Can A Government Run Out of Money? - Part 5 of 9

Imagine, Robinson Crusoe on his island. He spends 10 hours a day in labour. Of this 10 hours of labour/new value, he spends 8 hours meeting his immediate consumption needs, required to reproduce his labour-power, so as to labour the following day. The other 2 hours, is the surplus labour/value, and he uses this 2 hours to increase and improve his means of production. He makes nets to better catch fish, traps and weapons to catch animals, and he builds pens to keep domesticated animals, so as to reduce the need to engage in hunting etc. The consequence of this is that his productivity rises. The amount of labour he needs to expend to meet his necessary requirements falls from 8 hours to, say, 4 hours, so that his surplus labour rises to 6 hours, but, as his means of production, which make possible this rise in productivity and total output, increases so too its value as a proportion of that output rises.

If we measure this total value, then, it increases each year, even though the amount of new value created may remain constant at just 10 hours of labour. If Crusoe having come from Scotland, were to measure this value in money terms, he would see that the money equivalent of his output increased accordingly. Robinson, as with a primitive commune, a peasant household, or a communist society of the future, is only concerned to improve his own real wealth, i.e. the quantity and range of use values he has to consume. But, that is not the case with a capitalist society. Capital does not produce, primarily, in order to satisfy society's needs, and increase real wealth, but only to produce more profit. Each capital is, also, driven to produce more profit, because, what it shares with Robinson is that the more profit/surplus labour it has at its disposal the more it can expand and improve its means of production so as to raise its productivity, and, thereby, undercut its competitors.

It is not true, as Ricardo believed, and as others such as Michael Roberts have argued, that capital requires rising rates of profit to increase capital accumulation and vice versa. A lower rate of profit in one sphere, may cause capital to accumulate more slowly in that sphere, or even, be reduced, as it moves to other higher profit spheres, but that does not apply in relation to capital as a whole across the economy. Capital, as a whole, is forced, by its inherent nature as capital, to accumulate, whether the rate of profit is rising or falling. What is true, however, is that, at a certain point, this continued accumulation, results in an overproduction of capital, and a crisis, manifest first in the fact that some of the smaller capitals, with the tightest profit margins, make losses, and go out of business.

“The demand increases constantly, and, in anticipation of this new capital is continually invested in new land, although this varies with the circumstances for different agricultural products. It is the formation of new capitals which in itself brings this about. But so far as the individual capitalist is concerned, he measures the volume of his production by that of his available capital, to the extent that he can still control it himself. His aim is to capture as big a portion as possible of the market. Should there be any over-production, he will not take the blame upon himself, but places it upon his competitors. The individual capitalist may expand his production by appropriating a larger aliquot share of the existing market or by expanding the market itself.”

(Capital III, Chapter 39)

As Marx points out these crises have the appearance of there being not enough money in the economy, not enough monetary demand for what has been produced. But that is an illusion. What causes these crises whether an overproduction of commodities, or an overproduction of capital (which means, also, an overproduction of commodities, which comprise the physical elements of capital) is the inability of capital to realise profit. In the case of an overproduction of commodities, surplus value may have been produced, but it can't be realised, because production has expanded faster than the market, and so commodities are sold below their value to clear the glut. In the case of an overproduction of capital, surplus value itself cannot be produced, because the demand for labour-power becomes such that wages rise to a level where neither absolute nor relative surplus value is increased by the additional capital advanced.

An overproduction of capital, therefore, can never be resolved by simply increasing aggregate demand. Increased aggregate demand, simply results in the demand for labour-power rising even more, as firms scrabble to employ more workers to meet this increased demand. Relative wages rise even more, squeezing surplus value/profits even more, as happened in the 1970's. The firms that are most productive, most efficient and have the bigger profit margins can expand, but it simply means that capital itself is even more overproduced, and the smaller, less efficient firms, with small or no profit margins, make even bigger losses. The only solution to a crisis of overproduction of capital is a technological revolution like that of the 1970's/80, which replaces labour with technology, and so acts to create a surplus population, reduces wages and the value of labour-power, so as to raise surplus value, and also reduces the unit value of constant capital, so as to raise the rate of profit.

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Can A Government Run Out of Money? - Part 4 of 9

If a cow is used as money, it is not being used as a cow. If its being used as a cow, its not being used as money. That is most clearly seen if the cow is slaughtered for its meat, for instance. Fortunately, when we come to indirectly measuring the value of all other commodities, and, thereby, also the relative values of all these commodities one to another – their prices – we do not need the presence of physical cows for that purpose. All we need to know is the value of a cow, in the abstract, an imaginary cow. And, the same is true of any other money commodity, such as gold. In reality, all we are using for the purpose of measurement is a quantity of social-labour time, in corporeal form, be it in the shape of a cow, a quantity of salt, silver or gold. So, not only is it the case that not all the physical gold in an economy is money, but it is, likewise, the case that a country might have no physical gold whatsoever, and yet still use gold as its money-commodity.

If gold is internationally recognised as the money-commodity, a country may, itself, have no physical gold, and yet, knowing the value of an ounce of gold, still enables it to indirectly measure the value of all of the other commodities, produced and exchanged in its realm. It can calculate the equivalent amount of gold that would represent the total value of all of the commodities it produces. That is nothing other than measuring the total amount of social labour-time expended on their production, their total social cost of production. If, such a country, establishes an ounce of gold as its standard of prices, and, let us say, calls this standard £1, it can, thereby, put a price on the total value of its production. But, it need have no gold whatsoever to do do that. It can, instead, simply mint coins made from base metal, as a representative of that ounce of gold. Or it could print paper notes, which have no inherent value themselves, as such a representation of that ounce of gold, just as a leather strip could represent a cow. In reality, all they are representing is a given quantity of social-labour-time.

As Marx notes, in Scotland, prior to the 1845 Bank Act, which replicated the 1844 Bank Act in England, virtually no gold coins circulated in Scotland, and they were represented by paper bank notes. The only condition remains that no more of these coins or bank notes are thrown into circulation than the amount of gold they purport to represent. That, of course, is what MMT, like John Law and others before, seeks to deny, as it confuses these money tokens/currency with money itself.

Of course, as I have set out before, it is not entirely that simple, however. Money is an amount of social labour-time, equal to the value of all other commodities produced and to be exchanged within an economy. It is the equivalent form of that value. But, the amount of value produced and exchanged in an economy is not, itself, a fixed quantum. It is constantly changing. If more useful labour is undertaken, more new value is created, and so the amount of money, the equivalent form of this value increases. Marx details, in Capital III, how the Bank of England, varied the amount of currency in circulation, on that basis, not just year to year, but throughout each year.

But, what determines, in a capitalist economy, whether more labour is undertaken, and so new value created? It is that capital accumulates. This is where Richard, as with Keynes, and as with Malthus, whose under-consumptionist theory underlies their arguments, confuses money with capital. The same was seen with the under-consumptionist arguments of Attwood.

In every mode of production, the amount of new value created, each year, tends to grow, because more labour is employed. For one thing, there tends to be a steady rise in population, and with it a rise in the working-population. But, in addition to this growth in the amount of new value created, there is an even greater increase in the amount of total value of output, for the simple reason that, as productivity rises, a greater proportion of the value of output consists of the value of the raw materials and other means of production, produced in previous years. If previously an hour of labour processed 100 kilos of cotton, and now, that same 1 hour of labour process 1,000 kilos of cotton, the amount of new value created remains 1 hour, but the amount of value of cotton transferred to final output rises 10 fold. This is, ultimately, the basis of Marx's Law of The Tendency For The Rate of Profit To Fall.

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Can A Government Run Out of Money? - Part 3 of 9

Money is a representation of a given amount of value/social labour-time. It arises as a commodity separated from all other commodities as a general measure of social labour-time, by which the value of all other commodities can, thereby, be measured indirectly. It becomes the general commodity, or, as Marx puts it, it becomes exchange-value incarnate. What does that mean? If I produce a commodity such as linen above, it has a value – 10 hours of labour – but, in commodity producing economies, I do not produce linen for the purpose of consuming the linen myself. As linen, it has no use-value for me. I produce linen, because I can exchange this linen for some other commodity/ies that I do want to consume, for example wine.

In other words, I do not produce linen for its use-value to me, of which it has none, as simply linen, but for its exchange-value, its ability, as a quantity of social-labour-time/value, to be exchanged for some other commodity – wine – which does have use-value/utility to me. As set out above, the basis of this exchange, the ratio in which my linen and your wine exchange is itself determined by the value of each, the amount of labour-time they represent. (I have set out elsewhere, why, even if you do not accept the labour theory of value, this still applies). When Marx says that money represents exchange-value incarnate, what he means is this. The money itself has no use-value, other than it represents pure exchange value. The purpose of owning it, is only to be able to exchange it for some other commodity, and what makes money different from all other commodities is that it can be exchanged for any other commodity.

If I own a metre of linen, I may be able to exchange it for your wine, because you want my linen, but I may not be able to exchange it for your neighbour's wine, because they do not want linen. With money, it can always be exchanged for any other commodity, because its use-value, as money, is precisely that it alone can be exchanged for any other commodity and does so, because it is the indirect measure of value, the general commodity. But, here, is the thing. That is true of money, as money, but it is not true of the money-commodity itself, as a commodity.

In other words, if gold is the money-commodity - but we could as easily choose silver, cattle, salt etc. - as a commodity, it does have use-value, and must have to become the money-commodity in the first place. Gold has use-value when used as gold in jewellery, electronic circuits and so on. Silver has use-value, as a commodity, when used in jewellery, and so on, and cattle obviously have use-value, for food etc. It is the fact that all of these things – which have all, at times, been used as the money commodity – do have use-value, and so have value as commodities, means they could become the money commodity. If no one had ever wanted cattle, for example, i.e. they had no use-value, they would, also, have no value, no matter how much labour-time was expended in their production.

You cannot indirectly measure the value of any other commodity by using the measuring rod of a commodity, which, itself, has zero value, any more than you can measure the length of a table using a measuring stick that has no length. It would just be a useless waste of social-labour-time. So, if cattle, thereby, had no value, as commodities, they could never have become the means of indirectly measuring the value of other commodities. They could not have become the money commodity, could not have existed as money. The same is true today with Bitcoin. It has no use-value as a commodity, and so no value, no matter how many millions of labour hours are spent “mining” them. They have a speculative monopoly price, but that is different. That price has no material basis other than monopoly and speculative fervour. The price can be as easily zero as $100,000, which is why its price swings so wildly, and will, always, in the end, tend towards zero, when the speculative bubbles burst, precisely because it has no value.

Whatever the commodity is that acts as the money commodity, it must first have use-value, and, thereby, value as a commodity, but, once adopted as the money-commodity, when it acts as money, rather than as commodity, its only use-value is as money, and not as commodity. In other words, its a case of “you can't have cake and eat it”. This also, means that, clearly, not all the gold in an economy is itself money. Some of it is money, but, some of it is just the commodity gold, used for jewellery etc. It shows, also, why there is nothing intrinsic or special about gold that makes it money. Money, like capital is a social relation. As Marx points out capital, is money raised to a higher power, which, also, illustrates that money, itself, is not capital (though it is always potentially capital), and that, again, is something that Richard does not understand, which I will discuss later.

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Can A Government Run Out of Money? - Part 2 of 9

A problem, in that respect, exists, as Marx describes, where these money tokens are redeemable at their face value. If someone just cuts up lots of leather strips to use as currency, representing cows, and does so in excess of the cows they have to back them up, then, when the owner of the strips comes to redeem them, at some future point, the debtor will not have the cows to honour the debt. Not only does that undermine the trust required in that form of currency, certainly in respect of that particular debtor, but it means that the creditor will seek to redeem the debt – which means, in reality, their claim on a given amount of social-labour-time – in some other way. They will lay claim to other assets of the debtor, including, as has been seen in the past, not only seizure of their land, property and so on, but also, of their children and wives, and of the labour of the debtor themselves, who is, thereby, drawn into serfdom and debt slavery.

The state, at least as regards its own citizens, is not put in that position, if it debases the currency. Instead, it tends to lead to the citizens revolting, and overthrowing the state. But, the same does apply in respect to the relations between states. When Egypt failed to pay the debts it had incurred to foreign lenders in relation to the construction of the Suez Canal, it was occupied by Britain. The consequence of that is, also, that there is inflation. The value of commodities may not change, including the money commodity, say, gold, but all prices rise, because the standard of prices has itself been devalued, it represents a smaller quantity of social-labour-time than it did previously. More of it must, now, be handed over to buy any given quantity of commodities. Take money itself out of the equation, and look at what is going on, and this becomes obvious, as Marx sets out in A Contribution To The Critique of Political Economy.

Suppose I produce linen, and you produce wine. To produce a metre of linen requires 10 hours of average social labour time, as does a litre of wine. What we actually exchange, when I sell you my metre of linen, and, in return, you sell me your litre of wine, is this 10 hours of labour. It is this equivalence of value that makes the exchange possible, and determines the ratio in which linen and wine exchange, the exchange-value of each measured by the other. Another way of saying this is that the wine price of a metre of linen is 1 litre. But, if you bottle your wine in containers that continue to be labelled as “1 litre”, whilst, in fact, only containing half a litre of wine, and so representing only 5 hours of labour-time, it is no good you asking me to give you a metre of linen in exchange. (Similarly, if I have already sold you the metre of linen, at a price of 1 litre, it is no good you trying to pass off a half litre, simply labelled as 1 litre, as full payment.)

I am interested in the quantity of wine in the bottle, the quantity of labour-time it represents, not the label you put on it! For those that object to the labour theory of value, and favour a bourgeois theory of subjective value, the same principle applies, as witnessed by the fact that consumers are not long fooled by “shrinkflation”. Replace “labour-time”, with “social-cost of production”, and the same principle applies. The exchange relation between commodities is determined by their social-cost of production, and, if, that is disturbed, for example, by an imbalance of supply and demand, the result is that excess profits are made in the production of one of these commodities, whose price rises above its social cost of production. Those excess profits cause additional capital to be diverted to that production, supply rises, its price falls, and the relation is restored.

If you short change me by a less obvious amount, you might get away with it for a while, but it will not take long for the deception to be found out. Instead of the wine price of linen being 1 litre, it will become 2 litres.

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Can A Government Run Out of Money? - Part 1 of 9

A debate has arisen, recently, on Youtube, between Gary Stevenson and Richard Murphy, stemming from Gary's video, a while ago, setting out his argument that the government needs (and indeed will be forced) to raise taxes, or run out of money. Richard Murphy disagrees, claiming that governments can never run out of money, because they can simply “print” more of it. Both are wrong, but Richard is more wrong than Gary. Neither of them actually understand what money is, though Gary seems to have a better grasp of it than Richard who, like his 18th and 19th century predecessors, analysed by Marx, not only does not understand what money is, but also, does not understand what money raised to a higher power – capital – is.

Richard understands money only as currency, and so believes that, because any amount of currency/money tokens can be printed by a government, governments can create any amount of money they require, and so cannot run out. Its like confusing a cow with a picture of a cow, used as its proxy, and so believing that you can create more cows by simply photocopying endless pictures of the same cow. One of the first money-commodities was, indeed, cattle. And rather than having to have actual cattle present when the value of various commodities was evaluated, or to act as an intermediary in the exchange of commodities, leather strips were used as a representation, instead. These leather strips, were not, themselves, money, but merely money tokens that circulated as currency. The strips were accepted as a representation of a quantity of cattle – which, in turn, as money-commodity, is only a proxy for a given amount of social-labour-time – because there was trust that the leather strip would be honoured, accordingly.

Ever since states had responsibility for producing currency/money tokens they have attempted that sleight of hand by debasing the currency, and trying to pass it off as good coin. It works for a short time, until the debased currency circulates sufficiently in the economy that its real value, as against its nominal or face value, is, thereby, established, but, always, then, is revealed as the illusion it is.

In A Contribution To The Critique of Political Economy, Marx describes this difference between the value of currency/standard of prices, and the value of the money it is supposed to represent, i.e. its nominal or face value.

“As a result of an historical process, which, as we shall explain later, was determined by the nature of metallic currency, the names of particular weights were retained for constantly changing and diminishing weights of precious metals functioning as the standard of price. Thus the English pound sterling denotes less than one-third of its original weight, the pound Scots before the Union only 1/36, the French livre 1/74, the Spanish maravedi less than 1/1,000 and the Portuguese rei an even smaller proportion. Historical development thus led to a separation of the money names of certain weights of metals from the common names of these weights.”

(A Contribution To The Critique of Political Economy, Chapter 2)

So, yes, of course, in the era of precious metal coins, a state could mint sovereigns and so on that claimed to represent a given amount of money, i.e. amount of value/social labour-time, embodied in a quantity of a money commodity, such as gold, whilst, in fact, only containing a fraction of that amount (or even none at all), but, if they did that so as to simply throw into circulation more of these coins then the consequence is that these coins become devalued, as against the actual money/value/social-labour-time they claim to represent. That, of course, was why states did it in the first place. They bought goods and services with the devalued coins, passing them off as full value, the reality of which is not manifest until sufficient of these coins, then, circulate in the economy. One problem, as Marx discusses, is when those devalued coins are, then, used by citizens to pay their taxes and so on, as resulted in the debates between Locke and Lowndes, and, in the 19th century, with Thomas Attwood and the Birmingham “Little Shilling Men”.

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