Over the last couple of years, I have written extensively on inflation, explaining its basis as a monetary phenomenon, as described by Marx in A Contribution To The Critique of Political Economy. In doing so, I pre-empted, and explained, the high levels of inflation that have materialised over the last year or so, at a time when bourgeois economics had not even seen inflation on the horizon, and Left economists, following in the Keynesian tradition, saw inflation, not as the monetary phenomenon described by Marx, but as a consequence of imbalances of aggregate demand and supply, or other factors, and so, also, grossly underestimated the levels it would reach. As I pointed out, in a series of posts in May 2021, Michael Roberts, was still arguing that inflation might only reach 3% plus. Roberts is still making similar errors, now, as reflected in his recent WW post. In this series of posts, I want to look at another example of a failure to understand Marx's theory of inflation, presented by Martin Thomas.
He begins by saying,
“Neither Marxist nor orthodox (bourgeois) economic theory has a good fix on price inflation, its causes and cures.”
Not true. Marx's explanation of inflation, as a monetary phenomenon, explained it perfectly, and its correct application, as I have shown over the last couple of years, when I predicted its surge, long before it became manifest, explains it now. Whilst bourgeois and Left economists did not see it coming, even when it arrived, and continued to proclaim that it was temporary, and would end once supply bottlenecks were removed, and so on, I have shown that Marx's theory is perfectly capable of explaining what has been seen in the last couple of years. The trouble is that many Marxists do not understand Marx's theory, and explanation of inflation, and, as both Michael Roberts and Martin Thomas both illustrate, do not understand what money is, as opposed to money tokens and credit, as currency. They replicate the errors of Ricardo, in that vein, and of Keynesian theory.
Ricardo believed that money was the same as currency, and that money was “created” as a device to facilitate the exchange of commodities C – M – C, whereas Marx illustrates that money cannot be “created” but arises naturally from the exchange of commodities itself. Ricardo confused the physical manifestation of money in the form of a money commodity, and more specifically in the form of currency for money itself. Money, as Marx explains in A Contribution To The Critique of Political Economy, and in The Poverty of Philosophy (where Engels' Preface also gives an excellent account), is nothing more than the universal equivalent form of value, i.e. it is the equivalent form of value of every other commodity in the economy. Put another way, it is the total concrete labour embodied in all of those commodities, abstracted and reduced to universal, socially necessary labour-time. This is achieved via competition in the marketplace. It was the failure to understand this that led Gray, Bray and subsequently Proudhon astray.
Gray, Bray, Proudhon and others conceived of a utopia in which commodities are produced, and their value is determined by the labour embodied in them. By one means or another, workers producing these commodities, obtain “labour notes”, equal to the amount of labour they have provided in the production of these commodities. This enables them to take out of society's store, other commodities, whose value is equally determined by the labour used in their production. But, as Engels describes, there are obvious flaws in this scenario. Firstly, who can say that the labour expended in each case produced commodities that anyone else wanted. Secondly, who can say that the actual labour undertaken was done so efficiently. Essentially, this model is what arose in the USSR and other Stalinists states, with huge amounts of useless products being produced.
“In present-day capitalist society each industrial capitalist produces off his own bat what, how and as much as he likes. The social demand, however, remains an unknown magnitude to him, both in regard to quality, the kind of objects required, and in regard to quantity. That which today cannot be supplied quickly enough, may tomorrow be offered far in excess of the demand. Nevertheless, demand is finally satisfied in one way or another, good or bad, and, taken as a whole, production is ultimately geared towards the objects required. How is this evening-out of the contradiction effected? By competition. And how does competition bring about this solution? Simply by depreciating below their labour value those commodities which by their kind or amount are useless for immediate social requirements, and by making the producers feel, through this roundabout means, that they have produced either absolutely useless articles or ostensibly useful articles in unusable, superfluous quantity.”
Its precisely, as Marx, also sets out in A Contribution To The Critique of Political Economy, via money, that competition achieves this, because each commodity producer must actually be able to metamorphose their commodity into money, and the owners of money will only hand it over if the commodity they buy conforms to these requirements, set out by Engels above. That is the commodity must be, for them, a use value, and it must represent only the average amount of social labour that identical commodities represent.
The total amount of concrete labour, embodied in commodities, to be circulated, in an economy, might be, say, 2 million hours, but, precisely because this is concrete labour, it is of varying types, each of which must be reduced to one common abstract labour, as its measure, which may amount to, say, 3 million hours, of universal labour, because some of the concrete labour expended constitutes complex rather than simple labour. However, some of the labour expended and embodied in these commodities may, also, not be socially necessary labour. Some of that will be because some labour is less productive than the average labour required, in the given sphere of production; some may not be socially necessary because it is engaged in production for which there is no demand. This can only be determined when these potential commodities appear on the market, in competition with each other, and must be actually exchanged for money, i.e. must find a buyer prepared to hand over money for them.
In the Stalinist states, workers were handed what amounted to labour notes for the labour they undertook, whether that labour was socially useful or not. But, those notes (Roubles) entitled them to go to buy products from stores. If A produced product X, and is given 10 Roubles, they might now spend this 10 Roubles buying a litre of wine produced by B, who also received 10 Roubles for the labour they expended. However, B finds that the product created by A is useless, and so the 10 Roubles they have been given is also useless, because it cannot be used to buy the products they require, i.e., as Marx puts it, they cannot actually metamorphose the 1 litre of wine they have produced, into another product they require for their consumption. This was done on a massive scale, across the globe, during lockdowns, with bits of paper handed to workers, but, more clearly, because, in that case, it was not that their labour was socially useless, but that the labour itself had been prevented from occurring! The same utopian delusion arises with MMT, and with proposals such as UBI.
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