Thursday, October 16, 2008

Un Partido Socialista

Un partido socialista debe en primer lugar quedar claro en su socialismo, es decir su socialismo debe ser un sistema de sociedad basado en la propiedad común y el control democrático de los medios e instrumentos de producción y distribución por y en I’ interés de la comunidad entera. El socialismo es una comunidad mundial, sin frontera, en la cual los bienes se producirán solamente para uso. Las compras y las ventas, y con ellos los precios, los salarios, l`argent, los beneficios y los bancos desaparecerán. En vez de eso, cada uno tendrá libre acceso al almacén común según su necesidad. El socialismo es una sociedad enteramente democrática. La máquina coercitiva oficial de la sociedad de clases será sustituida por la simple administración democrática de los asuntos de la sociedad.
3) La propiedad gubernamental de la industria, o la nacionalización, es el capitalismo de Estado. Los trabajadores de las industrias nacionalizadas aún son explotados para el beneficio por el sistema salarial y tienen aún de organizarse en sindicatos y que hacer la huelga para proteger sus intereses. Las industrias nacionalizadas se dirigen en las líneas capitalistas para producir para la venta. Eso no tiene absolutamente nada conjuntamente con el socialismo.
4) El socialismo y el comunismo no son sistemas de sociedades diferentes; ambos describen a la misma sociedad basada en la propiedad social o común de los medios de producción. La falsa distinción que hace parecer el socialismo como una etapa en la evolución social del capitalismo al comunismo es una fabricación de Lénine.
5) Rusia no es, y nunca ha sido una sociedad socialista. Su sistema social tiene todas las características esenciales del capitalismo, es decir, el monopolio de clase de los medios de producción, la soberanía de clase por el Estado, el sistema salarial, la acumulación de capital y la producción para el beneficio. Se define a la sociedad rusa de la mejor manera como un capitalismo de Estado.
6) La revolución de 1917 no era una revolución de la clase trabajadora o socialista. Era a lo sumo el equivalente de la revolución inglesa de 1688 y de la revolución francesa de 1789. como ellas, la revolución rusa llevó al poder una clase cuya tarea era cortar los obstáculos al desarrollo más en profundidad de una economía de mercado basada en los salarios y los beneficios, es decir, al capitalismo. A pesar de sus discursos socialistas, los bolcheviques debieron desarrollar el capitalismo en Rusia. _ poco importar brutalidad su dictadura, ellos no poder superar ley evolución social que estipular que Rusia, comopaís posponer con uno economía predominio campesino, estar listo para capitalismo, y solamente para capitalismo y no para socialismo.
7) Por otra parte, el socialismo no se estableció en otros lugares, ni en Europa del Este, ni en China, ni en Yugoslavia y ni a Cuba por ejemplo, el “socialismo” de los dirigentes privilegiados de estos Estados viene de las deformaciones de Lénine y Estalin. Su política de capitalismo de Estado nacional no tiene nada de común con el socialismo auténtico.
8) Los distintos partidos probablemente comunistas no son organizaciones socialistas sino de las organizaciones que funcionan esencialmente como los agentes de la clase capitalista rusa y de su Gobierno. II. el camino al socialismo
9) El socialismo no puede ser establecido sino por la acción política mayoritaria de una clase trabajadora que desea y comprende el socialismo. Para establecer el socialismo, la clase trabajadora debe en primer lugar ganar el control del poder político y para ello, debe organizarse en partido político. 10) Que la mayoría deba querer y comprender el socialismo fue un principio que siempre los ha distinguido de todos los demás partidos que se dicen socialistas. Los socialdemócratas mantuvieron, en realidad, que deseaban el apoyo de la mayoría pero no insistían para que este apoyo sea de carácter socialista mientras que los bolcheviques nunca han creído posibles que una mayoría pueda llegar a una conciencia socialista.
11) Una vez la naturaleza del socialismo incluida como sociedad libre basada en el trabajo voluntario y el libre acceso para muy a las frutas de este trabajo, está claro que este socialismo no puede establecerse sino por una acción consciente de la mayoría. La cooperación voluntaria y la responsabilidad social que el socialismo pide no pueden ser impuestas por una minoría de líderes; el pueblo debe cooperar porque lo desea.
12) Por eso el principio de liderazgo es antisocialista. Una vez más, la influencia perniciosa de Lénine sobre el pensamiento político de la clase trabajadora es evidente. Lénine creía que los trabajadores no podían alcanzar por ellos mismos sino una conciencia sindicalista o de reformista y que la conciencia socialista debía ser aportadolea por líderes, su “partido de vanguardia”, con para resultado la concepción de la revolución socialista de una minoría encendida que conducía una mayoría descontenta por lemas bien elegidos en un asalto contra el Estado, destruyendo éste para construir otro con dicha minoría encendida como fuente de los nuevos dirigentes: era una caricatura de la revolución burguesa. En realidad, el bolchevisme es una teoría realmente moderna para las revoluciones burguesas en los países rurales.
13) El folleto de Lénine titulado el Estado y la revolución es una gruesa deformación de las vistas de Marx sobre el Estado en la cual intenta demostrar que Marx mantenía que los trabajadores deberían desencadenar una rebelión armada contra el Estado “burgués” a continuación para construir un Estado “socialista” a su lugar. Para nosotros (como para Marx), los términos “Estado socialista” son contradictorios. O hay el socialismo entonces él no hay Estado; o hay un Estado y entonces no hay socialismo.
14) Tradicionalmente, el debate sobre los métodos pacíficos o violentos para llegar al poder para el socialismo tuvo lugar entre los que favorecen una acción minoritaria de una forma o de otra - los bolcheviques, los socialdemócratas y los anarquistas. Para nosotros, como partidarios de una acción mayoritaria, tal debate es más bien académico, pero podemos fácilmente convenir que una minoría tiene aún más necesidad de recurrir a la violencia para llegar al poder que una mayoría.
15) El debate toma dimensiones completamente diferentes cuando se basa en el reconocimiento que en primer lugar una mayoría de socialistas convencidos debe obtenerse. Con una mayoría que tiene una conciencia socialista, la violencia no es necesaria, a menos que los pro capitalistas lo utilicen. La mayoría socialista puede utilizar el escrutinio universal tanto para poner de manifiesto que es una mayoría que para enviar sus delegados al Parlamento y a los consejos locales, ganando así el control del aparato de Estado.
16) Mantenemos que la evolución subsiguiente de las corrientes económicas y políticas que él mismo Marx vio comprometerse en favor de una revolución pacífica, hizo barricadas y batallas de calles de las táctica revolucionarias anticuadas. En la situación política moderna, - la aplastante superioridad numérica de la clase trabajadora, el sufragio universal, la democracia política, un ejército y los servicios sociales reclutados entre los trabajadores - la clase trabajadora puede y debe utilizar las elecciones y al Parlamento como camino que conduce al poder para el socialismo. Un partido socialista debería impugnar lo más a menudo posible las elecciones, pero solamente sobre un programa socialista. Allí donde no hay candidatos socialistas, el partido debe predicar el voto blanco o nulo y nunca comprometerse en una propaganda antielectoral de tipo anarquista.
17) La idea anarquistasindicalista de una huelga general de sindicatos industriales como medio de invertir el yugo capitalista es obviamente impracticable porque dejaría los medios de aplastar tal huelga, el aparato del Estado, en las manos de los capitalistas.
18) A las pocas cosas cerca, la misma cosa puede decirse de la utilización del soviético, o consejos trabajadores, como alternativa al Parlamento. Después de 1917, Lénine (hipócritamente, puesto que sabía que los bolcheviques entendieron el poder no por el soviético sino por un golpe de Estado militar bien preparado en el cual el soviético sirvió de fachada solamente) declaró que en el soviético método específico de emancipación de la clase trabajadora finalmente se había descubierto. Pero el soviético fueron solamente, como lo observa en una brillante serie de artículos el marxista ruso J. Martov, una expresión de la falta de desarrollo política en Rusia. La opresión zarista era tan penetrante que una vez terminada los trabajadores y los campesinos debieron crear instituciones de fortuna para expresar y llevar a cabo sus deseos; en condiciones políticas más desarrolladas, esto no habría sido necesario porque se habría existido a tales instituciones con en los sindicatos, los partidos políticos y los consejos locales. III. la reforma del capitalismo
19) El partido que la clase trabajadora utilizará como instrumento para ganar el control político debe organizarse sobre una base democrática. El control de las políticas y la administración debe ser enteramente en las manos de sus miembros; no debe tener a líderes y los que se designan para ejercer distintas funciones deben ser responsables delante de los miembros. El libre debate de la política del partido debe estar completo.. Tales son las bases del Partido socialista de Gran Bretaña.
20) A un determinado nivel de desarrollo del movimiento socialista de cada país, los socialistas deben organizarse en partido, con sus propios Reglamentos y disciplinas democráticas, en vez de grupos de debate, de sociedades de educación o publicaciones periódicas que pueden convenir inicialmente.
21) Un partido político no puede ser sino lo que sus miembros son. Si un partido socialista quiere permanecer como tal, debe reclutar solamente socialistas en sus filas. Esto es especialmente necesario en un partido democrático donde todos los miembros tienen voces iguales sobre la elaboración de la política. Pasar una prueba sobre los conocimientos básicos del socialismo debe ser una condición de admisión en las filas del partido del socialismo.
22) Además, para seguir siendo socialista, el partido debe buscar apoyos solamente sobre la base de un programa socialista. Inevitablemente, en las circunstancias presentes, se desprenderá que el partido será comparativamente escaso en número, pero no hay ningún otro camino lógico para construir un verdadero partido socialista. Es lo que demostramos la suerte de los partidos sociaux-democrates de Europa, los cuales a pesar de un compromiso formal para el socialismo como “objetivo último” admitían a los no socialistas en sus filas y buscaban apoyos sobre un programa de reforma del capitalismo más bien que sobre un programa socialista. Para conservar su apoyo no socialista, ellos mismos se les forzó a dejar caer sus discursos sobre el socialismo y de volver más abiertamente reformistas aún. Hoy los partidos socialdemócratas se ligan firmemente al capitalismo, en teoría como en la práctica, al igual que los que nunca no han pretendido ser otros cosa. Decimos que fue el resultado inevitable de la admisión no socialistas y ha predicado reformas del capitalismo.
23) Por eso siempre hemos predicado sola el socialismo y nunca de reforma del capitalismo. No decimos que todas las reformas están contra la clase obrera, pero que para un partido socialista predicar reformas sería su primer paso hacia su transformación en partido reformista.
24) Esto es uno de los puntos importantes sobre los cuales divergimos desde punto de vista con Rosa Luxemburg. En Reforma o Revolución?, presenta un buen argumento contra el reformismo pero sigue afirmando que los socialistas deben predicar reformas con el pretexto de que la conciencia socialista surgirá de la lucha para las reformas. Pensamos que la experiencia probó que tenía culpa. Poco importan porqué o cómo las reformas se predican, el resultado es el mismo: confusión en el pensamiento de la clase trabajadora en vez de un crecimiento de la conciencia socialista.
25) Rosa Luxemburg tenía culpa sobre número de otros puntos, por ejemplo, su teoría económica basada en el hundimiento del capitalismo. El capitalismo se aplastará nunca de sí mismo, como lo sugiere, él irá tirando de crisis en crisis hasta que la clase trabajadora se organice conscientemente para poner fin. Tenía también culpa sobre la “espontaneidad”, cuando sugirió que la “acción de masa” a menudo haya debilitado debido al papel conservador y agente de frenos de los partidos apoyados por la clase trabajadora, mientras que era las ideas no socialistas de los propios trabajadores. Sin embargo, reconocemos que sobre número de otros puntos, como el reformismo, el bolchevisme, la Primera Guerra Mundial y el nacionalismo, vino alrededor a las mismas conclusiones que nosotros.
26) Un partido socialista debe oponerse al nacionalismo bajo todas sus formas y rechazar todo compromiso de cualquier género. Discurso de socialismo en Alemania o de Checoslovaquia para los Checos y los Eslovacos es un absurdo peligroso. Los socialistas deben afirmar siempre claramente que los trabajadores no tienen patria y que el socialismo no puede existir a escala mundial sino.
27) Un partido socialista debe también presentar la religión y su papel como instrumento de la sociedad de clases. La religión intenta impedir la difusión del punto de vista científico sobre el mundo, el hombre y su historia, y debe ser puesta en oposición por una declaración clara sobre el materialismo científico. Sin embargo, un partido socialista seno debe se embou en el único anticléricalisme predicando él mismo de las reformas como la separación de la Iglesia y el Estado o la educación laica.

Sunday, October 5, 2008

Prejuicios y esterotipos

Knowing the history or etymology of a word does not always tell anything about its current usage or meaning. Silly, for instance, used to mean 'blessed', but that is just irrelevant to the way it is used now. Sometimes, however, a word's origin or structure can be quite revealing. Prejudice, for instance, means 'pre-judge': to form an opinion about a person or idea or thing in advance without the benefit of a proper understanding.

A prejudice may well involve categorising someone in a particular way, perhaps just because of their appearance: they may be black, Jewish, female, gay, shiftylooking, 'foreign', or whatever. They may be wearing clothing which suggests that theyare a Muslim, or a shirt of a football team you dislike, or just a hoodie. Or you may hear them say a few words and decide that you don't think much of their accent. In all these cases, a person is being judged - and perhaps dismissed or ignored - by being
seen as a member of some group of people, rather than as an individual. Such a prejudice might be justified by saying that 'they'
are all lazy or untrustworthy or potential terrorists, or just not the sort of person you want to be in any way associated with.

Stereotyping along these lines is one of the foundations of prejudice and bias.Ideas like racism and sexism are notrespectable these days, and most people will deny being prejudiced - if you think youaren't, try the online test at http://www.understandingprejudice.org/iat/.
Prejudice may be merely a matter of dislike, but when it influences the way you behave and leads to some disadvantage for the other person, then that's discrimination.

Someone may be denied a job for reasons quite unrelated to their ability to do it, orthey may be refused service in a shop, or
made to wait in a queue. And there are far worse things, too, such as racist murders orattacks on anyone who belongs (or appears to belong) to some demonised group.

Capitalism is full of examples of prejudice and discrimination. Gender and race have been the most obvious examples, with
women being confined to the home, earning lower wages than men, having fewer educational opportunities, being subjected to
domestic abuse, and so on. People with dark skins have been treated as less than human, enslaved, confined to the worst housing and worst jobs, lynched and brutalised. The Nazi onslaught on Jews and many other groups, such as Slavs and Roma, is probably
the most notorious and despicable example.

Where there is a problem, capitalism often sees the chance of a reform, designedto alleviate some of the worst excesses and
make it look as if the system and those who run it care about the most downtrodden. So there is now plenty of legislation against
discrimination. For instance, the Equality Act, which came into force earlier this year,covers discrimination on the grounds of religion or belief, sexual orientation, gender,disability and race. Yet it illustrates the point that government legislation cannot in
itself change people's attitudes. Many Christians who run bed-and-breakfast establishmentshave objected that they can no
longer ban 'undesirables' from their premises: gays, satanists, Muslims, even other brands of Christian - all may be viewed as
not the right kind of person (Observer 26 March).

But it's not just a matter of likes and dislikes. So often prejudice and discrimination under capitalism can be traced back to
competition, for jobs, houses or government handouts. If 'they' come over here and take jobs that belong to white workers, then
unemployment among whites could be reduced or eliminated by sending 'them' back or at least by putting them at the end
of the line for jobs. The housing problem would surely be far less serious if 'they' were not allowed to jump the queue for
council houses. Some group of people can be selected as scapegoats who are blamed for all the ills of society: unemployment,
homelessness, crime, violence, insecurity,poverty. Tragically, workers who suffer from these problems will often put the blame onto fellow workers, who in fact may well be even worse off than they are.

Not all prejudice can be said to be caused by competition. Religious bigots, such as the christian B&B owners, can introduce their own forms of intolerance,backed up by nothing more than a dislike of anybody who is in some way different from themselves. And ideas can change, however slowly. Gays and lesbians, for instance, rarely have to keep their sexuality secret nowadays (though in plenty of countries this is not the case). Discrimination against disabled people is far less widespread than it once was. But of course, nobody could pretend that racistideas are a thing of the past.

And there is one form of discrimination that cannot disappear under capitalism, because it is built in to the system's very bones. This is discrimination on the grounds of wealth and power: a relativelysmall number of people have a great deal of both, while the vast majority (the working class) have little of either. It's only workers who have to worry about discrimination in terms of jobs and housing: if you live off profits and have several luxury apartments and a country mansion, then you hardly need to worry about not being 'one of us'. Equalising pension arrangements for men and women doesn't affect you if you're a millionaire whose post-
'retirement' standard of living will barely take a cut.

The Socialist Party's Declaration of Principles claims that a Socialist society will involve 'the emancipation of all mankind, without distinction of race or sex'. In a world where competition for housing and jobs is no more, where all take an equal part in producing for need and running society democratically, it will be absurd to suggest that any kind of prejudice could still exist. Maybe we will still form first impressions of a person we meet, but that will be based on their own character and behaviour, not on lumping
them in with some ill-defined grouping.

Being a Socialist implies opposition to all kinds of prejudice and a determination to treat people as equals and as individuals.􀂄

Thursday, October 2, 2008

Marx versus Keynes

MARX VERSUS KEYNES

The failure of government-controlled capitalism

_____________________________________________________________________


Introduction


The material in this bulletin has been taken, with minor changes, from articles which originally appeared in the Socialist Standard during the past five years. They bring together in one document a criticism of .Keynesian economics from a Marxian point of view.


As the first article says, Keynsism is now the dominant economic orthodoxy, taught in schools and universities as a supposedly accurate description of how capitalism works or can be made to work. It is also the implicit theory behind the reformist practice of both the Labour and Conservative parties. For Keynsism holds that capitalism can be controlled by governments so as to function in the interest of all.


A knowledge of Marxian economics shows this Keynesian – and indeed general reformist – claim to be false. For capitalism is a class system, based on the exploitation of the majority, which can only function by putting profits before human needs. Practice – the failure of all post-war governments to redeem their election promises about full employment, stable prices, steady and continuous growth – has also confirmed that capitalism is governed by economic laws which government intervention cannot overcome, despite what Keynes taught.


The Marxian criticism of Keynes must be distinguished from that of those who argue that what is wrong with Keynsism is that it advocates only government intervention in an essentially private-enterprise economy, not government ownership of industry. That a state capitalist economy could function in the interest of all is equally illusory, but we cannot go into this here.


The Marxian alternative to both Keynsism and state capitalism is Socialism, a non-market, non-monetary society based on the common ownership and democratic control of the means of production by and in the interest of the whole community. Only on this basis can production be democratically planned to provide what human beings need, both as individuals and as a community.


Education Committee,

The Socialist Party of Great Britain, 52 Clapham High Street, London, S.W,4 7UN.

_____________________________________________________________________

THE KEYNSINAN MYTH


Socialists have always held that the boom-slump cycle and periodic unemployment are inherent features of the system of production for the market with a view to profit i.e., capitalism. But, say the critics, there has been full employment in Britain for over twenty years; there has been no slump on the scale of the 1930’s. Marx, they say, has been proved wrong. Capitalism has changed, thanks to the theories and policies of John Maynard Keynes.


Keynes was a British economist who died just after the last war. He wrote a number of widely-read books on economic and political matters and held various government posts. His theories on how to get full employment and avoid slumps are to be found in his General Theory of Employment, Interest and Money which appeared in 1936.


The economic doctrines Keynes attacked in this book taught that capitalism automatically led to the full and most efficient use of productive resources. These doctrines said that unemployment was to be explained either by over-population or by restrictions on production and trade, such as monopolies and trade unions, State interference and tariffs. Overproduction was impossible because “supply creates its own demand”. This last dogma was known as Say’s Law after a French economist of the early 19th century. Say argued that as every sale was a purchase and vice versa a shortage of purchasing power was impossible.


Keynes denied that laissez-faire capitalism automatically led to full employment and went on to show how over-production and unemployment could occur: since all that was produced in a given period wasn’t all consumed in that period there was a gap between productive capacity and what Keynes called consumption. This gap could be filled by the making of means of production, or investment. However as investment depends on what businessmen think are the chances of making profits there is no guarantee that this gap will be filled. And if it is not filled then there will be idle resources and unemployment.


Keynes suggested ways of overcoming this condition. The State should first try to encourage consumption and investment. As the poor tend to spend a larger proportion of their income than the rich, one way of encouraging spending, Keynes suggested, was to redistribute some of the income of the rich to the poor. Low interest rates might encourage businessmen to invest so a policy of reducing the price of money by increasing its supply was called for. Keynes believed that although these measures were useful they would not be enough. In the end the State itself would have to increase its own spending and even take steps to control investment directly.


In overthrowing Say’s Lawn Keynes was doing nothing new (though he thought he was). Marx had done this before when he pointed out that, although Say was right about every sale being a purchase, because the buyer and seller were different people the seller could interrupt circulation if for any reason he didn’t re-spend the money immediately. Thus both Marx and Keynes showed how overproduction was possible under capitalism. Marx went further and showed how it was also inescapable from time to time.


The basic proposition of the Keynsians comes to this: steady growth at full employment level can be kept if the State controls spending and investment so that when a boom is developing its cuts down, and when a slump threatens it increases, its spending.


Keynes had been a critic of laissez-faire for a long time before he wrote his General Theory. He was a member of the Liberal Party and sympathetic to the kind of state capitalist schemes the Fabians pushed. When he wrote this book he already had an international reputation as a leading economist. His book was given wide publicity because in it a well-known economist provided a theoretical justification for policies already being tried in the 1930ts. Keynes’ theories and policies – equalizing taxation, cheap money, State control – were eagerly spread by the Labour Party and “progressives” generally. After all, this was what they – and Keynes himself, for that matter – had long been advocating. Helped by these partisans Keynesian economics has become the dominant economic theory. In Britain it completely conquered the universities and government departments. In America some conservative ’economists are still fighting a rearguard action on behalf of laissez-faire against Keynes’ theories which they see as state capitalism (to them “socialism”) .


It is true that Keynesian economics is a theory of state capitalism. It is a theory that capitalism can be managed by professional economists from government departments. It is Fabianism in new guise: capitalism run by “experts” .


In Britain the first Keynesian budget was that of 1940 so the “experts” have been in charge for over thirty years. How have they fared? Have they been able to control capitalism?


Under capitalism the market is king; it decides what is produced and when. After the last war there was an expansion of the world market which, with a few minor upsets, has continued ever since. It is this expansion of the world market rather than State control which has been the major factor in the relatively full employment in some parts of the world.


This particular combination of circumstances has allowed the Keynsians to claim as the benefits of their “economic management” what in fact are the result of world market conditions favourable to the capitalists of the countries concerned. The world market has not expanded at a steady rate; it has done so in fits and starts. This, of course, is the boom-slump cycle. In Britain the figures of unemployment, industrial production and trade have gone up and down with the world market – and the “experts” have been unable to do anything about it. Indeed far from these “experts” controlling capitalism it is the other way round: the Keynsians seated in their government offices have had to take orders from the world market. Given a contraction of the world market on a large scale, the emptiness of the claims of the Keynsians to control capitalism, and especially its boom-slump cycle, would become apparent immediately.


Nor have the “experts” been able to end unemployment. In many parts of the world unemployment is widespread, in the Caribbean and Mediterranean areas to mention just two. Keynsians have been unable to do anything about this. Some of their thinkers have admitted this and call the unemployment in these areas “Marxian” as opposed to the “Keynesian” unemployment they can cure. As if this unemployment wasn’t connected with the relatively full employment elsewhere/ For these unemployed are the reserve army of labour Marx talked about. They are drawn on by industries in the dominant capitalist countries as and when required to produce for the world market.


Keynesian economics – a combination of a policy of inflation and the rule of economic “experts” – is not at all what it is made out to be. It has not, and cannot, control capitalism in the ways that it claims.


INQUEST ON KEYNES


In Keynes and After Michael Stewart, one-time senior economic adviser to the Wilson Labour government, (not to be confused with the former Minister of the same name) has given a very readable outline of Keynes’ theories and of their relation to those of the earlier economists, followed by an attempt to prove that Keynes revolutionised economics by providing the governments of industrialised countries with the means to control the economy and provide full employment. According to Stewart, most economists accept and most governments now apply Keynes’ theories and if unemployment sometimes rises above a low level this is by the deliberate action of governments – they could have full employment but choose not to have it.


Those who found it difficult to follow Keynes’ own statement of his views – and Stewart admits the difficulty – will find in Chapter 4 a lucid exposition. The same cannot be said of his scrappy, and in some respects, inaccurate summary of Marx’s views.


The starting point of Stewart’s book is an examination of the belief held by Ricardo, Say and other economists at the beginning of the 19th century that capitalism in its normal operation tends to produce full employment, any failure of a particular industry to sell its products being quickly offset by larger sales in other industries. This rested on the proposition “every seller brings a buyer to market”: meaning that the seller of an article then has the money to buy some other article and will do so.


In spite of evidence to the contrary this belief that unemployment could only be temporary and limited persisted right up to the 1930’s, when, according to Stewart, Keynes astonished the world by showing that the seller who comes into possession of money does not necessarily use it at that time to make a purchase.


Stewart is quite correct about the reception given to Keynes’ rebuttal of the Say doctrine. What he does not explain is why that part of Keynes’ work was treated as an original discovery. For Marx had examined in detail the way in which capitalism produces unemployment and had proved Say to be in error.


Stewart is at least partly aware of this for he expressly excludes Marx from the 19th,century economists who were taken in, yet he also writes that it was “left to Keynes . . . to put his finger on the truth”. Not that Marx’s conclusions were the same as those reached by Keynes. For Marx it was a matter of showing how capitalism operates and how it needs unemployment; for Keynes it meant prescribing a remedy. He believed that by appropriate action, including government expenditure to create demand, full employment could be maintained.


Keynes presented his doctrines in 1936,in a book called The General Theory of Employment Interest and Money. Stewart maintains that the money and interest can be discarded “for the book is really about what determines the level of employment”. It is true that in his book Keynes said that we had not yet gone into the practical problems of a full employment society but that certainly did not mean that he attached little importance to the aspects that Stewart dismisses. It is, however, not necessary to prove the point because in the government White Paper Employment Policy, 1944, which Keynes helped to draft, the practical problems were considered and they went far beyond full employment; to include specifically the maintenance of a stable price level and a faster expansion of production.


One can guess why Stewart would prefer his version, for while he claims that the full employment aim has been achieved, he has to admit that the others have not.


The first question is whether in fact full employment can be and has been maintained by the use of Keynes’ methods. Stewart is confident that it has (except where governments did not want full employment). Other Keynsians are not so sure. Professor Alvin Hansen in his A Guide to Keynes (1953) writing about the low unemployment in the early post-war years said “full employment was, however, primarily the result of the war and post-war developments, not of conscious policy”.


And John Grieve Smith reviewing Stewart’s book in The Times (22 January 1968) had this to say:

“Michael Stewart attributes the maintenance of high levels of employment...after the second world war mainly to the widespread acceptance of Keynes’ ideas. This is over-generous. Since 1945 there has been an inherent tendency towards full employment as powerful as the tendency to\1ards heavy unemployment in the Twenties and Thirties. Initially this appears to have been an aftermath of the destruction of war, latterly, perhaps a result of the tendency towards higher public expenditure whether for military or civil purpose.”


It should be noted that there is now a fairly clear trend towards an increase of the level of unemployment in Britain as compared with the early post-war years, and Stewart himself is disturbed by the quite sizeable unemployment that has persisted in America in spite of government declarations and policies.


Stewart claims that the first government to adopt Keynes was Roosevelt’s administration in 1933. He then has to explain why, eight years later, unemployment was still 10 per cent representing over 8 million unemployed. His explanation is that although Roosevelt was running a budget deficit of 4½ billion dollars a year (nearly £1,000m) to finance government expenditure on public works, it was not enough, he should have spent more.


It will be seen that Stewart has an answer for every situation. If the Keynes technique is not seen to cure unemployment this must be due either to the government

not wanting full employment or to the medicine not being strong enough. It will however be recalled that on a particular occasion, Enoch Powell was able to show that although the recovery from a bout of fairly heavy unemployment did follow a Tory government statement of its intention to dispense financial medicine, the recovery took place without the medicine having been taken.


Having to admit that the other two aims have not been achieved Stewart in effect throws Keynes overboard. He writes that Keynes did not live long enough “to get to grips with the problem of achieving faster growth and more stable prices” and that “the management of effective demand along Keynesian lines, though a necessary condition for solving both problems, is not a sufficient solution of either of them”.


It was not only faster growth they thought they could organise, but continuous growth. In fact in the past twenty or so years what they got was the stop-go, the alternate expansion and contraction, much the same as it was before Keynes was born and when Marx described it in Capital.


Stewart has his own explanation for the rise of prices. It is that with near-full employment workers and employers are both in a monopoly position and have taken advantage of it to push up wages and profits and that this has caused prices to soar. It raises an interesting question. As prices in Britain have increased 250 per cent since 1938, compared with about 125 per cent in the USA and Switzerland, are we to believe that the British workers and capitalists are twice as demanding as the Americans and the Swiss?


As Keynes does not help him Stewart is forced to fall back on an incomes policy – “a policy that would prevent wages, profits and other incomes from being pushed up faster than production” (Stewart would no doubt be surprised to learn that Marx, a hundred years ago, described how wages in a boom rise faster than the production of consumer goods).


This dependence on an incomes policy, and the consequences that will flow from it bring us back to a basic difference between the analysis of capitalism made by Marx and that made by Keynes and Stewart. Marx saw that capitalism is not just an accidental assembly of economic activities, but a class system, with the means of production and distribution owned by one class and the other class, the workers, forced, in order to get a living, to sell their mental and physical energies for wage or salary.


In the inevitable class struggle the government is compelled, if it is to keep capitalism functioning, to come into conflict with the workers. Keynes thought that if he could find means to reduce unemployment to a very low level he could take the edge off the conflict. Yet at the end of the road we find Keynesian governments, Labour and Conservative, trying to impose wage restraint on the workers.


Governments may try for a time to enforce this with increased rigour, or may withdraw in face of opposition, or unemployment may rise to the point at which no incomes policy is necessary, but whichever way it goes they will be reminded of the class nature of capitalism – one of the facts of life they pretended no longer existed.


There is still another difference between Marx and Keynes. It was claimed for Keynes in the Thirties that he saved capitalism; that was certainly his declared intention. Marx of course sought to replace capitalism by Socialism (not, as Stewart thinks, by state capitalism on the model of Russia). The Keynsians, including the leaders of the Labour Party, are still trying to save capitalism. If any member of the Labour Party doubts this he should take note of the fact that Stewart in his book does not even consider the possibility that there is an alternative – Socialism.




MARX AND KEYNES ON UNEMPLOYMENT


The first volume of Capital, in which Karl Marx analysed the workings of the capitalist system, was published in 1867. Although Marx’s economic theories were under ceaseless attack by economists who defended capitalism the theories made headway in working class circles, particularly in the prolonged depression of the 1930’s. One of the reasons for the universal interest in Marx in those years was his treatment of unemployment, for he showed how unemployment arises and why it is necessary to capitalism. Then in 1936 John Maynard Keynes’ work The General Theory of Employment, Interest and Money brought about a twofold shift in the attitude of many economists and politicians. On the one hand they now accepted that unemployment – sometimes of acute and politically dangerous proportions – can arise out of the normal functioning of the capitalist system, but on the other hand they hailed Keynes as the man who they thought had shown them how full employment could be achieved if the right measures were taken by governments. Keynes’ theories were welcomed most of all by the trade unions and the Labour Party because they seemed to offer the prospect that a future Labour government need not be overwhelmed by an “economic blizzard”, as had happened to the Labour government which entered office in 1929 and collapsed under the weight of two million unemployed in 1931.


One of the consequences of the rise of Keynes was of course that working class interest in Marxian theories suffered a sharp decline.


Keynes was given the credit of having demolished the theories of 19th century economists who had taught that, if left to its own devices, capitalism would always and of its own accord tend towards full employment. What was little noticed was that most of the ground covered by him had been treated in detail by Marx three-quarters of a century earlier. Keynes was quite contemptuous of Marx, describing Capital as “an obsolete textbook which I know to be not only scientifically erroneous but without interest or application to the modern world” (A Short View of Russia, 1925) and he never seems to have appreciated that his own criticisms of earlier economists were much like those of Marx.


Among those economists were the Frenchman J.B. Say and the English economists James and John Stuart Mill and David Ricardo. The first of the four is remembered by what is called “Say’s Law”, which was that as people acquire money only to spend it, production and sale will always keep in balance. Keynes in his General Theory wrote:


“Thus Say’s Law, that the aggregate demand price of output as a whole is equal to its aggregate supply price for all volumes of output, is equivalent to the proposition that there is no obstacle to full employment. If, however, this is not the true law relating the aggregate demand and supply functions, there is a vitally important chapter of economic theory which remains to be written and without which all discussions concerning the volume of aggregate employment are futile.”


Keynes also quoted J.S. Mill who, in his Principles of Political Economy, set out to show that no matter how much production is increased the output will always be sold:


“All sellers are inevitably, and by the meaning of the word buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should by the same stroke double the purchasing power. Everybody would bring a double demand as well as supply; everybody would be able to buy twice as much, because everyone would have twice as much to offer in exchange.”


Marx had seen this mistake long before. In his A Contribution to the Critique of Political Economy, published in 1859, he pointed out that Say had in act borrowed his law from James Mill. Marx quoted a passage from James Mill putting exactly the same idea as that borrowed by his son and quoted by Keynes. In Capital Marx wrote:

“Nothing can be more childish than the dogma, that because every sale is a purchase and every purchase a sale, therefore the circulation of commodities necessarily implies an equilibrium of sales and purchases” (Kerr edition, p.127).


He showed that “no one is forthwith bound to purchase, because he has just sold”; there can be an interval and if this “split between the sale and the purchase becomes too pronounced” the result is a crisis.


Keynes, like Marx, saw that although capitalists could, in times of depression, invest to expand production they will not do so unless there is prospect of selling the products at an adequate profit. Marx dealt with this reluctance to spend to expand production, under the heading of “hoarding” ; Keynes coined the term “liquidity preference”, meaning that the capitalist prefers in that situation to keep his money in cash or its equivalent.


Al though Marx and Keynes both saw the fallacy of the early economic theories they reached different conclusions. Marx showed that, under the inducement of competition for the market, capitalist industry is always seeking to reduce costs of production by utilising labour-displacing machinery or other means of securing the same output with less labour, thus creating unemployment; and that capitalism needs “an industrial reserve army” both in order to be able to take advantage of periodical opportunities to expand old industries and develop new ones, and to keep wages down to a level which makes production profitable. For Marx periodical crises are inevitable and equally inevitable is eventual recovery to go through another phase of expansion, boom, crisis and depression.


Keynes challenged this. He maintained that government action can be taken to encourage investment (or to undertake its own investment) and to expand consumption so that recovery from depression can be speeded up and activity maintained at a continuous level of more or less full employment.


The years of relatively low unemployment in this and some other countries since the second world war were held to have proved the validity of Keynes’ argument. This interpretation has, however, been disputed and not only by Marxists. Professor R.C.O. Matthews, for example, argued in the September 1968 issue of the Economic Journal that the major factors have been demand arising out of war-time destruction and an unusually prolonged investment boom, and that positive Keynesian measures have had at most a very minor effect. And the Keynsians have been dismayed by the repeated crises and the gradual long-term increase of unemployment that began in the sixties.


Labour Party supporters who associated their schemes of nationalisation with Keynesian proposals for government action to maintain employment have been particularly disappointed. In the Labour Party Election Programme of 1950 they explained what a Labour government would do:


“Publicly owned industry will be ready to expand its investment when employment policy demands it. The public sector will, by speeding up necessary capital development, help to maintain employment.”


But the Labour government’s Nationalisation Acts required the nationalised industries to be run at a profit, like any capitalist industry, and this involved closing down unprofitable coal mines and railways lines.


The Keynsians did not at the outset admit the force of Marx’s analysis of capitalism’s need to keep wages down in order to safeguard profits, but finding in practice that the need exists, Labour governments achieved what they thought was a substitute in the form of wage restraint through an incomes policy.


In face of the realities of capitalism Keynes’ reputation is now greatly diminished, while Marx still provides an unanswerable case for not wasting time – trying to save capitalism.


“KEYNES WRONG” ADMISSION


“The Keynesian idea that in order to reduce interest rates one must increase the money supply . . . has now been proved wrong and even harmful: by accelerating the expansion of credit one achieves not a fall in the cost of money as the supply increases but a fall in the value of the currency in circulation. This had already been demonstrated by Ricardo 150 years ago” (Paul Fabra, economics editor of Le Monde, writing in The Times, 11 February,1969).


And by Marx too.


FROM MARX TO MILTON FRIEDMAN


During the six years of the 1964-70 Labour government, two developments were going on in the field of economic theory; on the one side confidence in a government’s ability to “manage the economy” was being undermined by the series of crises and the rise of prices and unemployment; on the other a big offensive was being mounted by monetary economists against the Keynesian ideas on which the Labour government’s policies were based. The two trends came together in the declaration made on 19 May 1969 by Roy Jenkins, Labour’s Chancellor of the Exchequer, that his priority was not expansion of production and employment, as his supporters would have wished, but dealing with the problem of “too much money” in the economy.


Prominent among the monetary school is Professor Milton Friedman of Chicago University, whose lecture, “The Counter-Revolution of Monetary Theory”, was reproduced in the Financial Times on 7 September 1970. It should be noted that Friedman said he was attacking Keynes’ followers not Keynes himself. Indeed he claimed that Keynes, if still alive, would, in present circumstances, be in the forefront of the counter-revolution.


Among the many aspects dealt with by Friedman the two most interesting were his treatment of inflation and his own idea of how a government should try to manage capitalism. On the first he declared:


“Inflation is always and everywhere a monetary phenomenon – in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”


At first glance it may seem that Friedman was merely restating the view held in the past by economists as diverse in their approach as Marx, Cannan and Keynes, that if an inconvertible currency (such as exists now) is issued in excessive amounts this causes a proportionate rise in the general price level. There is however a variation of terms that should be noted. These three economists were talking specifically of currency (notes and coin) while Friedman was talking of currency plus bank deposits. (Current use of the term “money” is so variously defined that the government central statistical office now has three different calculations of the money supply).


In practice no doubt the Friedman “money” view of inflation comes back roughly to the currency view because any policy of controlling “money supply” would in the last resort entail also control of the currency issue. Most economists follow Friedman in including some or all of bank deposits in their conception but among those who after the war continued to deal with inflation specifically in terms of currency was Sir Arnold Plant, Professor of Commerce in the University of London. He declared that “all our troubles arising from the present inflationary position would cease as soon as a British government decided to accept the full responsibility of their position as the sole controller of currency issues”. He wanted an absolute ceiling to be placed on the total currency issue (The Times, 1 June 1956).


In order to understand the attitudes of Friedman and Keynes (and Marx) it is essential to separate the question of inflation (currency depreciation) from the question of the possibility of managing capitalism. Keynes was not an advocate of currency depreciation for its own sake, though he did rely, as a method of handling certain situations, on his belief that workers who would strike against a reduction of money wages could be induced to accept a fall of real wages through a rise of prices (The General Theory, p.9).


Keynes’ proposition was that no control of the currency issue was necessary because if the monetary authorities looked after bank lending (“the creation of credit”) the creation of currency could be left to follow suit (Tract on Monetary Reform, p.184).


When Keynes declared his belief that formal control of the currency issue was unnecessary Professor Cannan immediately raised the alarm. He said that experience showed that unless there was some form of control governments would always succumb to the temptation to depreciate the currency, with its consequent rise of prices. In fact currency in the hands of the public has increased from £449m in June 1938 to £3,107m in June 1970. Such a rate of increase was never intended or anticipated by Keynes. Friedman is now saying that some control is necessary. He wants the increase to be limited to a steady 4 or 5 per cent a year.


“A steady rate of monetary growth at a moderate level can provide a framework under which you can have little inflation and much growth. It will not produce heaven on earth. It will make an important contribution to a stable economic society.”

If Friedman’s lecture is compared with the 1944 White Paper Employment Policy, which was the agreed three-party statement on how Keynesian doctrines were to be applied after the war, it will be seen that Friedman’s other main criticism was of the belief that interest rates could be kept down by government policy and that this could be an effective instrument for controlling economic affairs. Bank rate under the Wilson government rose to the highest level for a century and Friedman argues that the excessive rate of growth of the money supply is a contributory factor in high interest rates.


That 1944 statement showed how the government would iron out the ups and downs of overexpansion and depression by varying interest rates, by alternately increasing and decreasing government and private capital investment and by increasing and decreasing the market for consumer goods, and at the same time aim at “work for all“, stable prices and continual expansion of production and a rising standard of living. It has failed in most of its objectives.


What are the prospects that Friedman will do any better? He is of course more moderate in his claims. He appears to think that under his proposal British experience will come more into line with American. It would seem that he is not expecting much; indeed it may well be he expects the already rising unemployment in Britain to reach the higher level that has prevailed in America in recent years.


There is no reason at all to suppose that his moderate and controlled inflation will get rid of the cycle of expansions, crises and recessions than did the more rapid inflation of post-war Britain, or the long period without inflation in the 19th century.


Marx never supposed that capitalism could be made to work smoothly and neither Keynes nor Friedman has shown how capitalism can do without unemployment to provide an industrial reserve army and keep wages down to a level profitable to the capitalist. It is true that post-war governments thought they had found a substitute in the form of an incomes policy and wage restraint but it came up against working class resistance they never expected.


Incidentally in all the plausible plans of the 1944 statement there was not a word about having to include such a policy.


KEYNES AND THE RUSSIAN REYOLUTION


In the popular view two economists are accepted as having had outstanding influence on events of the last half century – Marx and Keynes. Marx is supposed to have guided the aims and policies of the Russian government since the Communist Party came to power in 1917 and Keynes’ preaching of full employment and the way to achieve it has been more or less closely followed by most of the political parties of the Western world, including all the Tory and Labour governments in Britain since the end of the war.


Here, of course, is one of the issues on which Marx and Keynes came into conflict. Marx held that unemployment is a necessary feature of capitalism, while Keynes held that it should and could be reduced almost to the point of disappearance. It is not our purpose to deal with that aspect here except to say that there is nothing in the post-war rises and falls of employment to justify the claims of Keynes’ admirers, which does not deter them from claiming that his discoveries have revolutionised economics and politics.


There is, however, a striking difference between the relationship of Marxism to Russia and that of Keynesism to Britain and other countries. It is that British politicians and their advisers have indeed been trying to apply Keynes’ theories in their conduct of affairs, but Russian governments have been acting in complete disregard of Marx’s theories.


Marx saw that the overthrow of the Tsarist autocracy would clear the way for the development of capitalism. This has indeed happened, but while the Communist Party rulers in Russia have presided over the building up of a great capitalist power they have chosen to pretend that it is Socialism.


What did Keynes make of all this? It happens that he set out what he thought in a series of articles in the New Statesman republished in a booklet A Short View of Russia published by Hogarth Press in 1925. This was some years earlier than Keynes’ book The General Theory of Employment, Interest and Money but after he had made a name for himself with his Economic Consequences of the Peace and his Tract on Monetary Reform. He was already regarded as a major figure in the world of economics.


Keynes had nothing but contempt for Marx but we can now compare the maturity and accuracy of Marx’s views of developments in Russia with the superficiality of Keynes’ judgements.


For Keynes the Russian revolution was not a stage in the development of capitalism, but the emergence of a new world religion; not based on changes in the real world but engendered in the minds of the leaders, Lenin and his associates. Keynes had something in common with the Russian leaders; he shared their belief that progress comes from the “intellectual minority” .Here are two typical passages:

“Like other new religions, Leninism derives its power not from the multitude but from a small minority of enthusiastic converts, whose zeal and intolerance make each one the equal in strength of a hundred indifferentists.”


But quite apart from other factors, it was the indifferent multitude – indifferent, that is, to Socialism – who, as the Socialist Party of Great Britain said at the time, made nonsense of the utopian dreams of introducing Socialism in Russia in 1917.


The second quotation is an attack on Marx’s Capital chiefly revealing for what it tells us about the smug intellectual superiority of Keynes:


“How can I accept a doctrine which sets up as its bible, above and beyond criticism, an obsolete text-book which I know to be not only scientifically erroneous but without interest or application for the modern world? How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above bourgeois and the intelligentsia who, whatever their faults, are the quality in life and surely carry the seeds of all human advancement? Even if we need a religion, how can we find it in the turbid rubbish of the red bookshop? It is hard for an educated, decent, intelligent son of Western Europe to find his ideals here, unless he has first suffered some strange and horrid process of conversion which has changed all his values.”


Keynes had no sense of the historical development of society and showed little appreciation of the problem which faced Russia, as it does all countries in the early stages of capitalism, of accumulating capital to build up large-scale industry. His advice to the Russian government was to lower the wages of town workers, and “get itself into a sufficiently strong financial position to be able to pay the peasant more nearly the real value of his produce.” As the town workers were a small minority and the peasants the vast majority of the population, it certainly wouldn’t have solved the problem. It was about as useful as telling a starving man that what he ought to do is to get hold of a large sum of money without telling him how.


Although, for Keynes, Leninism was a religion he did not wholly approve of it, but he did believe that it would create a society in which money making and love of money would lose their hold, especially among the new generation – though not to the extent of making “Jews less avaricious or Russians less extravagant”.


But although this might be alright for the Russians it was not congenial to “an educated, decent, intelligent son of Western Europe” (who, incidentally, made a fortune by financial speculations). He disliked the “mood of oppression” in Russia, for which he had a simple explanation:


“In part, no doubt, it is the fruit of Red Revolution. In part, perhaps, it is the fruit of some beastliness in the Russian nature – or in the Russian and Jewish natures when, as now, they are allied together.”


What can one say of such a shallow interpretation of history except that if Keynes had troubled to understand Marx he might have known what was really taking place in Russia.


Further Reading


J.M. Keynes, The General Theory of Employment, Interest and Money,1936

D. Dillard, The Economics of J. M. Keynes,1950.

A.H. Hansen, A Guide to Keynes, 1953.

M. Stewart, Keynes and After,1968.

P. Mattick, Marx and Keynes,1969.

P. Mattick, “Marx and Keynes”, Western Socialist, Nov-Dec 1955

“Why They Want More Unemployed”, Socialist Standard, Nov 1966

“Marx and Keynes” (review of Mattick’s book), Western Socialist, Nº 2, 1972

Teoria de la Inflacion de Marx

THE MARXIAN THEORY OF INFLATION


Education Committee, The Socialist Party of Great Britain

_____________________________________________________________________


NOTES ON INFLATION AND THE CURRENCY


I. Various factors which affect prices


1. The basic factor underlying all prices is value – the average number of hours of labour socially necessary to produce a commodity. (Thus a commodity needing 20 hours will represent value double that of one needing 10 hours, and the price will be affected accordingly).

2. The rise or fall of value of a commodity will affect its price, though price and value are not necessarily identical.

3. Changes of supply and demand in the market will affect individual prices including the special case of monopoly.

4. Government subsidies can keep the price of a commodity below the level which, but for the subsidy, it would sell.


5. These (and some other factors) affect individual prices, but one factor which affects the general price level centres round the currency – notes and coin.

6. To prevent confusion the term inflation is confined here to that aspect, as used to be the general practice. Inflation is depreciation of the currency.


7. One other factor also affects the general price level. This is the rise which takes place at a certain stage in the cycle of expansion, boom, crisis, depression; and the fall which takes place in another phase. When, with the prospect of rising sales and profits, manufacturers and others are competing for raw materials, machinery, plant, etc, prices rise. When sales slump and many are trying to get cash in order to avoid insolvency, prices fall. (Wages, the price of labour-power, are similarly affected in both directions). These upward and downward movements are limited in extent. During the 19th century in Britain they never exceeded 25 per cent, and the general price level in 1914 was no higher than in 1814.


II. The Money Commodity (Gold)


8. Through long experience a selected money commodity came to serve as “universal equivalent”. In Britain and many other countries it was gold.


9. The money commodity could function as universal equivalent for the exchange of all other commodities only because it, like them, embodied a given number of hours of socially necessary labour. If 1 ounce of gold needed the same number of hours of labour as a bicycle they would represent equal values.


10. In Britain, the 19th century standard coin the “sovereign” was, by law, fixed at about ¼ oz. of gold and this determined the basis of the price of all other commodities. Four sovereigns, or £4, or 80/-, would be the price of a bicycle in our example.


11. It is important to notice that if by law the £1 had been fixed at ½ oz instead of ¼ oz, 1 oz would be the equivalent of £2, not £4, and the price of the bicycle (equal to 1 oz. of gold) would have been £2, not £4.


12. If, on the other hand, £1 had been fixed at 1/8 oz of gold the price of the bicycle would have been £8, not £4.


13. The prices of all commodities, and therefore the general price level, would be similarly affected by the weight of gold fixed by law for the sovereign (£1, or 20/-).


14. One reason why gold came to be the money commodity is that over long periods of time its value changes little.


III. How much currency is needed?

15. As each note and. coin is used over and over again to make payments of various kinds the total amoun of notes and coin needed is only a fraction of the total of buying and selling transactions carried out by means of notes and coin.


16. The total amount of notes and coin needed to be held by individuals, shops, etc. is influenced by various factors. The growth of population and production will increase it. The growing use of cheques will reduce it. At busy periods(Christmas for example) people with bank deposits withdraw extra notes and coins, and these find their way back again afterwards.

17. Notes and coin also circulate more rapidly in periods of heightened business activity than at other times.

18. All of these factors have operated since 1938, notably the increase of population, the increase of total production (something like twice the volume), and the growth of the use of cheques.

19. In accordance with the Marxist labour theory of value the starting point for consideration of inflation is the average amount of gold coin that would be needed as currency if only gold coin circulated, that total of gold representing a total of value.


IV. Currency depreciation (inflation)

20. The Marxist explanation of currency depreciation(inflation) is that it takes place, and causes a general rise of prices, if a paper currency replacing gold exceeds the amount of gold that would circulate if not so replaced. (See article “Marx’s Theory of Inflation” later in this issue) .

21. It is not the mere replacement of gold by paper currency but its issue in excess that matters.

22. In 19th century Britain Bank of England notes, gold and other coin all circulated side by side.

23. The total was prevented from being in excess by the law which made the notes convertible into gold on demand, at the fixed rate of about ¼ oz. of gold to every £1 of notes. (Bank of England notes were in consequence always “as good as gold”).

24. The Bank of England was also compelled to buy and hold in its vaults gold equivalent to any issue of any notes above a fixed limit.

25. It is of course possible for a government to have in circulation an inconvertible paper currency but to restrict its issue so that it is not in excess. This was the position in the 1920’s. By government intervention a ceiling was imposed on the note issue.

26. Since the war there has been no effective limit on the note issue and it is far in excess of the amount of gold that would be needed.

27. According to official figures the amount of notes and coin in the hands of the public in December 1938 was £48 million, and in December 1972 £4,090 million.

28. The retail price level in 1972 was about five times the level of 1938, an increase of 400 per cent; a major part of this increase being due to currency depreciation (inflation).


29. At current prices of gold in the market the £448 million of notes and coin in 1938 was the equivalent of about 100 million ounces of gold; and the £4,090 million of notes and coin in 1972 represented a rather larger weight of gold.


V. Why currency depreciation inflation causes prices to rise


30. The basic reason why inflation causes prices to rise is that an inconvertible paper currency can never represent a greater total of value than that of the gold it replaces, and the same applies to the individual commodity.

31. In the example of the bicycle, if its value is equal to that of 1 oz. of gold, its price would be £4 when, by law, each £1 was fixed at about ¼ oz. of gold. If the gold is replaced by inconvertible notes and if the total of notes is double the amount of gold replaced, then the price of the bicycle will be about £8 instead of £4. If the note issue is three times the amount of gold, the price will be about £12 instead of £4.

32. In practice it takes the form of prices rising in response to buyers offering larger amounts of money, in the same way that prices of accommodation and other things rise in holiday resorts in the summer season when holidaymakers come in large numbers.


33. In many of the past inflations (for example Germany in the 1920’s) the government, instead of raising revenue by taxation, meets its expenditure by simply printing notes in ever-increasing quantities,


34. Commenting on this the economist F.W. Paish notes that in this country the method has been indirect though the result is the same: “Nowadays, in a country such as Great Britain, the Government would borrow from the banks, printing more notes to enable the banks to maintain their cash reserves” (Benham’s Economics, Pitman,1967,p.465). (See the article “How The Government causes Inflation” later in this issue) .

35. This indirect method was used in Great Britain in the inflation of 1914-1920 and the Treasury did indeed argue that the effect on prices would be different according to whether the note issue was increased by the direct or the indirect method. To which the answer is that it is the excess issue of notes which causes prices to rise, irrespective of the method.


36. The 1920 inflation was brought to an end when the government, ignoring that Treasury view, decided to restrict the note issue, which was followed by a continuous fall of prices for over ten years.


VI. The time factor in price changes

37. The objection is sometimes raised to the Marxian explanation of inflation that price rises do not immediately follow increases of the note issue, and indeed often precede them.

38. The reason is that when manufacturers and traders, etc. have become used to a settled government policy of inflation they take it for granted that past experience will go on being repeated, and that prices will go on rising.


39. The reverse is also true, the reversal of government policy in 1920 over the restriction of the note issue did not immediately cause the price rise to cease.


VII. Why governments go in for inflation

40. There are several reasons why governments have at different times followed a policy of depreciating the currency.


41. Some governments (particularly in war-time) adopt it because it is a simple way of raising revenue without recourse to taxation.

42. Sometimes (as in Germany in the 1920’s) the policy is favoured by industrial capitalists and indeed by the government and local authorities as a means of paying off loans in depreciated currency and consequently at only a fraction of the original cost of the loans.


43. In recent years the main reason is the widespread acceptance of the erroneous belief that inflation is a means of maintaining “full employment”.

44. Inflation, it should be noted, also makes devaluations inevitable. When prices have been pushed up to the point that exports are endangered the foreign exchange rate of the currency is reduced in order to cheapen exports again in terms of foreign currencies

MARX’S THEORY OF INFLATION


The word inflation has come to be used very loosely in recent years to mean any rise in prices, so that it has in fact almost become a synonym for price increase. Words are of course always changing their meaning in line with changed social practices and ideas. We can’t complain about that. But this particular change reflects an underlying confusion, amongst professional economists and the general public alike, about the cause of the enormous rise in prices that has taken place since the beginning of the last world war.


First, let us distinguish between a rise in the price of a particular Commodity and a rise in the prices of all commodities, between a rise in individual prices and a rise in the genera1 price level. This is not always easy in practice since a rise in the general price level will also of course involve a rise in individual prices. But there is a real distinction here which it is essential to make .


A rise in the general price level can be defined as a rise in the prices of all commodities such that their prices relative to each other remain unchanged. Individual prices, on the other hand, can rise for a number of reasons besides as part of a rise in the general price level. The demand for a commodity night temporarily exceed its supply; monopoly conditions might exist; its cost of production might go up. All these no doubt have operated since the war to cause particular prices to rise at particular times, but then at other times other forces – supply exceeding demand, falling costs, government subsidies – will have worked to reduce particular prices. But in any event none of these could explain a general rise in the prices of all commodities.


What could cause such a rise? Only, it will be argued here, some change in the standard of price, some monetary change. A general rise in prices, or inflation in its strict sense, is a purely monetary phenomenon. Marx was amongst those who recognised this.


Marx deals with money in Chapter III of Capital, and also in his Critique of Political Economy, but his theory of money cannot be fully grasped without first having understood the previous two chapters on commodities. Marx defines a commodity as an item of wealth produced to be exchanged for other items of wealth, and proceeds to examine what determines the proportions in which commodities exchange for each other. After showing that the only objectively measurable thing all commodities have in common is in being products of human labour, Marx concludes that in the ideal conditions of simple commodity production, commodities exchange in proportion to the amount of socially necessary labour time spent on producing them. This he calls their value1.


Money arises out of commodity-exchange when one particular commodity emerges as the one which is universally acceptable in exchange for any other. With barter this is not the case: exchange can only take place if the two commodity-exchangers have matched wants, if they each want what the other has to exchange. With money this inconvenience is eliminated as everyone accepts the money-commodity in exchange for theirs sure in the knowledge that they can then exchange it for whatever they do want.


To fulfil this role money must itself be a commodity, must have a value in its own right. Various commodities have functioned as money, but in the end it has been the precious metals gold and silver that have proved the most convenient2.


With money, other commodities acquire a price, which expresses how much of the money-commodity they will exchange for. Originally prices were expressed in amounts of the money-commodity (weights of gold or silver), but over time this has come to be obscured. For various reasons. First, governments issued coins, pieces of gold or silver, of guaranteed weight. Then, through among other things governments

issuing underweight coins, the conventional names for the money-units came to differ from the conventional names for weight-units. So prices come to be expressed in money-units rather than weight-units.


The fact that the names of the money-units are purely conventional, being established and altered3 by law, has often given rise to the illusion that money itself is just a useful invention whose value is purely conventional. But this is an illusion because the money-commodity (which from here on we shall assume is gold) is itself the product of socially-necessary labour and itself has a definite value independent of the will of governments. There is an underlying value-relationship between money and all other commodities. If the value of money alters then this will affect all prices – obviously since, as we saw, the price of a commodity is the expression of its value in terms of amounts of the money commodity. If the value of gold were to fall (say through more efficient productive methods being used) then the general price level would rise because, the values of all other commodities remaining the same, they would now be equal in value – and exchange for – a greater amount of gold. On the other hand, if the value of gold were to, rise then the general price level would fall. In short, the general price level and the value of the money-commodity are inversely related.


We have now identified one way in which a rise in the general price level (or inflation) can occur: through a £all in the value of the money-commodity.


The general price level will also rise if the government debases the coinage. The great advantage of coining is that you don’t have to weigh out amounts of the money-commodity for every buying and selling transaction; you can assume that the coin will be of a certain weight thanks to the government stamp. But the monopoly of minting coins possessed by governments has often proved too much of a temptation. As an easy way of raising revenue governments often issued underweight coins, Let us see what happens when they do this.


Assume that the word pound is the conventional name for ¼ oz of gold4, and that the government issues coins weighing 1/8 oz stamped “one pound”. The market will not be fooled. Prices expressed in terms of weights of gold will continue to exchange for ¼ of gold. But instead of as before exchanging for one gold coin stamped “one pound” it will now exchange for two such coins. In other words, its price in terms of the conventional money-unit, together with the prices of all other commodities, will double. Despite the government’s wishes, economic forces will alter the word pound from being the conventional name of ¼ oz gold to being the conventional name of 1/8 oz. In this way will the underlying value-relationship between the money commodity and all other commodities assert itself.


Marx also examined what determined the amount of the money-commodity in circulation. For him it was determined in the first instance by the sum of the prices to be realised. But since coins can be used to realise more than one price this was not a straight relationship. Taking this velocity of circulation of Money into account, Marx formulated the following economic law:


“If the velocity of circulation is given, then the quantity of the means of circulation is simply determined by the prices of commodities. Prices are thus high or low not because more or less money is in circulation, but there is more or less money in circulation because prices are high or low.(Critique of Political Economy, Lawrence and Wishart,1971, p.105)


This is a decisive rejection of the Quantity Theory of Money as put forward by Hume and Ricardo (who did argue that prices were high or low because more or less money was in circulation) and an assertion that it is the level of economic transactions (Marx later introduces settling of debts as well as realising prices) that determines how much money circulates. For a given level of production and trade, only a given amount of the money-comnodity is needed and hence \.,ill be called into use as money.


So far we have been assuming that the money-commodity itself circulates as coin for buying goods or settling debts. But this need not happen. Gold can be replaced in the actual process of circulation by tokens, whether made of other less valuable metals or of almost worthless paper. As long as these are backed by gold and are freely convertible into it (at a fixed rate) this makes no difference to the above economic law: the quantity of money, including now money-tokens, in circulation is determined by the demands of the economy (the sum of prices to be realised, the number of debts to be settled, etc.).


Marx went on to discuss what happens when there is “inconvertible paper money issued by the State and having compulsory circulation”. The pieces of paper put into circulation are merely tokens for real money (gold) so, says Marx, their purchasing power is determined solely by their quantity in relation to the amount of gold they are supposed to represent. As Marx points out, this reverses the position when gold itself is circulating; the quantity theory of money now becomes valid..

“The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity, Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity” (Critique of Political Economy, p.119. Marx’s emphasis).

Since inconvertible paper money has “compulsory circulation” there is nothing to stop States issuing as much of it as they like. In fact governments are faced with the same temptation here as over debasing the coinage: to print paper money is an easy way of raising revenue at least in the short r~. Suppose again that the word pound is the name of ¼ oz of gold and that the amount of gold demanded by the workings of the economy is £14m., what would happen if the government issues paper notes with a face-value of £210m., fifteen times greater? Let Marx explain:

“Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it is brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound-sterling would now indicate one-fifteenth of the previous .. quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise in prices would be merely a reaction of the process of circulation, which forcibly placed the token of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.” (Critique of Political Economy, p. 120, emphasis added).5


In Capital (the first three chapters of which are largely a re-write of the Critique of Political Economy Marx formulates the following law, what might be called the Quantity Theory of Inconvertible Paper Money:

“The issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols ... If the paper money exceed its :proper limit, which is the amount of gold coins of the like denomination that can actually be current, it would, apart from the danger of falling into general disrepute, represent only that quantity of gold, which, in accordance with the laws of the circulation of commodities, is required and is alone capable of being represented by paper. If the quantity of paper money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name not of ¼ of an ounce, but of 1/8 of an ounce of gold. The effect would be the same as if an alteration had taken place in the function of gold as a standard of prices. Those values that were previously expressed by the price of £1 would now be expressed by the price of £2” (Capital, Vol I, Moscow,1961,pp.127-8).


This makes Marx sound like a “monetarist”, and he is indeed saying that inflation (as a rise in the general price level) will be the inevitable result of an excessive supply of an inconvertible paper currency. But there is a fundamental difference: whereas a man like Enoch Powell (who sees well enough that inflation is a purely monetary phenomenon and cannot be caused by monopolies, trade unions or taxes) tries to explain everything in terms of supply and demand, Marx’s explanation is solidly based on the labour theory of value. The monetarists have no theory as to what would be the right amount of paper money that would need to be issued to avoid inflation. Marx has, and it is based on the underlying value-relation between the money-commodity (gold) and all other commodities6.


So to sum up, for Marx prices are ultimately reducible to weights of gold. Given the level of production and trade, there is a given amount of gold needed as money. This is determined by economic factors independent of the will of governments. Governments can replace gold in circulation by paper and metallic tokens. They can also issue, if they choose, tokens with a higher face-value than the needed amount of gold expressed in the same conventional money-unit. But if a government does do this, the effect will be the same as with debasing the currency: real economic forces, independent of their will, will change the weight of gold named by the money-unit or, as Marx put it, will forcibly place “the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation”. Another name for this process, which results in a general rise in prices, is inflation.

Further Reading


“Inflation and Prices”, Socialist Standard, July, August, Sept.,Oct.,1965.

“From Marx to Milton Friedman”, Socialist Standard, November 1970.

“Enoch Powell on Inflation”, Socialist Standard, February 1971.

“Marx’s Critique of Political Economy”, Socialist Standard, Nov. 1971.



“Wage claims, wage awards, strikes, do not cause rising prices, inflation, for one simple but sufficient reason – they cannot. There never was a strike yet which caused inflation, and there never will be. The most powerful unions, or groups of unions, which was ever invented is powerless to cause prices generally to rise ... in the matter of inflation, the unions and their members are sinned against, not sinning. In the matter of inflation, the unions and their members are as innocent as lambs, pure white as the driven snow”. – Enoch Powell, 20 November 1970.



HOW THE GOVERNMENT CAUSES INFLATION


Although inflation is caused by an excessive issue of inconvertible paper money over and above the amount of gold which would otherwise circulate, in Britain the government does not simply print more notes and use them to pay for its activities. The effect of what they do do is much the same though, but it works in a much more roundabout way.


Government expenditure is financed first of all by taxation, then by borrowing and finally, as we shall show, by issuing more inconvertible notes. In Britain in recent years there has always been a budget surplus, i.e. tax receipts have always exceeded the government’s current expenditure on defence, social services, costs of administration, etc. But this surplus has never been sufficient to fully cover the government’s capital expenditure (which is not included in the budget) on loans to nationalised industries and local authorities to finance long-term investment projects. Therefore the goverment has had to resort to borrowing. This it does by selling government bonds, including interest-bearing Treasury Bills. These Treasury Bills are repayable after a very short periods, normally three months; they play a key role in the overissue of inconvertible paper money in Britain. But before explaining how, we must first examine in more detail the various monetary institutions involved: the Bank of England, the commercial banks and the discount houses.


The Bank of England has a monopoly of issuing bank notes in England and Wales (and what the Scottish and Northern Irish banks can issue on their own is very limited). Under the Bank Charter Act of 1844 the Bank of England is obliged to keep its note-issuing work separate from its banking work, and so is divided into an Issue Department and a Banking Department.


The banking activities of the Bank of England are those of a central bank, acting as banker for the government and for the commercial banks. The commercial banks themselves have deposits at the Bank of England, but they get no interest on them7. These deposits are, however, instantly convertible on demand into notes and coins. This is why, in the literature on the subject, they are lumped together with the actual notes and coins in the tills and vaults of the banks and known as “cash”. Cash in this sense, it should be noted, is not the same as its everyday meaning of notes and coin; it is these plus the deposits of the commercial banks (and of the discount houses) at the Bank of England.


The commercial banks (the main ones being tine Big Four: Midland, Barclays, National Westminster and Lloyds) make their profits by borrowing money from the public and then lending it, at a higher rate of interest, to others. The banks lend their depositors’ money to capitalist institutions and other members of the public (advances), to the government (by buying goverm1ent bonds) and to the discount houses (“money at call”). Some – about 8 per cent –they keep as non-interest bearing cash, partly as notes and coins and partly as balances at the Bank of England.


The discount houses, like the commercial banks, make their profits by borrowing money and re-lending it at a higher rate of interest. Their original activity was, as their name suggests, discounting commercial bills of exchange, i.e. buying them below their face value and then selling them later at a higher price. But nowadays their main business is discounting Treasury Bills, and this is what concerns us here. The discount houses have an arrangement with the government whereby they agree to buy any Treasury Bills the government can’t get rid of at its weekly sales. This ensures that the government can always borrow, through Treasury Bills, the amount of money it wishes. In return the Bank of England offers the discount houses something it offers no other financial institutions, not even the commercial banks: to lend them “cash” when they can get it nowhere else. The rate of interest charged on such loans is what used to be known as “the Bank Rate”, but is now called “the minimum. lending rate".


Normally, the discount houses borrow money to buy Treasury Bills from the commercial banks – this is the “money at call” we mentioned earlier, so called because it can be turned into cash at very short notice. The commercial banks do not themselves buy newly-issued Treasury Bills, though they do acquire them later. If the discount houses cannot borrow enough money from the commercial banks to purchase Treasury Bills, then they must go to the Bank of England.


One way in which the commercial banks can come to be short of money to lend to the discount houses is through the government selling bonds. Most of these are sold to the banks, who have to use up some of their cash to buy them. To do this they may have to recall their money lent to the discount houses, and in any event will have less to lend them. Government sales of bonds in fact is one way the government can force the discount houses to borrow from the Bank of England, and so begin a process which will lead to more notes being put into circulation.


Let us consider this in more detail since it is the roundabout alternative way of inflating the currency to simply printing more paper money and putting it directly into circulation. Very simply, the government borrows money from the discount houses by selling them Treasury Bills; the discount houses borrow money to pay for these bills from the commercial banks; but if, maybe because the government has depleted the banks’ cash by selling them bonds, the discount houses can’t borrow enough money from the banks, then they can go to the Bank of England for it. So, in this way, the government supplies the cash for the discount houses and through them the commercial banks, to 1end back to them.


This “cash” is not, as we saw, just notes and coins, but notes and coins are a part of it. And any increase in the cash the Bank of England makes available will ultimately reflect itself as an increased demand for notes and coins too. Since, on its own admission, the Bank of England’s role in issuing notes is “passive” (Report of the Committee on the Working of the Monetary System (Radcliffe Report), Cmnd. 827, 1959, para 4), this increased demand for notes will automatically be met by setting the printing presses in motion.


Normally, such an increased demand for currency will come through the commercial banks converting into actual notes and coin some of their deposits with the Banking Department of the Bank of England. The Banking Department maintains a stock on unissued notes (acquired from the Issue Department) against just such contingencies.


The Issue Department is concerned with the actual printing and issuing of the paper currency (coinage is the responsibility of another government department, the Royal Mint). The Bank Charter Act of 1844 forbade the Bank of England to issue more than a limited amount of paper money which was not backed by gold in its vaults. This unbacked paper money was known as the “fiduciary issue”. Since at that time Bank of England notes were convertible, on demand, into a fixed weight of gold there was a very real incentive to limit the fiduciary issue. Bank of England notes have not been convertible into gold since 1931, but even in 1939 some 60 per cent of the note issue was backed by gold. From 1939 to 1971 the gold backing was merely nominal, more than 99 per cent of the note issue being fiduciary. Since 1971 the whole note issue has been fiduciary.


When the Banking Department’s stock of unused notes runs down, then procedures are set in motion for more notes to be printed by the Issue Department. The Treasury and the Bank of England get together, decide how many more notes should be issued, print and exchange them for government bonds with the Banking Department, and then inform Parliament. Compared with even sixty years ago parliamentary control over the fiduciary issue is very lax, not to say non-existent. The Currency and Bank Notes Act of 1954 limits the fiduciary issue to £1,575m. But the monetary authorities are permitted to vary (in practice, apart from small seasonal reductions as after Christmas, to increase) this amount from time to time, informing Parliament afterwards by means of a Treasury Minute. Every two years the excess of the fiduciary issue over £1,575m. has to be confirmed and renewed by a Statutory Instrument (a regulation having the force of law) but of the sort that automatically comes into force without even a discussion unless some MP proposes a notion to annul it. The last time this happened was in 1962, though it was then treated as something of a joke. The fiduciary issue had reached £4,608m. by July 1973.


The Banking Department, as we mentioned, acquires more notes as and when it needs them from the Issue Department. This it does in exchange for government bonds. Put another way, the Issue Department buys government bonds off the Banking Department paying for them with newly printed money. This means that the extra purchasing power represented by such increases in the fiduciary issue is put at the disposal of the government to help finance its spending. And it is a not unimportant source of government finance. The 1959 Radcliffe Report pointed out that “the increases in the fiduciary issue which have taken place in fact contributed £700mn. towards the meeting of the authorities’ financial :problems during the period 1951-52 to 1957-58” (Cmnd. 827,para 100).. Increasing the fiduciary issue still helps today. During the ten years 1963-1972 the government raised £2,239m. this way, £578m. of this alone in 1972 (see National Income and Expenditure 1973,Table 38, p.44).


So this is what happens: The Bank of England, as lender of the last resort to the discount houses, actively makes available enough cash for the banking system to be always able to lend the government the money it wants. An increase in cash in the banking system means, sooner or later, an increased demand for currency (notes and coins). This the Bank of England, as the note-issuing authority, passively makes available.


In effect, then, the government does finance a part of its expenditure by recourse to the printing press, even if in the roundabout way we. have described. The inevitable result of this is – to the extent of course that the increased note issue does not reflect a genuine need for more currency as for instance through increased population or production – inflation.



1 Under capitalism the highest form of commodity-production, commodities do not in fact, except accidentally, exchange at their values, as Marx explains in Volume III of Capital. This is because of the averaging of the rate of profit.

2 For a good account of the evolution of money out of barter see The Evolution of Culture by Leslie A. White, McGraw Hill paperback,1959, pp. 338-343.

3 As, for instance, the British government did in 1971 when it introduced decimal currency in place of shillings and (old) pennies.

4 As it approximately was in Marx s day, and indeed right up till 1939.

5 Marx chose the factor of fifteen because in his day the ratio of the value of gold to the value of silver was 15:1.

6 Not that Marx wished to tell governments what monetary policy they should pursue. His aim was to analyse how capitalism worked not to propose remedies to reform it. He was fully aware that workers would have to struggle to realise the value of their labour-power even if there was no inflation (currency depreciation.

7 Not to be confused with the “Special Deposits” which the government demands from time to time and on which the banks are paid interest.