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!
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