used for the last 40 years, have failed, because this is not the 1980's, nor the 1970's. Germany is desperately seeking alternative energy supplies so as to continue its boycott of Russian gas. But, its own supplication to the Gulf Monarchies for supplies seems to have fallen on stony ground, and Norway, which has seen its Wealth Fund decimated, as asset prices have crashed, is looking to retain more of its own production, to meet its own requirements, rather than sending it to the rest of Europe. Germany, with its Green component of the government coalition, is looking to burn more coal, as well as returning to nuclear power, illustrating the increasing contradictions, resulting from NATO imperialism's economic war against Russia. The chances of finding adequate alternatives to last through Winter seem impossible to achieve. The threat of blackouts, used not only in Germany, is again intended to try to frighten workers, to create a climate of fear to promote saving rather than spending, and undermine workers' attempts to raise wages.

The lockdowns showed the extent to which the ruling class and its state are prepared to destroy the real economy, in order to hold down wages and the demand for capital, so as to reduce interest rates and inflate asset prices. So destroying the economy by closing it down in response to self-inflicted blackouts is not beyond the realms of possibility either. But, in conditions of rising militancy, its likely that workers across Europe will not sit idly by as their workplaces are shut, and energy to their homes is cut off, especially when they see that it is all totally unnecessary.

The high prices of energy, and the threat of blackouts could be removed today. All that is required is for Germany to open Nordstream 2, for the EU to agree to pay for oil and gas in Roubles, or alternatively to remove the sanctions on Russia, such as its exclusion from the SWIFT payments system, which make payments in Roubles necessary. But, social-democracy and the social imperialists of the Left appear more concerned to press ahead with their support for US imperialism and NATO's war against Russia than they are with the interests of European workers. It shows again the truth of the old mantra of international socialism – The Main Enemy Is At Home.

Chapter Two – Money or Simple Circulation - Measure of Value - Part 3 of 14

There is both a qualitative and a quantitative aspect to this. Money, the universal, equivalent form of value, is universal labour-time, which must appear in embodied form, in some commodity – the money commodity – such as gold. The qualitative aspect is this fact that its basis is universal labour. But, as represented by a given commodity, it also necessarily entails a quantitative aspect. Different money commodities have different values, represent different quantities of universal labour.

“The exchange-value of the commodity exists as the embodiment of equal uniform labour-time, the value of the commodity is thus fully expressed, for to the extent that commodities are equated with gold they are equated with one another. Their golden equivalent reflects the universal character of the labour-time contained in them on the one hand, and its quantity on the other hand. The exchange-value of commodities thus expressed in the form of universal equivalence and simultaneously as the degree of this equivalence in terms of a specific commodity, that is a single equation in which commodities are compared with a specific commodity, constitutes price. Price is the converted form in which the exchange-value of commodities appears within the circulation process.” (p 66)

And, this is fundamental to understanding Marx's explanation of inflation as a monetary phenomenon. If the money commodity is silver, rather than gold, then prices will be much higher, because the value of silver is much lower than the value of gold, a much larger quantity of silver is required to represent any given quantity of universal labour than is gold. If gold is replaced by silver, then the general level of prices will rise, even though the proportional relation of the prices of commodities themselves remains unchanged. Similarly, if the money commodity is itself replaced by money tokens, then the general level of prices becomes a function of the value of these tokens. If the value of each token falls, so that it represents a smaller quantity of social labour-time, then prices will rise – inflation.

“Thus as a result of the same process through which the values of commodities are expressed in gold prices, gold is transformed into the measure of value and thence into money. If the values of all commodities were measured in silver or wheat or copper, and accordingly expressed in terms of silver, wheat or copper prices, then silver, wheat or copper would become the measure of value and consequently universal equivalents.” (p 66)

But, this process also illustrates why value must predate exchange-value, just as the product must predate the commodity, the one being transformed into the other. For there to be trade, i.e. exchange of commodities, there must exist a basis upon which commodities can be equated, and that basis is their respective values, measured in labour-time. That labour-time inevitably takes the form, initially, of specific concrete labour, the labour required to produce different use values, and value, therefore, takes the form of the individual value of the product. It is only as these products become regularly traded, and, as a result of competition, the different concrete labours become reduced to universal labour, that, also, the multitude of different individual values of products, become aggregated into an average social value, or market value, which is the basis of exchange-value.

Only then can their exchange-value, the proportional relation of one to another, and one to all, be determined. That is the precondition for exchange of commodities, for circulation, including the circulation of money, which takes the form of one single commodity, which assumes the function of indirect measure of value of all others.

“Commodities as exchange-values must be antecedent to circulation in order to appear as prices in circulation. Gold becomes the measure of value only because the exchange-value of all commodities is estimated in terms of gold. The universality of this dynamic relation, from which alone springs the capacity of gold to act as a measure, presupposes however that every single commodity is measured in terms of gold in accordance with the labour-time contained in both, so that the real measure of commodity and gold is labour itself, that is commodity and gold are as exchange-values equated by direct exchange.” (p 66)

Back To Part 2

Forward To Part 4