But, Marx, whilst setting out that the state cannot control what happens to money tokens when they are thrown into circulation, also sets out how they attempt to do so. For example, he sets out, as seen, that different denominations of coin can only be used as legal tender up to a specific amount, thereby, restricting the spheres of the economy in which they circulate. And, this is true in relation to different denominations of notes. So, it is wrong to talk of a single velocity of circulation, because there are different velocities for different denominations.
“The number of pieces of paper with a denomination of £5 which could be used in circulation would be one-fifth of the number of pieces of paper with a denomination of £1, and if all payments were to be transacted in shilling notes, then twenty times more shilling notes than pound notes would have to circulate. If gold coin were represented by notes of different denomination, e.g., £5 notes, £1 notes and 10s. notes, the number of the different types of tokens of value needed would not just be determined by the quantity of gold required in the sphere of circulation as a whole, but by the quantity needed in the sphere of circulation of each particular type of note.” (p 118)
But, since the global crash of 1987, the state, and central banks, have attempted to directly control where all this liquidity went. It became known as “The Greenspan Put”. The huge rise in productivity, in the 1980's, brought with it an equally huge fall in the value of commodities, including those that comprise fixed and circulating constant capital. That created what Marx calls a release of capital. That is capital that is converted to revenue, superficially appearing as an increase in the mass of profit, which can be used for additional consumption or accumulation. In the conditions of the 1980's and 90's, in which gross output grows slower than net output, and capital accumulation takes the form of intensive rather than extensive accumulation, this release of capital not only results in the conspicuous consumption of the rich, during that period, but also fuels all sort of speculative activity.
The fall in the value of constant capital, itself, raises the rate of profit. The falling wages, resulting from the creation of a relative surplus population, increases profits, and the rate of profit. The fall in the value of wage goods supplements that, and creates a further release of variable capital. The consequence of this rise in profits – supply of money-capital – at a faster rate than the demand for for money-capital, for accumulation, is a secular decline in interest rates, which fuels a corresponding rise in asset prices, further stimulating speculation in these assets.
Instead of the liquidity moving from this sphere, and back into the real economy, it simply remains stuck in it, flying around endlessly, in a paper chase, which, as it is added to by further amounts of liquidity, simply fuels an ever rising level of asset prices, creating the financial equivalent of a firestorm that sucks in even more liquidity just as a firestorm sucks in oxygen.
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| Money simply flowed around the green zone, from one asset to another, with more liquidity coming in from revenues (profits, interest, rents and even wages) created in the real economy (red zone) than seeped out to cover consumption. |
Between 1980 and 2000, the Dow Jones rose by 1300% compared to just a 250% rise in US GDP.
In the late 1980's, in both the US and UK, the state acted to encourage such speculation. Not only were ordinary citizens encouraged to speculate in the shares of newly privatised companies, but they were encouraged to take on vast amounts of debt to fund consumption – as wages fell – and speculation, particularly in the form of property speculation. UK household debt, which had previously never exceeded 70% of GDP, tripled to 200%. In the US, it took the form of Reaganite Voodoo Economics, and similarly, US debt tripled from around $700 billion to $2 trillion, in seven years, taking the US from being the world's largest creditor country to the world's largest debtor.
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