Money, Debt and Marx

One of the pre-occupations (gettit?) of the Occupy Movement which is emerging as a major theme is that of the monetary system.  But as Norfolk Community Action Group points out the narrative being presented is populist, shallow and frequently interfused with a good dose of conspiraloonacy and outright racism. Videos are circulating around the Occupy Movement from Zietheist and other sources which put the monetary system firmly at the heart of the problems, and frequently assert that a return to the Gold Standard is the remedy for the problems caused by fiat currency.  Demands for a return to the Gold standard pop up from time to time as a method of avoiding the inflation associated with fiat currency.  These videos are well produced and present a highly attractive narrative, but the analysis is simplistic and frequently overlaid with racist overtones.

There is a problem with fractional reserve banking, – the film by Paul Grignon, Money as Debt, does give a good introduction and overview to the issues – the way it manufactures money and although initially promoting growth, eventually acts as a drag on the real economy by sucking wealth from the economy through interest.

At the heart of Marxist economic theory is the Labour Related Theory of Value (LRTV), which states that the value of a commodity is the quantity of labour required to produce or obtain it.  In the case of a simple commodity (eg, salt), it is simply the labour required to extract; in more complex commodities (eg, trains) it is the aggregated labour of the combined commodities required to produce it.   Marxian theory considers everything bought and sold as a commodity – including labour power and money.  In terms of monetary theory – Marx was a product of his time.  Existing in the mercantilian period, state denominated notes were backed by precious metals – and ultimately linked to the Gold Standard, which determined prices.  Consequently much of Marx’s work talks of money in terms of gold as the base commodity as is the universal yardstick by which objectified labour embodied in commodities are exchanged.  He does discuss fiat money, relatively briefly in Volume III of Kapital, and again in the Grunisse, indicating that it is only as good as the state from which it is issued.  He notes that fiat money is naturally inflationary, and that the expansion of credit allows people to purchase labour in the here and now in exchange for future labour.

The futures market is a casino where investment bankers gamble on the future value of commodities.  Coffee may sell at £5 per tonne today, but fluctuations in the production and supply chain may change that price in the future.  But we should remember that money and labour are also commodities – just special ones.  In terms of “money futures” – while money is backed by a physical commodity – such as gold, its future variation is limited by physical suppy, once seperated from a physical commodity – as under a fiat system, it becomes freer and can be created and destroyed at will.  When granting credit, someone – usually a bank – is basically investing in “labour futures” – that future labour will be provided which will create wealth.  When one takes on personal debt, they generally sell their own future labour, when a business takes on debt, they are selling the extracted surplus value of the future labour of their employees.  However, future labour power is ultimately finite.  Both people and business still need to consume on an ongoing basis.

Under a fiat system,  the state creates money by issuing promissory notes, which are then bought by banks, fractional reserve banking allows banks to lend at a multiple of the holdings that they have.  This state issuing of currency is based on their ability to pay the money back with interest.   The money to pay it back comes from state taxation in various forms.  Sovereign debt is basically the sale of aggregate future labour power extracted through the tax revinue raised.  This labour power need not necessarily come from the domestic market as domiciled companies may extract labour from other parts of the world – resulting in an obscured serfdom.  The whole world has become an elaborate ponzi scheme.

There is an ongoing currency crisis: it ebbs and flows with the vaguarities of the markets, but there is no question that the post-Bretton Woods system is breaking down.  The dollar is under severe attack with horrendous debt levels in the issuing state and there is whispered talk of default.  The Euro is a basket case, with both Greek and Italian debt threatening to bring the entire currency crashing down.  As a world currency that only leaves the Ramani as an alternative – under the control of a government which has a dubious record on both labour and human rights and is generally unpalitable to the west and the Chinese show no appetite for taking on this role.

The Gold Standard is blamed for prolonging the depression of the 30s, yet it prevents the inflation associated with over-extension of the money supply which we are facing now through bank bailouts. A new alternative is needed. The Indian economist Arjun Makhijani points out currency systems operate to impoverish the Third World.  Economic imperialism is practiced through monetary means, whereby the labour of workers in the Third World is priced far lower than their equivalents in the West, and their currency is valued at a rate far less than the collective labour power of the nation.  He proposes a currency peg of a basket of commodities required for an agreed level of human survival.  This would have the effect of increasing the currency rating of Third World currencies, all the while exposing levels of the price paid for labour power compared with an international standard of sustenance.

The Occupy movement famously used the slogan “WE ARE THE 99%”.  Issues of racism and sexism quickly came to the fore, leading Feminists and Anti-colonialists to point out that actually non-white, non-males were 92% of the global population, something which appeared never to occur to some of the white males who quickly assumed positions of power.  Stepping back one stage further, its very likely that at least some of the protesters in income levels were actually part of the 1% that they were fighting.  If you earn more than £25,780 you are not the 99%; you are the global financial elite.   Only a world currency based on a level of human need can re-centre money to people and directly relate the costs of their labour power to their sustainance.

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