Martin notes Trotsky's comments about the previous metallic basis, but Trotsky, like Marx, did not fetishise such a link to gold or some other precious metal, whose role as money commodity was merely an aspect of the historical development of money out of exchange, as the form of exchange-value incarnate. The amount of money in circulation, as currency, does not at all depend upon any such link to gold or some other precious metal. Nor is the determinant that suggested by Martin, when he says, that for Marx,
“The money stock (which already included bank notes and bank current accounts, as well as coin) would depend on the level of activity in the economy, as measured in money-prices, which would determine the amounts of cash required for current transactions and for "precautionary" stashing.”
Firstly, this contains a circular argument, because prices, as opposed to values, are themselves a function of the value of the standard of prices, which, with a paper currency is a function of the quantity of them in circulation. In fact, average values change by the level of social productivity, and that same productivity determines the change in the volume of commodities produced, i.e. it determines both P and T, in the formula MV = PT. The other determinant, then, is the change in the amount of labour employed (social working day), which tends to rise each year, in line with the increase in the working population, but will also change in line with changes in the individual working day. Stable prices can be achieved by increasing liquidity in line with a) the annual change in productivity, and b) the change in the social working-day.
Of course, as Marx points out, currency acts not just as mean of circulation for commodities, but also as means of payment, and this gives rise to commercial credit. Commercial credit may rise and fall independent of changes in the supply of notes and coins, and the creation of bank credit, so that neither central banks nor commercial banks have full control over the level of liquidity. In times of robust economic activity, firms will provide greater levels of commercial credit to each other, as an automatic response to the increased activity, and this has the effect also of increasing liquidity.
Martin notes that Trotsky, in The Transitional Programme, did not propose a “socialist” solution to inflation, but limited himself to calling only for workers to respond by defending their living standards via demands for a sliding scale of wages. That is true, and, in general, Marxists do not proceed by giving advice to the bourgeoisie on how best to manage capitalism. Trotsky's response to the socialist inflation, in Russia, however, which Martin fails to mention, was quite different. He says,
“It is needless to say that inflation meant a dreadful tax upon the toiling masses. As for the advantages to socialism achieved with its help, they are more than dubious. Industry, to be sure, continued its rapid growth, but the economic efficiency of the grandiose construction was estimated statistically and not economically. Taking command of the ruble – giving it, that is, various arbitrary purchasing powers in different strata of the population and sectors of the economy – the bureaucracy deprived itself of the necessary instrument for objectively measuring its own successes and failures. The absence of correct accounting, disguised on paper by means of combinations with the “conventional ruble”, led in reality to a decline of personal interest, to a low productivity, and to a still lower quality of goods...
The question of the fate of the chervonetz has occupied a prominent place in the struggle of factions in the Communist party. The platform of factions in the Communist party. The platform of the Opposition (1927) demanded “a guarantee of the unconditional stability of the money unit.” This demand became a leitmotif during the subsequent years. “Stop the process of inflation with an iron hand,” wrote the émigré organ of the Opposition in 1932, “and restore a stable unit of currency,” even at the price of “a bold cutting down of capital investments.” The defenders of the “tortoise tempo” and the superindustrializers had, it seemed, temporarily changed places. In answer to the boast that they would send the market “to the devil”, the Opposition recommended that the State Planning Commission hang up the motto: “Inflation is the syphilis of a planned economy.””
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