Marx sets out the argument, using wheat rather than gold, and says assume the king decrees that one muid of wheat will henceforth be called 2 muids. He would be a swindler, and all rentiers would immediately lose out, because their nominally fixed rents would be halved in real terms. However, this could not change economic realities, determined by social relations and supply and demand. What was once exchanged for 1 muid of wheat, would, henceforth, only be exchangeable for 2 muids of wheat, i.e. the wheat price of all other commodities would double, not, now, because of any change in their own value, or even the value of wheat, but, solely, due to the standard unit of measure of wheat having been halved.
The present day equivalent is “shrinkflation”, whereby producers of commodities, such as chocolate bars, do not raise their nominal price, but, instead, reduce the actual size of the commodity being sold.
“By changing the name we do not change the thing. The quantity of corn, whither supplied or demanded, will be neither decreased nor increased by this mere change of name. Thus, the relation between supply and demand being just the same in spite of this change of name, the price of corn will undergo no real change. When we speak of the supply and demand of things, we do not speak of the supply and demand of the name of things.” (p 80)
So, if, previously, suppliers of wheat demanded 100 litres of wine, and handed over 100 muids of wheat, in exchange for it, this physical relation would remain. Calling 50 muids 100 muids would not mean the owners of wine would accept 100 of these new muids, which amounts to only 50 of the old muids. That is the error that MMT, which repeats that of John Law, and others, of thinking that they can simply print money tokens and impress a value on it, and then have it act as though it can continue to be exchanged as though its value is determined by this impress, and not by fundamental economic laws.
“Philip I was not a maker of gold and silver, as M. Proudhon says; he was a maker of names for coins. Pass off your French cashmeres as Asiatic cashmeres, and you may deceive a buyer or two; but once the fraud becomes known, your so-called Asiatic cashmeres will drop to the price of French cashmeres. When he put a false label on gold and silver, King Philip could deceive only so long as the fraud was not known. Like any other shopkeeper, he deceived his customers by a false description of his wares, which could not last for long. He was bound sooner or later to suffer the rigour of commercial laws. Is this what M. Proudhon wanted to prove? No. According to him, it is from the sovereign and not from commerce that money gets its value. And what has he really proved? That commerce is more sovereign than the sovereign. Let the sovereign decree that one mark shall in future be two marks, commerce will keep on saying that these two marks are worth no more than one mark was formerly.” (p 80-81)
And, this is why these devaluations of the currency, via increases in liquidity, lead to inflation only after “long and variable lags”, as Friedman described it, of around 2 years. Those closest to the initial debasement, i.e. increase in liquidity, are able to benefit from this fraud, because they throw these tokens into circulation, and they are accepted at their nominal value. So, the state, obtaining currency directly from the central bank or mint, to pay for wages, purchases of commodities, services, infrastructure and so on, or, more recently, to hand out as furlough payments etc., gets away with this fraud, initially. So too might the commercial and investment banks, and they use it to lend out for whatever purposes, including speculation in financial assets. But, as this liquidity continues to gush forth, and spread out into the economy, in the form of demand for goods and services, whose supply has not increased, and whose value has not changed, so the fraud becomes apparent, and the money tokens are seen to have been devalued, so that, in every exchange, more of them must be handed over.
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