Well, I have just about had enough of my conversation with The Andrew Kliman, so I thought I would try to assess what it accomplished instead.

My ‘tin-ear’ with Andrew began after a conversation with @skepoet on twitter about the odd divergence between gold and dollar measures of economic activity since the Great Depression of the 1930s. The dollar measure of US GDP has risen almost uninterrupted since the end of the contraction phase of the Great Depression; while the gold measure of GDP rose from 1934 to 1971, then fell until 1980, rose again from 1980 to 2001, and has been falling since.

Interesting enough, the gold measure of GDP exhibits a classic pattern of boom and bust typical of the economy prior to the Great Depression, but the dollar measure of GDP shows an almost disturbingly smooth continuous upward sweep, until the most recent difficulties of 2008. What I find most interesting about the two measures of economic activity is that, until 1933, both gold and the dollar measures of GDP exhibited the same behavior. However, this identical pattern broke down in 1934.

What accounts for this sudden divergence?

I assumed the cause of this divergence was Executive Order 6102 — one of the first acts of the Roosevelt Administration in 1933 — which established state monopoly over ownership of gold. The imposition of this monopoly was accompanied by a devaluation of the dollar by 70% against gold. This devaluation, which, interestingly enough, is never discussed by bourgeois economists when they talk about the history of the Great Depression is, I think, far more important than the actual monopoly imposed on the ownership of gold by the state, because with it Washington, after forcing owners of gold to hide their stocks in Switzerland, reduced the value represented by a single dollar.

As might be expected, history suggests the owners of gold and the owners of capital were pretty much the same people — not many workers had vaults full of the yellow metal; so the devaluation of the dollar amounted to a 70% across the board devaluation of wages. With this forcible devaluation of wages, it appears the bottom was put in on the contraction phase of the Great Depression; the economy began to grow again.

Coincidence?

Perhaps, but it does seem rather odd that precisely what Marx suggested was the necessary result of crises, devaluation of wages and capital, manages to put the bottom in on the Great Depression. So, this odd coincidence has been rolling around in my head for about three years or so now.

There are two additional odd correlations: the so-called Great Stagflation of the 1970s, and our own Great Financial Crisis. Both of these massive events has been accompanied by a rapid depreciation of the purchasing power of dollars against gold of a magnitude equal to or greater than the devaluation of the dollar in the 1930s. And, when you measure the official GDP in ounces of gold, both periods exhibit classic signs of economic depression lasting at least a decade.

In fact, I think they are depressions — but, what has to be explained is why unemployment did not reach depression levels and why prices did not deflate as is typical of classical depressions. Mind you, I am not talking about a recession — recessions occur both during these massive contractionary periods and during periods that look like expansions. Recessions and depressions are two different animals — depressions are a collapse of real activity, while recessions are monetary — I think.

Most recessions were engineered by the Federal Reserve, which is why they have the typical sharp vee-like shape — the Fed cuts off credit to the economy and it tanks; when they release the credit again, the economy rebounds. Not so depressions, which are ugly extended contractions — like the present one.

Anyways, I digress.

My point is that gold was sending information about the economy very different than the information given by dollars; and, those two different signals trace all the way back to 1933-34.

Which got me to asking myself: “What is money?”

It is a question I have been trying to wrap my head around for three years now. I have been trying to wrap my head around it because when dollars were tokens of gold, economic activity look much like it does today when measured in quantities of gold. But, once the standard of price was no longer gold, but worthless dollars, the “money” measure of economic activity looks very unlike gold.

Frankly, dollars don’t behave anything like Marx’s theory of money says they should; but, oddly enough, they behave exactly like neoclassical economics says they should. So, dollars are very odd as money for anyone working with Marx’s theory, because the behavior of dollars say Marx theory of money is full of shit. Now, Marxists come up with all sorts of silly reason why dollars don’t refute Marx – but it is total bullshit. For Marx money is a commodity, but dollars have no commodity backing at all and freely fluctuate in purchasing power against gold.

So, either (a) dollars are money, and Marx is full of shit; or (b) dollars are not money, and Marx is right. (I am copying Andrew in giving my readers two unpalatable choices.)

I did not know it at first, but Andrew is one of those people who want to have it both ways: Marx is right and dollars are money.

I thought, in fact, I was giving him ammunition for his thesis on the rate of profit by telling him to investigate gold. This was my first mistake, because he is an academic with a long career and established well argued theories. Oh yeah, and books. By asking him to look at gold, I was unknowingly asking him to renounce all that shit, AND the books. Because, pretty much, it is all based on the thesis that dollars are money in the Marxian sense.

So, that was mistake number one — too much shit to unpack, leave it alone, Jehu.

All I wanted to talk about was the odd behavior of gold versus money, but Andrew wanted to talk about sources of surplus value and expanded reproduction schemes. My only experience with expanded reproduction is best left undiscussed — and it has nothing to do with capital. But, fine. Andrew wants to talk “monetary expression of labor time” and “transformation problem” and “Temporal single-system interpretation“

None of which I have studied. I want to talk dollars versus gold, which I have studied.

I figured, well maybe I should study this transformation thingy and find out what the hell he is talking about; so, I went off and did that. Of course, I avoid the math, since if you have to make an argument using math you are either autistic or severely emotionally disturbed. And, the one person who could make an argument without math was Bohm-Bawerk, the Austrian critic of Marx. He turns out to be the only one, in my opinion, who actually got what Marx was saying, and could explain it using actual words not a meaningless jumble of dense mathematics.

He argued, essentially, Marx’s law of value and law of average rate of profit contained a contradiction — a position that was initially off putting for me, since I rate Marx right up there with Einstein and Darwin. I do not need to know Darwin’s theory as well as biologists, to understand the world was not created in 6 days. Similarly, I do not need to know the intricate details of Marx’s reproduction schemes to realize capitalism has a rather dim historical trajectory.

But, think about this for a minute: you have two fundamentally opposed forms of production facing each other and interacting. One is based on individual labor, where all cooperation is mediated by exchange; while the other is directly social and based on an admittedly despotic version of cooperative labor. Does anyone else see a sharp contradiction between two different modes of production here? Two diametrically opposed forms of social production — each operating according to its own law — and the nexus between them is money. I thought Bohm-Bawerk had a good argument for his opinion.

Now, here is the rub — and I only realized it yesterday: in the opinion of both bourgeois economists and Marxist economists once currency was debased, the transformation problem disappeared. Samuelson had already called a truce in 1971; and yesterday I found out from reading one of his paper’s Fred Moseley up in Mount Holyoke College agreed:

NON-COMMODITY MONEY AND THE TRANSFORMATION PROBLEM

My paper assumes commodity money throughout, as did Marx and Bortkiewicz-Sweezy. However, I argue that Marx’s theory does not require that money be a commodity. Instead, what is required in Marx’s theory is that there be some expression of abstract labor (i.e. a measure of value) that satisfies the following conditions: it must be (1) observable, (2) homogeneous, (3) quantitative, and (4) socially valid (i.e. generally accepted by all commodity owners).

At the high level of abstraction of Capital, money has to be a commodity, because Capital presents a theory of a “pure” capitalist economy, without state intervention. And in the 19th century laissez-faire capitalism (without state intervention) that Marx was analyzing, money was a commodity and money had to be a commodity in its functions of measure of value and store of value. However, in the post-1973 contemporary capitalism, money is no longer a commodity (i.e. is no longer convertible into gold at a fixed exchange rate), and money does not have to be a commodity in Marx’s theory. The state-guaranteed fiat money serves the same purpose as gold under the gold standard – it provides an observable, homogeneous, quantitative, and socially valid expression of abstract labor.

…

What are the implications of non-commodity money for the transformation problem? Strikingly, the Bortkiewicz-Sweezy problem disappears altogether. Bortkiewicz-Sweezy’s critique was that the equalization of the profit rate in the gold industry affects the total prices of commodities, and in general makes total prices of production total value-prices. However, with non-commodity fiat money, prices are no longer exchange-values with the commodity gold. Therefore, the equalization of the profit rate in the gold industry (if there is an equalization, now that gold is no longer money) could not affect the prices of commodities, and thus could not affect the total price of commodities, which continues to be identically equal to the total value-price of commodities.

Briefly, What Fred Moseley is arguing in this passage is that once the fascist state removed gold as the standard of prices, differences between bourgeois economists and Marxists over the transformation problem disappeared. Fred Moseley is another person who believes the dollar is money, like Andrew Kliman. So, when money was gold, Bohm-Bawerk was right: there was a contradiction; now that the currency is debased, there is no contradiction — everybody, Marxist and bourgeois economist alike, agree Marx does not contradict himself.

It’s all “Kumbayah” in academia! Bravo.

So, what events led up to this sudden and uncharacteristic agreement between two hostile economic world views? In another paper on the replacement of gold as standard of prices by worthless debased dollars, Moseley says:

I argued in Moseley (2005a) that money does not have to be a commodity in Marx’s theory, even in its function of measure of value. The measure of value does not itself have to possess value. Inconvertible paper money (not backed by gold in any way) can also function as the measure of value. In order to function as the measure of value, a particular thing must be accepted by commodity-owners as the general equivalent, i.e. as directly exchangeable with all other commodities. Until the 1930s, capitalists required that the general equivalent (and hence the measure of value) had to be a commodity, or at least convertible into a commodity at legally defined rates. However, in the Great Depression it became impossible to maintain the convertibility of paper money into commodity money. Convertibility required tight monetary policy, which was making the depression worse. In order to escape this “cross of gold”, governments ended convertibility, and made credit money, without gold backing, the general equivalent. Capitalists had no choice but to accept inconvertible paper money by itself as the general equivalent, and hence as the measure of value.

Now, I know I am not as well read as Moseley and Kliman, but I am pretty sure that explanation doesn’t come from Marx — Moseley is accepting on face value the typical Keynesian explanation for a discontinuity in the fundamental economic relations of society resulting from the intervention of a political actor.

What serves as money is determined by the laws governing a political entity; but here I see no explanation for why the state debased money. The reason can’t be monetary policy, because monetary policy as such did not exist until money was debased. So, we have to explain the action of the state in debasing money — and that means we have to explain politics.

Debasing the currency was not a simple thing: up to the 1930s, economic activity was mediated through an independent commodity money over which the state had no control for thousands of years. Now, economic activity would be mediated by states through an instrument they exclusively controlled. At a minimum, this suggests state control of exchange between individuals; between production and consumption; and distribution of the social product between various classes.

Moreover, the need for the state to intervene suggests a sort of unusual circumstance, which, in Roman times, might be called dictatorship — not a pejorative term in this context, but one denoting an attempt by society to bring its own conflicts under control by giving unrestrained power to someone or some institution — I am using the term in the very narrow sense of someone like Cincinnatus of Rome; someone given extraordinary power for extraordinary circumstances.

Anyway, the debasement of the currency does not appear to be a thing that can be dismissed as a mere demand for looser monetary policy! Something happened, and it was so big the centuries long free circulation of gold through the economy halted — and, it never restarted again. Moreover, the only way to get currency moving was to detach it from gold. Gold, in other words, refused to circulate in the economy as money, and never again circulated as money in the economy.

Now, you tell me how the fuck that happens.

Gold has served as money for thousands of years in every culture on the planet — but suddenly within five years every nation abandons it; but, this is only because they needed a looser monetary policy?

(Continued)

NOTE: @modern1st wrote “Odd to see this gold = money claim being made here. Gold has not functioned as money in wvery civilisation for thousands of years – that is an economist’s fiction that historians and anthropologists have disproven over and over for over a hundred years. Money has – for most of human history – been non-metallic and based on credit not coin or bullion…

After considering his argument I think it is badly worded. I would change the formulation as follows: “The role of gold as store of wealth and as money has evolved over several thousand years…”

So, last night I put myself through the agony of watching the entire NBC sponsored Republican debate. I don’t normally do this, but since I am such a fan of Brian Williams and his fetish for the British royals and heart-warming feel good stories about people making a difference, I figured, “What the fuck?”

What follows are a few of my (almost) unedited random thoughts:

He made money the old fashioned way: Mitt earned every dime of the unpaid labor he squeezed out his work force. He made his money the old fashioned way — purchasing his work force in America’s industrial Africa, and putting them to work in America’s financial Virginia.

Newtonian Physicks: Newt is sad it has gotten so personal and nasty. Frankly, I disagree.

Dead men tell no tales: Someone check Rick’s and Ron’s pulses, I think they are dead up there. They look like bookends on a shelf at the Copley Library.

I don’t know where this came from: People only think Obama is a socialist because socialists are fucking pro-fascist lapdogs of the Democratic Party.

Gay anarchists wanted: The first thing someone should do to give Ron Paul’s campaign a makeover is buy him a decent fucking suit that fits.

Someone just woke Ron Paul up: Whoa, did Ron just grow a fucking pair of balls and force his way into the middle of this war mongering bullshit? Way to go Ron! Glad you found out they have a cure for Low-T, now.

Justifiable use of force: See just about now, Ron Paul should run over and bitch slap Rick until he falls to the ground in seizures. If Ron took out a bat and started beating these three fuckers, it would constitute justifiable self-defense — Rick, Mitt and Newt have been threatening the planet all night.

Teenage Migrant Ninja Turtles: I’m surprised! Mitt and Newt only like the part of the DREAM Act that allows the US to recruit teenage mercenaries from Guatemala.

Awwwww!: I loved Rick’s touching story because my dad was a dad too.

Re: Space Coast: Hell no, not another dime. If you want to go into space, build your own fucking rockets!

CONCLUSION: If anything Ron Paul has proven too accommodating with these clowns. He wants to plant one foot in anti-statism, and the other in the anachronistic small government rhetoric of the 1950s GOP. At what point do we get full-throat hostility to all statism? Can anyone show me someone who can run in either party on a platform of hostility to the state? Anti-statists refusal to engage in politics against idiots like this GOP crop is unconscionable. These fuckers are no political threat. The only thing anti-statists have to fear is losing their precious apolitical cherries.

In an election cycle dominated by the Tea Party and Occupy, for the shit pushed by the likes of Mitt, Rick and Newt to go unchallenged by us is just unbelievable. It is as though anti-statists think they have nothing to offer to anyone, and only something to deny them — that shit is weak. These statist assholes propose statism has something to offer society, when we know that is not true. But, we act as though statists can offer something, while we can only take stuff away from society — the exact fucking opposite of the way shit works!

All this means is we haven’t the slightest clue what anti-statism has to offer. We think like fucking statists. Like statists, we think if you are not bribing people with false promises, you have nothing to offer them. But, we do have something to offer: we can argue by replacing the state with an association their lives will be materially better with less labor. And, we can prove that with loads of empirical data!

Here is something anti-statists will not admit to themselves: Fascist state economic policy is simply a device for creating artificial and wholly unnecessary scarcity and want. Libertarians don’t want to believe it, anarchists don’t want to believe it, and Marxists don’t want to believe it. Because believing it, and stating it openly, violates all their illusions about the present state of things. At root, all these variants hold to the present state because they lack the imagination that anything can change it or improve on it. In a perverse way, all anti-statists are comfortable with the existing state.

Well, Fuck You! I am not comfortable with it. I don’t want to waste my life in a fucking cubicle, and then collect $1200 a month in Social Security. I am sorry, but I want more out of my fucking fifteen minutes on this planet!

Here is something I culled from Marx’s paradox of capitalist price — i.e., the so-called transformation problem — that all present variants of critical communist theory rejects (and, by all variants, I mean the usual suspects: libertarianism, Marxism and anarchism). All conflict in society is directly or indirectly a struggle over the length of the social working day. We could call this Marx’s basic theorem of social development. Marx stated his theorem this way:

The history of all hitherto existing society is the history of class struggle.

But, this class struggle has always more or less directly or indirectly revolved around the uncompensated labor of one portion of society.

All three variants of communist consciousness have advanced their petty demands, while remaining mute on this pivotal issue. However, there is not a single demand advanced by any of them that does not touch on the length of the social working day. The libertarian complaint on taxes, the anarchist complaint on force, and the Marxist complaint on profit all come down to this. Moreover, each variant’s hostility toward the other is wholly rooted in the struggle over working time. It seems logical to assume since all three are only divided by which function of the state they oppose they must all share an ignorance regarding the premise of this state.

That common ignorance can be stated as follows: Each cannot imagine that the premise of the state is the uncompensated labor time of society. Each, therefore, imagines it possible to abolish the present state of things without abolishing its premise — uncompensated labor. Each imagines it possible to ignore abolition of uncompensated labor time, or reduce it to a mere byproduct of the state’s own abolition. Engels made the clearest argument against this ignorance in his argument against Bakunin:

Bakunin has a peculiar theory of his own, a medley of Proudhonism and communism. The chief point concerning the former is that he does not regard capital, i.e. the class antagonism between capitalists and wage workers which has arisen through social development, but the state as the main evil to be abolished. While the great mass of the Social-Democratic workers hold our view that state power is nothing more than the organization which the ruling classes-landowners and capitalists-have provided for themselves in order to protect their social privileges, Bakunin maintains that it is the state which has created capital, that the capitalist has his capital only by the grace of the state. As, therefore, the state is the chief evil, it is above all the state which must be done away with and then capitalism will go to blazes of itself. We, on the contrary, say: Do away with capital, the concentration of all means of production in the hands of the few, and the state will fall of itself [fällt von selbst]. The difference is an essential one: Without a previous social revolution the abolition [Abschaffung] of the state is nonsense; the abolition of capital is precisely the social revolution and involves a change in the whole mode of production. Now then, inasmuch as to Bakunin the state is the main evil, nothing must be done which can keep the state-that is, any state, whether it be a republic, a monarchy or anything else-alive. Hence complete abstention from all politics. To commit a political act, especially to take part in an election, would be a betrayal of principal.

Uncompensated labor, Engels is arguing, is the essential precondition for the state. Marxists have used this quote as the dividing line between it and all other variants of communist consciousness. But, Marxists no more grasp it than either of the other two — hence, not a single Marxist sect raises demands on the working day. Even when they might, on occasion, weakly argue for it, it is nevertheless accompanied by a demand for money wages to remain unchanged. As if the question is not the uncompensated labor, but the worthless paper dollars exchanged for necessary labor.

In fact, paper money is a worthless token having no relation whatsoever to the real compensation the worker receives for her labor power — the only measure of the value of labor power is gold or another commodity money. Currency was debased precisely to make sure there would be no relation between the value of labor power and its price (wages). Keynes says this very thing in his “General Theory”, and I have pointed out the paragraph in which he makes his argument to Marxists time and again without penetrating their dull brains.

Though the struggle over money-wages between individuals and groups is often believed to determine the general level of real wages, it is, in fact, concerned with a different object. Since there is imperfect mobility of labour, and wages do not tend to an exact equality of net advantage in different occupations, any individual or group of individuals, who consent to a reduction of money-wages relatively to others, will suffer a relative reduction in real wages, which is a sufficient justification for them to resist it. On the other hand it would be impracticable to resist every reduction of real wages, due to a change in the purchasing-power of money which affects all workers alike; and in fact reductions of real wages arising in this way are not, as a rule, resisted unless they proceed to an extreme degree. Moreover, a resistance to reductions in money-wages applying to particular industries does not raise the same insuperable bar to an increase in aggregate employment which would result from a similar resistance to every reduction in real wages.

In other words, the struggle about money-wages primarily affects the distribution of the aggregate real wage between different labour-groups, and not its average amount per unit of employment, which depends, as we shall see, on a different set of forces. The effect of combination on the part of a group of workers is to protect their relative real wage. The general level of real wages depends on the other forces of the economic system.

Thus it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages, which are seldom or never of an all-round character, even though the existing real equivalent of these wages exceeds the marginal disutility of the existing employment; whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.

If Marxists can’t grasp the significance of these paragraphs for fascist state political-economy, what hope is there for those who imagine wages can be exchanged for labor power without wages slavery? The struggle against the state is nothing more than a struggle against the theft of uncompensated labor by the state in whatever form. If we cannot grasp this, we will continue to wander around as tiny little isolated sects, or sink further into lonely pessimism: The economic policy of the fascist state is nothing more than a device for compelling increasing quantities of uncompensated labor time from society.

Paul A. Samuelson: bald-faced liar and propagandist for the fascist state

(Or, more importantly, why should anarchists, libertarians and Marxists be as well)

So, has any reader of this blog heard that economists have conceded Marx was right after all? Have you at any time during the past 40 years heard an economist admit that Marx was correct in his transformation argument? I am really confused by this, because although Paul A. Samuelson declared Marx’s labor theory of value irrelevant in 1971, it is still being studied by BIS economists today. If I told you Marx’s theory was being studied by economists because Samuelson was a bald-face liar and a practiced dissembler, you would probably just yawn.

Of course, he was lying — he’s an economist. Economists are paid to lie and distort reality. They are employed by Washington not to explain economic processes, but to obscure them. To call an economist a bald-face liar, is simply to state he is breathing — nothing more.

But, to understand why Samuelson was lying, and why it was necessary that his lie stand unchallenged for forty years, we have to figure out the problem posed by Marx’s so-called “transformation problem”.

Marx’s transformation problem could be called the “paradox of capitalist price”, and we could state it thus:

Simple commodity price is an expression of the value of the commodity, but capitalist profit is the expression of surplus value wrung from labor power. To realize the surplus value wrung from the worker, the realized price of the commodity in the market has to include both the quantity of value created when it was produced plus a quantity of surplus value wrung from the unpaid labor time of the worker — capitalist price is the cost of producing the commodity plus the capitalist’s profit.

However, in the classical labor theory of value, the price of the commodity can only express the value of the commodity alone, not surplus value. Thus, for the price of the commodity to include both its value and a quantity of surplus value wrung from the worker, the capitalist price of the commodity must, of necessity, exceed the value of the commodity. The law of value is thus violated by the realization of capitalist surplus value — capitalist prices of commodities must always exceed the socially necessary labor time required to produce them.

The realization of capitalist profit violates the basic rule of classical economic theory: equal exchange of values in the market — but, as we shall see, this is far from a merely theoretical violation.

Now, Marx provides a number of caveats that work to stabilize the capitalist process of production — he called them “countervailing tendencies”, and they include things like the export of capital, etc. If we ignore all of these countervailing tendencies, however, the result is that prices of commodities must rise above their values, or alternatively money must exchange for these commodities below its value. (By money, I mean here only commodity money, i.e., gold or some other metal.)

What must occur when this happens is that money fails to circulate — the economy experiences a so-called credit, or financial, crisis. So, Marx’s labor theory of value explains why the dollar was debased in 1933 by the Roosevelt administration. It explains why your currency today is worthless pieces of paper or dancing electrons on a computer terminal. Marx’s transformation predicts and explains the debasement of the dollar and all other currencies on the planet.

Given this, how does Samuelson say Marx’s theory has no market predictive power? Because he was an economist — not a scientist, but a propagandist on behalf of the fascist state. I thought we already answered this — are you paying attention?

Eventually, Marx’s labor theory of value stated, gold could no longer serve as money because its function as measure of value conflicted with realization of the surplus value wrung from you — the unpaid labor time you work in addition to the value of your wages. At a certain point, the realization of surplus value — converting this surplus labor into profits — becomes incompatible with commodity money. Prices can only increase to reflect the average rate of profit if the currency is removed from the gold standard.

Samuelson once famously declared Marx’s theory could not explain the American and European economies between 1937 and 1971 — but, I just did, so fuck Samuelson!

Moreover, Marx’s transformation states you now work as many as 36 more hours per week than is necessary. The labor theory of value shows 90 percent of the current work week is being performed solely to maintain the rate of profit. Another way to understand this: essentially the labor time that is necessary under a regime of capitalist prices is about ten-fold that needed if capitalism is abolished.

On the other hand, maintaining such a long work week is the sole cause of inflation in our economy — it is labor wasted on a vast scale. This is why in this crisis the sole concern of Washington has been to maintain or increase the rate of inflation. The conversion of surplus value into profits demands the constant increase in the total hours of labor by the working class. While the unpaid labor time of the working class is the sole source of surplus value, the realization of this surplus requires still more unpaid labor time.

Based on the above, we can make four general statements — which can be empirically substantiated — about the implications of Marx’s labor theory of value and the paradox of capitalist prices. If these turn out to be true, Marx’s theory is vindicated and anti-statists have a weapon with which to change the terms of political debate.

If Marx is right, we should be able to prove:

1. prices have generally increased faster than value for the past 40 years — this implies not simply that there was inflation, but that this inflation did not in any way result from an increase in the value of commodities, but increased despite a general decline in the value of commodities.
2. total hours of work have increased faster than was socially necessary for the past 40 years — this implies the additional hours of work per person did not result from any cause necessary from the standpoint of social needs, but despite growing social needs.
3. total employment has increased faster than productive employment in the past 40 years — this implies the employment of labor has become less efficient over time,despite increased addition of labor saving techniques to production. It also suggests growth has been in those part of the economy where productivity is impossible to measure.
4. total output has increased faster than total wages in the past 40 years — this implies output has increased most rapidly in precisely those commodities that do not enter into the consumption of the working class.

Basically, these four general statements come down to one thing with regards to the great mass of society: In the past 40 years, people have had to work more hours, and more of them have been forced to work, even as they have become poorer. We should, in other words, be able to demonstrate beyond question that labor no longer adds any value to the economy, and the increase in output, in hours of work, and in additional jobs, does not increase the living standards of the great mass of society. The more work performed, the greater the increase in poverty.

The “paradox of capitalist price” is the paradox of more work for less real income. The paradox suggests only those measures which reduce the size of government can increase the living standards of the mass of working people. Of course, because, this argument is counter-intuitive — since, theory is only necessary when things are not as commonsense suggests they should be — making this argument requires it be buttressed with considerable empirical support from the anti-statist community.

Moreover, Marx’s labor theory of value has an additional aspect which recommends it even over what I just stated. Since, in Marx’s labor theory of value, socially necessary labor time is the material barrier to the realization of a classless, stateless society — which has been the avowed aim of communists for nearly two hundred years — his theory is also the concrete measure of the extent to which the productive capacity of society has developed to make this aim a realistic possibility. Contained in the labor theory of value is also the material measure of the possibility of society to immediately achieve a stateless and classless society on the basis of the principle of “each according to his need.”

I think every anarchist, libertarian and Marxist should understand Marx’s transformation of surplus value into profits and the paradox of capitalist prices, because in it is the entire argument against the existing state, and all the ugly mess bound up with it.

Marx (L) and Bakunin

I had a conversation with Tim (@timthesocialist) last night which was really interesting. I have not debated a Marxist about Marx in some time. I am really trying to understand the Marxist argument on the state — at least the Leninist wing of Marxism. As a Marxist by history this should be easy for me, but surprisingly it is not. I am looking for some distinction between anarchism and Marxism on the state — but it is quite difficult to find one.

Both anarchists and Marxists insist Marx’s theory involves something called the “worker’s state”, that replaces the present state. They both insist on this despite the lack of any reference to such an abomination in Marx’s own writings. Marx does indeed insist that had there been a successful revolution during his lifetime, the result would have been a “revolutionary dictatorship”. But, there are many curious features of his argument.

First, his example of this “dictatorship” was the Paris Commune. The commune, however, was clearly an association in his argument, not a state in any formal sense. Moreover, it was managed by anarchists, not Marxists. While Marxists and anarchists both agree on the significance of the Commune, they each seem to argue this was not Marx’s idea of dictatorship.

Of course, because both sides in this ongoing fratricidal conflict are as dishonest as can be, they do not make this argument directly — since that would be patently against his own explicit statements on the subject. Instead they each redefine and twist the concept, not the Commune itself, to suit their ideological prejudices. And, they both agree on this subtle redefinition of the term “dictatorship”, so that, for both, it becomes a “state”, not an association of the members of society. In other words, in a rather perverse fashion, distorting Marx’s own views is what anarchism and leninism have in common. They each have made quite a cottage industry of this deliberate distortion. Each for their own reasons have insisted Marx argued for some new form of state to replace the existing state.

This is, in fact, a baseless lie and indefensible mischaracterization of Marx’s argument on the “dictatorship of the proletariat”. The coincidence of this common distortion among both anarchists and Marxists is in my opinion evidence of their common sectarian motives. Despite lies and gross distortions of both leninists and anarchists, Marx never pointed to any other form than the Commune as an example of his idea of the “Dictatorship of the Proletariat” — and both sides know this to be true. And, since the Commune was created and managed by anarchists, what leg do either variants of communism have to stand on?

Second, Marx stated this Commune-form had two significant features: a. it was not political, and b. it abolished the working class as a class. How could this so-called “working class state” be a working class state in Marx’s view if, as he argued, there were no working class? And, how could this be a political form if it was founded on association?

The only argument either anarchists or leninists have in this regard is that the Commune-form would not be based on voluntary association. So, what do they offer as their evidence, based on the experience of the Commune? Nothing, of course — they just ignore the Commune.

Bakunin, who puts forth the basic argument of BOTH anarchists and leninists, argued that Marx’s insistence on the non-state nature of the Commune-form was impractical. Everyone could not manage the affairs of the commune together, he countered. Since everyone could not manage the Commune-form together, day to day management would require the know how of representatives and technocrats who would evolve into a political class. This political class would, over time, make itself felt as exploiters of labor in its own right.

The anarchists state this proves the Commune-form of association is unworkable; the leninists state this proves the Commune-form of association must be guided by a vanguard party. Both accept Bakunin’s argument that association is unworkable under the Commune-form, and, each offer their own alternative to association and the Commune-form. Anarchists offer “revolution from below”; while leninists offer “revolution from above”, i.e., the party-state.

The leninist argument for the party-state is pretty simple: the capitalist mode of production creates a merely commercial consciousness among the working class. This commercial, or trade union consciousness understands its relation to capital as a struggle over wages, working conditions, etc. To acquire a socialist consciousness, however, the working class has to be taught the scientific reasoning of the middle (bourgeois) class.

In his work, “What is to be Done”, Lenin makes this argument by employing the writings of Kautsky. Kautsky makes the argument grasping the laws of capitalist development is a science, and science is the purview of the bourgeoisie. Science, he alleges, is not a natural product of working class life. Hence, this science of society has to be brought to the working class from outside.

Mind you, Kaustky makes this idiotic argument even though a worker — Josef Dietzgen — was cited by both Marx and Engels as having independently discovered historical materialism.

Nevertheless, this idiotic argument was the basis of Lenin’s Iskra-model of organization: a focus on spreading the science of socialism among the working class and avoiding simply becoming caught up in the “commercial” contest between capital and wage labor.

Since scientific knowledge of the laws of motion of society is necessary for successful creation of communist society, Lenin argued, a party composed exclusively of theoretically developed cadre is essential to the entire process — both before and after the social revolution.

If I am wrong on any of this, Leninists feel free to correct me — just try to prove me wrong, please.

“What is to be Done” was the bible, chapter and verse of Marxism-Leninism in the old days. Everybody employed the Iskra-model of building an organization around a newspaper of one sort or another. The Iskra-model, however, is founded on the proposition — Bakunin’s no less — that the working class could not manage its own affairs. Running a modern society was too technically difficult and would need some mass of technocrats who would come to dominate the process. The leninists, via Kautsky, incorporate this dumb argument into their own on behalf of a small vanguard to “lead” the working class

Anarchists, on the other hand, never solved the contradiction at the heart of this ideological nonsense. In that sense, perhaps, they did not run into their own Stalinist abomination — instead they just endlessly loop around it. The anarchists argument requires the state be abolished all at once, and by a simultaneous uprising of the entire working class together. In no case is there to be any intermediate stage between capitalism and a classless society. It is absolutely necessary this be done all at once and together in order to avoid any possible rise of a technocrat-political class.

Somehow, in all of this nonsense, Marx’s own view gets labeled “statist” by the anarchists, and “anarchistic” by the leninists. Which is to say, the Commune-form, created by anarchists, gets rejected by both sides in their meaningless internecine warfare. And, paradoxically, both embrace the actual Commune, in proportional measure to their rejection of it as a model for a new society.

Both have to embrace it because 1. anarchists created it, and 2. Marx gave it the kiss of legitimacy. But, in practice, both have to reject it, because it renders all their dumb theories moot.

In Paris at the beginning of the Commune, capitalist production was of asmaller scale, more scattered, and far less developed than at present. The general cultural and educational level of society was far lower, than even the least developed nations today. Yet, despite these obstacles, a crude, mostly uneducated population, bound by impossible circumstances, managed to teach the meaning and power of association to the world for sixty short days.

Frankly, I think both anarchists and leninists are simpletons, who have yet to grasp what an illiterate population did 140 years ago. Nobody needs your fucking theories or your silly blueprints and schemes — you and all your stupid arguments are past tense. Marx’s argument was, from the first, even before he worked out his theory of capitalism, that the social revolution was entirely empirical.

The working class did not need theories or schemes — not even his.

In my previous post, I stated:

In reality, there was nothing in Bohm-Bawerk’s argument to be disproved. Bohm-Bawerk had indeed cited the essential contradiction at the core of capitalism. His problem, however, was to imagine the contradiction to be a defect of Marx’s theory, and not a fatal flaw laying at the heart of the capitalist mode of production itself.”

Bohm-Bawerk had inadvertently confirmed the rather grim future arrived at by Marx’s theory: Capitalism would kill the so-called free market, and in so doing, would destroy itself. It was, as Marx argued, creating its own gravediggers, a mass of directly social laborers who did not need it, and would see it as an impediment to their very survival, owing to obstacles it put in the way of its own operation.

By the 1970s, economists finally were forced to acknowledge there was in fact no inconsistency in Marx’s argument. Marx had, just as Bohm-Bawerk accused him, arrived at a theoretical description for why prices, although resting on the socially necessary labor time required to produce commodities, nevertheless appeared to reflect the prices of production of these commodities and not their labor times. It was not, as Werner Sombart feared, that from Marx’s labor theory of value “emerges a ‘quite ordinary’ theory of cost of production”, but precisely that Marx’s theory predicted from the first that the value of commodities must appear in the form of prices of production.

Moreover, Marx had demonstrated his proof almost in real time, so to speak, in front of his audience in a painstakingly detailed series of volumes — subject to the critical purview of his opponents. He had, as it were, made the elephant in the room — socially necessary labor time — disappear before the disbelieving eyes of his skeptical audience. It was a performance so dramatic and unprecedented, it took decades for the skeptics even to figure out what they had just witnessed with their own eyes.

The acknowledgement of Marx’s triumph took the form of a paper by Paul A. Samuelson, and was couched in the form of the complaint echoing that leveled against Marx by Sombart, as previously quoted by Bohm-Bawerk :

“…if I have in the end to explain the profits by the cost of production, wherefore the whole cumbrous apparatus of the theories of value and surplus value?”

Taking a cue from Sombart, Samuelson, in a paper titled “Understanding the Marxian Notion of Exploitation: A summary of the So-Called Transformation Problem Between Marxian Values and Competitive Prices”, introduced his so-called erasure method arguing,

It is well understood that Karl Marx’s model in Volume I of Capital (in which the “values” of goods are proportional — albeit not equal — to the labor embodied directly and indirectly in the goods) differs systematically from Marx’s model in Volume III of Capital, in which actual competitive “prices” are relatively lowest for those goods of highest direct-labor intensity and highest for those goods of low labor intensity (or, in Marxian terminology, for those with highest “organic composition of capital”). Critics of Marxian economics have tended to regard the Volume III model as a return to conventional economic theory, and a belated, less-than-frank admission that the novel analysis of Volume I — the calculation of “equal rates of surplus value” and of “values” — was all an unnecessary and sterile muddle.’

Samuelson gave a simple straightforward explanation of his “erasure method”:

I should perhaps explain in the beginning why the words “so-called transformation problem” appear in the title. As the present survey shows, better descriptive words than “the transformation problem” would be provided by “the problem of comparing and contrasting the mutually-exclusive alternatives of `values’ and `prices’.” For when you cut through the maze of algebra and come to understand what is going on, you discover that the “transformation algorithm” is precisely of the following form: “Contemplate two alternative and discordant systems. Write down one. Now transform by taking an eraser and rubbing it out. Then fill in the other one. Voila!

For all his genius, Samuelson argued, Marx had produced a theory which offered no greater insight into the social process of production than was already present in the form of mainstream economics. It could, for this reason, be entirely ignored.

Ignored also, however, would be the entire point of Marx’s “unnecessary and sterile” detour: namely, to demonstrate in comprehensive and theoretically ironclad fashion why the capitalism mode of production is doomed.

This only deepens the mystery of David Bieri’s interest in a theory routinely dismissed by economists as, at best, a vestigial remnant of classical political-economy. Why would this former bureaucrat of the Bank for International Settlements still be reviewing an obscure technical problem of a long dead theory?

The Wikipedia describes the bank this way:

The Bank for International Settlements (BIS) is an intergovernmental organization of central banks which “fosters international monetary and financial cooperation and serves as a bank for central banks.” It is not accountable to any national government. The BIS carries out its work through subcommittees, the secretariats it hosts, and through its annual General Meeting of all members. It also provides banking services, but only to central banks, or to international organizations like itself. Based in Basel, Switzerland, the BIS was established by the Hague agreements of 1930.

Note the statement: The BIS “…is not accountable to any national government…”

The Wikipedia adds:

As an organization of central banks, the BIS seeks to make monetary policy more predictable and transparent among its 58 member central banks. While monetary policy is determined by each sovereign nation, it is subject to central and private banking scrutiny and potentially to speculation that affects foreign exchange rates and especially the fate of export economies. Failures to keep monetary policy in line with reality and make monetary reforms in time, preferably as a simultaneous policy among all 58 member banks and also involving the International Monetary Fund, have historically led to losses in the billions as banks try to maintain a policy using open market methods that have proven to be unrealistic. Central banks do not unilaterally “set” rates, rather they set goals and intervene using their massive financial resources and regulatory powers to achieve monetary targets they set. One reason to coordinate policy closely is to ensure that this does not become too expensive and that opportunities for private arbitrage exploiting shifts in policy or difference in policy, are rare and quickly removed.

Note, again, the curious sentence: “As an organization of central banks, the BIS seeks to make monetary policy more predictable and transparent among its 58 member central banks.”

This seems to imply member central bankers are routinely communicating the monetary policy of their sovereign nation states to non-nationals, despite the obvious national security implications of such communications. While Federal Reserve policy is so sensitive and, by testimony of all concerned, necessarily shrouded in secrecy that Ron Paul was excoriated for demanding a mere audit of the Federal Reserve operations — this, we are told, is necessary to insulate Fed operations from political pressure — the Fed is telling other central bankers the graphic details of the monetary policy of the United States.

So, other central bankers know more about what the Fed is up to than the American public? Is this right? Although the BIS is not answerable to any sovereign authority, this is not the least true for the monetary policy of sovereign nations. The monetary policies of these sovereign nations are routinely being discussed by a committee of 58 central bankers.

At this point, you probably are thinking I am going to run off on some conspiracy theory tangent:

“Jews are running the global system of states through their banks.”

or worse,

“The eye on the back of the dollar bill is emitting tracking information on your location to the NSA at this very moment.”

Perish the thought, I have no interest in such theories. Democracy is obviously a permanent and ongoing conspiracy of society against itself — who needs a theory to explain that? Besides, facts are far more convincing than any silly theory.

I don’t know, but the above quotes seems to me to say the central bankers and their private counterparts have been helping in the management of the world economy for decades. And, their errors have caused untold losses to the global economy. Like, for instance, the most recent financial meltdown? Inquiring minds want to know.

The Wikipedia goes on to state:

Two aspects of monetary policy have proven to be particularly sensitive, and the BIS therefore has two specific goals: to regulate capital adequacy and make reserve requirements transparent.

It seems the BIS has been doing much more than communicating monetary policy between member banks. It has been deciding banking regulations of the various sovereign nations, and deciding what sectors of the various national economies qualify for what loans. For instance, this:

Historically, the BIS did set some standards which favoured lending money to private landowners (at about 5 to 1) and for-profit corporations (at about 2 to 1) over loans to individuals. These distinctions reflecting classical economics were superseded by policies relying on undifferentiated market values – more in line with neoclassical economics.

The Wikipedia notes, the bank was almost liquidated owing to its history of collusion with, and facilitation of, Nazi looting of conquered nations:

The BIS was formed in 1930. The main actors in its establishment were the then-Governor of The Bank of England, Montagu Norman, and his German counterpart Hjalmar Schacht, later Adolf Hitler’s finance minister. The Bank was originally intended to facilitate reparation payments imposed on Germany by the Treaty of Versailles after the First World War. The need for the bank was suggested in 1929 by the Young Committee, and was agreed to in August of that year at a conference at the Hague. A charter for the bank was drafted at the International Bankers Conference at Baden Baden in November. The charter was adopted at a second Hague Conference on January 20, 1930.

During the period 1933–45, the board of directors of the BIS included Walter Funk, a prominent Nazi official, and Emil Puhl, who were both convicted at the Nuremberg trials after World War II, as well as Herman Schmitz the director of IG Farben and Baron von Schroeder, the owner of the J.H.Stein Bank, the bank that held the deposits of the Gestapo. There were allegations that the BIS had helped the Germans loot assets from occupied countries during World War II.

According to the Wikipedia, the bank was so notorious in its complicity with the Nazi regime, Roosevelt tried to kill it. But after he died, Truman reversed that decision. So, we have an organization created by an agreement between future members of the Nazi Party and the Bank of England, known to have an unsavory past, managing the global economy, and deciding who gets what credit in allegedly sovereign nations.

This mystery of the BIS interest in Marx’s theory is getting more and more intriguing. Why is this Nazi-British hangover, sniffing around Marx’s corpse?

Here is a possible clue on why the BIS is interested in Marx: a paper delivered by Tiago Lopes, to the 2011 conference of the International Initiative for Promoting Political Economy titled: “The Historical Phases of the Debate on the Transformation of Values into Production Prices”.

In the paper, Lopes argues Marx’s theory retains some validity among economists because,

“…due to the changes in the definition of the problem, in the character of the critique and in the subject under study, there is scientific progress in the debate. In this context, it is possible to comprehend that, even on an unorganized framework, the debate on the transformation problem is moving to the analysis of the value form and to the theory of possible economic planning within the capitalist society.”

What Lopes is suggesting here is quite interesting: there is renewed interest in Marx’s theory because it is being adapted to assist in the management of fascist economies.

Bohm-Bawerk's "Marx and the Close of His System"

In the previous blog post, I argued that in each of the three great capitalist catastrophes of the 19th and 20th Centuries — the Long Depression, the Great Depression and the Great Stagflation — economists scurried to bone up on Marx in an effort to understand practical problems of state economic policy confronting them at the time.

Naturally, the connection between these catastrophes and interest in Marx intrigued me, since this guy Bieri is now interested as well. If Bieri were just another Marxian economist I could understand his interest but his connection to the BIS and Bankers Trust, London intrigued me. Bankers Trust, one of the many institutions with which Bieri has been associated, is not exactly your typical local community credit union. It was up to its neck in the dirty dealings that led to financial crisis, and has long been implicated with equally shady dealings in the market in general. Here is what Wikipedia has to say about it:

“In 1995, litigation by two major corporate clients against Bankers Trust shed light on the market for over-the-counter derivatives. Bankers Trust employees were found to have repeatedly provided customers with incorrect valuations of their derivative exposures. The head of the US Commodity Futures Trading Commission (CFTC) during this time was later interviewed by Frontline in October 2009: “The only way the CFTC found out about the Bankers Trust fraud was because Procter & Gamble, and others, filed suit. There was no record keeping requirement imposed on participants in the market. There was no reporting. We had no information.” -Brooksley Born, US CFTC Chair, 1996-’99.

Several Bankers Trust brokers were caught on tape remarking that their client [Gibson Greetings and P&G, respectively] would not be able to understand what they were doing in reference to derivatives contracts sold in 1993. As part of their legal case against Bankers Trust, Procter & Gamble (P&G) “discovered secret telephone recordings between brokers at Bankers Trust, where ‘one employee described the business as ‘a wet dream,’ … another Bankers Trust employee said, ‘…we set ‘em up.”

Perhaps I am just being a tad paranoid, but when a guy with these kinds of connections starts sniffing around dusty old volumes of Capital just before the outbreak of the financial crisis of 2008, I begin to wonder what’s up.

But, I’m getting ahead of myself, am I not? I have not yet even explained what all the fuss is about. This tale begins with a little known simpleton scribbler, whose name is probably unfamiliar to anyone outside of the field of economics: Eugen von Bohm-Bawerk.

Bohm-Bawerk is usually credited as the first writer to seriously question the relation between value and price within Marx’s three volume Capital. In a critical review of Capital, Volume 3, titled “Marx and the Close of His System”, Bohm-Bawerk stated:

“I cannot help myself; I see here no explanation and reconciliation of a contradiction, but the bare contradiction itself. Marx’s third volume contradicts the first. The theory of the average rate of profit and of the prices of production cannot be reconciled with the theory of value.”

As Bohm-Bawerk notes, he was not alone in coming to this conclusion:

Loria, in his lively and picturesque style, states that he feels himself forced to the “harsh but just judgment” that Marx “instead of a solution has presented a mystification.” He sees in the publication of the third volume ” the Russian campaign” of the Marxian system, its “complete theoretic bankruptcy,” a “scientific suicide,” the “most explicit surrender of his own teaching” (I’abdicazione piu esplicita alla dottrina stessa), and the “full and complete adherence to the most orthodox doctrine of the hated economists.”

And even a man who is so close to the Marxian system as Werner Sombart, says that a “general head-shaking” best represents the probable effect produced on most readers by the third volume. “Most of them,” he says, “will not be inclined to regard ‘the solution’ of ‘the puzzle of the average rate of profit’ as a ‘solution’; they will think that the knot has been cut, and by no means untied. For, when suddenly out of the depths emerges a ‘quite ordinary’ theory of cost of production, it means that the celebrated doctrine of value has come to grief. For, if I have in the end to explain the profits by the cost of production, wherefore the whole cumbrous apparatus of the theories of value and surplus value?”

Marx, Bohm-Bawerk declared, had deceived both his followers and the much wider audience of readers who were critical of his conclusion regarding the fate of the capitalist mode of production:

I do not think that any one who examines the matter impartially and soberly can remain long in doubt. In the first volume it was maintained, with the greatest emphasis, that all value is based on labour and labour alone, and that values of commodities were in proportion to the working time necessary for their production. These propositions were deduced and distilled directly and exclusively from the exchange relations of commodities in which they were “immanent.” We were directed “to start from the exchange value, and exchange relation of commodities, in order to come upon the track of the value concealed in them” (i. 23). The value was declared to be “the common factor which appears in the exchange relation of commodities” (i. 13). We were told, in the form and with the emphasis of a stringent syllogistic conclusion, allowing of no exception, that to set down two commodities as equivalents in exchange implied that “a common factor of the same magnitude” existed in both, to which each of the two “must be reducible” (i. 11). Apart, therefore, from temporary and occasional variations which “appear to be a breach of the law of the exchange of commodities” (i. 142), commodities which embody the same amount of labour must on principle, in the long run, exchange for each other. And now in the third volume we are told briefly and drily that what, according to the teaching of the first volume must be, is not and never can be; that individual commodities do and must exchange with each other in a proportion different from that of the labour incorporated in them, and this not accidentally and temporarily, but of necessity and permanently.

According to Bohm-Bawerk, Marx had established in the first volume of Capital that the law of value determined the prices of commodities, and had established in the third volume of the same work that this law was systematically violated by the capitalist mode of production for reasons which were both necessary and irreversible. How could these two things be reconciled? How had Marx not simply engaged in a roundabout and completely unnecessary theoretical detour to arrive at the argument of the economist?

Bohm-Bawerk argued he had already identified this “defect” in Marx’s theory:

“MANY years ago, long before the abovementioned prize essays on the compatibility of an equal average rate of profit with the Marxian law of value had appeared, the present writer had expressed his opinion on this subject in the following words: ‘Either products do actually exchange in the long run in proportion to the labour attaching to them–in which case an equalisation of the gains of capital is impossible; or there is an equalisation of the gains of capital–in which case it is impossible that products should continue to exchange in proportion to the labour attaching to them.’”

Time had proved his 1884 observation correct, for with the publication of Marx’s partially completed Volume 3 of Capital, precisely such an argument was made by Marx himself:

“Now we have the authoritative confirmation of the master himself. He has stated concisely and precisely that an equal rate of profit is only possible when the conditions of sale are such that some commodities are sold above their value, and others under their value, and thus are not exchanged in proportion to the labour embodied in them. And neither has he left us in doubt as to which of the two irreconcilable propositions conforms in his opinion to the actual facts. He teaches, with a clearness and directness which merit our gratitude, that it is the equalisation of the gains of capital. And he even goes so far as to say, with the same directness and clearness, that the several commodities do not actually exchange with each other in proportion to the labour they contain, but that they exchange in that varying proportion to the labour, which is rendered necessary by the equalisation of the gains of capital.”

With the publication of “Marx and the Close of His System”, Bohm-Bawerk gave birth to a virtual cottage industry of petty scribblers who have time and again sought to prove or disprove Bohm-Bawerk’s argument that Marx fundamentally contradicted himself as he moved from volume 1 to volume 3 of Capital. Bohm-Bawerk was absolutely correct to point out the contradiction between the statement, “that all value is based on labour and labour alone…” and, “individual commodities do and must exchange with each other in a proportion different from that of the labour incorporated in them.” But, he erred in thinking the defect was in Marx’s model, not in reality itself.

Bohm-Bawerk had committed a common enough error reminiscent of one cited by Marx in the Grundrisse, when he makes fun of imbeciles who fulminate against the contradictions inherent in political-economy:

“As if this rupture had made its way not from reality into the textbooks, but rather from the textbooks into reality, and as if the task were the dialectic balancing of concepts, and not the grasping of real relations!”

In reality, there was nothing in Bohm-Bawerk’s argument to be disproved. Bohm-Bawerk had indeed cited the essential contradiction at the core of capitalism. His problem, however, was to imagine the contradiction to be a defect of Marx’s theory, and not a fatal flaw laying at the heart of the capitalist mode of production itself.

Satisfied he had identified the contradiction, he walked away from this exercise denouncing Marx, and missing the entire point of the theoretical contradiction: capital is self-destructive. Bohm-Bawerk spends five chapters denouncing Marx as a charlatan for saying what he had always said — Capital, although resting on property, exchange and value, was systematically undermining these social forms.

Capitalism would kill the so-called free market, and kill itself along with them!

I’m reading, “The Transformation Problem: A Tale of Two Interpretations”, by David Bieri.

According to his profile,

David studied economics at the London School of Economics and international finance at the University of Durham (UK). In 2006, he started his Ph.D. studies in SPIA.

From 1999 until 2006, David held various senior positions at the Bank for International Settlements, most recently as the Adviser to the General Manager and CEO. From 2002 to 2004, he held the position of Head of Business Development in which capacity he was responsible for new financial products and services and reserve management advisory for central banks. From 2004 to 2005, David worked as an economist in the BIS’ Monetary & Economics Department.

Prior to joining the BIS, David worked as a high-yield analyst at Banker’s Trust in London and in fixed-income syndication at UBS in Zurich.

What caught my attention is the notable resume of this author, which is quite unlike that of the typical Marxian economist. High-yield analyst, central bank bureaucrat, mainstream economist? This is not the sort of person you will find at your local Occupy campsite.

Why, I wondered, is the Bank of International Settlement interested in an obscure technical problem of Marx’s theory? So, I decided to give the paper a read.

In the paper Bieri states:

Over 100 years since Marx’s value theory of labour was first published, the so-called “transformation problem” – deriving prices from values and providing a theory of profits as arising from surplus value – has inspired the imagination of economist of all shades of intellectual suasion. Although it is generally accepted that the transformation problem has be solved (at least mathematically) in a number of ways, there are few problems in economics that have excited similar interest over such a prolonged period. Indeed, (Skousen, 2007, p.93) refers to the transformation problem as the “most glaring single hole in the Marxian model”.

Bieri’s definition of the “transformation problem” here is significant: prices are derived from value, and profits are derived from surplus value. It is not clear in this definition that value and surplus value are distinct from one another. Value is socially necessary labor time, right? So what is surplus value? Is it surplus socially necessary labor time? If so, what does “surplus socially necessary labor time” mean? Does it mean labor time that is not socially necessary? If so, then it is not a form of value, because value is defined as socially necessary labor time in Marx’s theory, right? Labor time that is not socially necessary is wasted labor; which is to say all labor beyond the social average of labor times of production of a commodity is not value — it does not count as part of the value of the commodity.

If, for instance, the average labor time to produce a widget is 10 hours, but an individual producer requires 12 hours to produce her widgets, the additional 2 hour of labor does not appear as part of the value of the widget. On the other hand, the exchange value of the widgets are determined both by the social average of labor times required to produce them and by total social need for them. Even if all producers take only the average amount of labor time to produce theirs widgets, it is still possible the total quantity of widgets produced might exceed total social need. In this case, general overproduction of widgets will cause the exchange value of a widget to fall below its value.

In neither of the above case do the additional labor time figure in the exchange value of the widgets; moreover, in the first case additional labor time does not even figure in the actual value of the widget. Therefore, neither example is the source of surplus value — surplus socially necessary labor time — or profit in Marx’s theory.

Both appear to be a dead end in understanding the transformation of surplus value into profit.

However, the most paradoxical and counter-intuitive feature of Marx’s labor theory of value is that while neither of these two forms of excess labor time alone are the source of surplus value, both of them together are the essential condition for it. To produce surplus value, producers must spend more time on the production of the capitalist commodity, labor power, than is socially necessary to produce it, and they must produce more labor power than is required by any measure of existing social need.

This is paradoxical, first, because in capitalist commodity production, unlike simple commodity production, the additional labor time expended in the production of labor power does count as socially necessary, but the definition of socially necessary is now altered: what is socially necessary is now determined by the needs of the capitalist firm, and not society as a whole. Second, the overproduction of the commodity, labor power, is no longer a defect of the anarchy of unplanned social material activity, but the aim of this activity. Capital demands more labor time out of society than is required to satisfy the needs of society; and, it demands the production of more labor power than can be employed by society to satisfy those need.

Bieri notes:

“mainstream economists have by and large come to dismiss the transformation problem as a trivial technical exercise, [but] the issue has recently received renewed attention in Marxian economic theory.”

What I have argued above shows clearly why the transformation problem is far from a trivial technical exercise. Capitalist commodity production rests on premises that are altogether impossible under simple commodity production: chronic extension of labor time beyond what is socially necessary and chronic overproduction of the commodity labor power. Accounting for price equilibrium in this environment is not simply a theoretical problem for Marx’s theory, but first and foremost the overriding material obstacle to the capitalist mode of production itself. Behind it is the whole history of the world market and of the modern state.

The transformation of value into price and the transformation of surplus value into profit are two fundamentally different problems. Value presupposes exchange value (or prices); while surplus value does not presuppose profits. All the element of surplus value imply prices go to zero — this is the whole of the dilemma for mainstream economics.

Marx introduces a number of caveats to this process, but maintains it overall: prices must go to zero and the law of value will be abolished. He holds to this prediction by explicitly arguing that the profit rate must fall. This is why in Capital Volume 3 Marx follows the argument on equalization of profit, with the tendency toward a falling rate of profit.

The solution to the conversion of capitalist values into prices IS the declining rate of profit. How is this true — why is this not just the muttering of a somewhat mediocre blogger?

My first piece of evidence is circumstantial: the organization of Volume 3. Marx always builds on previously explicated concepts. My second piece of evidence is also circumstantial: the times economists address the transformation problem have been striking: Bieri identifies those periods as “the writings of von Bohm-Bawerk (1898), Winternitz (1948) and then by Samuelson (1971)”.

It is no surprise to me that each of these periods have been associated with changes in the economic policy of the state. The writings of von Bohm-Bawerk appears just prior to the establishment of the Federal Reserve and the switch from bimetallism to the gold standard. Winternitz appears just with the establishment of the Bretton Woods Agreement and US efforts to absorb its conquered foes in the aftermath of World War II, when the threat of a reemergence of the Great Depression loomed large. Samuelson’s discourse appears around the time of the collapse of Bretton Woods and the onset of the Great Stagflation.

These three examples lead me to conclude economists in each case were reviewing Marx’s work precisely to discover a solution to a pressing practical issue. I do not think these episodes are spurious or coincidental — when pressed by insolvable contradictions, Marx’s work becomes fashionable among economists.

Beyond these two pieces of circumstantial evidence, however, is the theory itself. Marx’s theory suggests the fate of prices rests on the necessary realization of the sum of surplus value into profit:

If this is not done, or done only in part, or only at prices below the prices of production, the labourer has been indeed exploited but his exploitation is not realised as such for the capitalist, and this can be bound up with a total or partial failure to realise the surplus-value pressed out of him, indeed even with the partial or total loss of the capital.

The implication of Marx’s argument here should not be overlooked or underestimated: capital expressly rests on chronic overproduction and chronic overwork. If surplus value cannot be realized as profit, what occurs is not, as in simple commodity production, just a collapse of prices. Instead, the entire system of production starts to unwind, and all the accumulated over-capacity of the previous period of expansion is suddenly exposed.

This is because of the unique nature of the capitalist commodity, labor power, itself. We are used to thinking about labor power as if it were an individual commodity. like shoes. This is true in a certain sense: we each possess our own labor power which we sell as a commodity. But, there is another sense of labor power that is not the least bit individual; it’s the productive capacity of the combined labor power of society — the total social capital of society that can be employed in ceaseless self-expansion.

This is how labor power looks from the standpoint of the fraternity of capital, who exploit the common labor power of society and share the surplus value wrung from it as their alloted share of the profits. Marx explains this in his discussion of equalization of the rate of profit: the sharing of the surplus wrung from this mass of labor power. If this common fund of surplus value is not realized as profit, the value of the entire labor power of society is threatened with collapse. The value of the overaccumulated social capital, of labor power in excess of society’s needs, is exposed to the law of value as if it were a simple commodity. And. like any other commodity so exposed, the exchange value of this mass of social labor power vanishes all at once and together.

Which is to say, prices collapse and capital grinds to a halt.

Each of the three great crises of the 19th and 20th Century: the Long Depression, the Great Depression and the Great Stagflation has sent economists scurrying to bone up on their Marx. And, each for the same reason: to discover some clue in his writings to their present predicament.

Although generally called ignorant and uncultured, the Lollards were simultaneously portrayed by the Church as sly foxes seducing members of society and then devouring them.

To understand the significance of the Occupy and Tea Party movements to anti-statism, look at their predecessor movement, the Lollards of the 14th and 15th Century England. This movement, which arose in England during the period leading to the Great Reformation, imposed its will on the state and the church in a fashion similar to the way our own Occupy and Tea party movements are making their power felt in politics today.

The Lollards were a dissident sect within Catholicism who argued there was an “invisible” church as well as a visible one. The visible church was the Catholic hierarchy, the invisible church, however, was composed of the entire body of believers. According to the Wikipedia, the movement attacked the authority of the church and its priests. They insisted lay persons could as well perform the religious functions as well as any priest.

According to the Wikipedia: “A Lollard blacksmith in Lincolnshire declared that he could make ‘as good a sacrament between “… ii yrons as the prest doth upon his auter (altar)’”

Lollard, Lollardi or Loller was the popular derogatory nickname given to those without an academic background, educated if at all only in English, who were reputed to follow the teachings of John Wycliffe in particular, and were certainly considerably energized by the translation of the Bible into the English language. By the mid-15th century the term lollard had come to mean a heretic in general. The alternative, “Wycliffite”, is generally accepted to be a more neutral term covering those of similar opinions, but having an academic background.

The term is said to have been coined by the Anglo-Irish cleric, Henry Crumpe, but its origin is uncertain. The Oxford English Dictionary has no doubt:

1. from “M[iddle] [Dutch] lollaerd, lit. ‘mumbler, mutterer’, f[rom] lollen to mutter, mumble”.
2. Three other possibilities for the derivation of Lollard have been suggested:
   1. the Latin name lolium (Common Vetch or tares, as a noxious weed mingled with the good Catholic wheat);
   2. after the Franciscan, Lolhard, who converted to the Waldensian way, becoming eminent as a preacher in Guienne. That part of France was then under English domination, influencing lay English piety. He was burned at Cologne in the 1370s;
   3. the Middle English loller (akin to modern, albeit semi-archaic, verb loll), “a lazy vagabond, an idler, a fraudulent beggar”; but this word is not recorded in this sense before 1582. It is recorded as an alternative spelling of Lollard.

The Dutch derivation is the most likely. It appears to be a derisive expression applied to various people perceived as heretics — first the Franciscans and later the followers of Wycliffe. Originally the word was a colloquial name for a group of the harmless buriers of the dead during the Black Death, in the 14th century, known as Alexians, Alexian Brothers or Cellites. These were known colloquially as lollebroeders (Middle Dutch), ‘mumbling brothers’, or “Lollhorden”, from Old German: lollon, meaning “to sing softly,” from their chants for the dead. The modern Dutch word is lullen, meaning to babble, to talk nonsense.

Church propaganda of the time portrayed the lollardy as unscrupulous foxes who were out to seduce the Churches vulnerable members:

Lollards were represented as foxes dressed as monks or priests preaching to a flock of geese on misericords. These representations alluded to the story of the preaching fox found in popular Medieval literature such as The History of Reynard the Fox and The Shifts of Raynardine (the son of Raynard). The fox lured the geese closer and closer with its words until it was able to snatch a victim to devour. The moral of this story was that foolish people are seduced by false doctrines.

Does this characterization sound familiar? How often have you heard someone from the Tea Party characterized as ignorant, or someone from the Occupy characterized as filthy, uneducated and lacking both useful work skills and a job? Lollardy was a pejorative term applied to the crude folk who imagined they could replace the elites with their own self-activity. Like the Occupy and the Tea Party, the lollards were “uneducated” common folk, who had the nerve to confront elites in the church and the state.

In an 1885 introduction to Fortescue’s “The Governance of England”, Charles Plummer wrote:

“Henry IV came to the throne as the representative of the ‘possessioned’ classes–to use a contemporary expression. The crude socialism of the Lollards, as the barons saw, and as the Churchmen were careful to point out, threatened the foundations not merely of the Church, but of all property.”

(Fucking anarchists and socialists screwing things up even in the Fifteenth Century.)

The Lollards movement is interesting in itself, but Plummer’s commentary is just as interesting. Plummer points out the anti-clerical and anti-property character of the lollards, but he also points out how the dissent expressed in the lollard movement effected the monarchy. The crown, as the general representative of property, was under duress for the whole of Henry IV’s reign, by the commons. Henry IV was dependent on Parliament to raise the taxes necessary to defend property interests, “against foreign and domestic enemies.” It was this dependence on the Parliament, that Plummer cites as one of the chief sources of trouble during Henry IV’s reign.

Says Plummer:

“But the causes of his weakness are plain enough. He was weak through his want of title, weak through the promises by which he had bound himself to those whose aid had enabled him to win the crown, weak most of all through his want of money.”

Henry IV’s own want of money was not merely his own, but a general monetary crisis perhaps traceable to political causes as Plummer argued:

“This scarcity of money was due partly to the general want of confidence in the stability of the government which succeded the brief enthusiasm in Henry’s favour, and which led people to hoard their gold and silver, so that not only was none forthcoming to meet the demands of the government, but capital, which ought to have been employed productively, was withdrawn from circulation, thus causing for the time a general diminution of the resources of the country.”

Fortesque argued, the crown needed its own independent source of income and standing that was not dependent on the periodic challenges of economic and political events. I think it is fair to state from Fortescue’s time  to today the over-riding impulse of the state has been to acquire an independent existence from society as representative of the interest of property within society.

And, I think it is no accident that Adam Smith’s masterwork of economics is not titled, “The Wealth of Individuals”, but “The Wealth of Nations”. The subject of contemplation for economists has never been “the economy” as we might imagine — it is the state and how to manage the economic activity of society on behalf of the state. Seeking its own independent existence as a form of property has always been the aim of the state and this has led it into conflict with society.

I think it is necessary to clear up the standing misinterpretation, widespread among anti-statists, that the state is either neutral, or at worst, a representative of some particular property interest in society. Fortescue’s argument demonstrates the state is, and has always been, a distinct interest in society — in particular a distinct property interest hostile to other property interests in society. It is a player in the economy, and by no means, just a corrupt refereee among economic players in the great game.

For Marxists who might object to this argument, I offer none other than Marx himself, who deliberately characterized the capitalist as only the personification of the relation between capital and wage labor. The popular caricature of the lone Koch Brother type capitalist lording it over his private empire of dependent wage slaves is not necessary to the relationship, and, moreover, is not even an accurate model of Marx’s theory but a crass vulgarization.

First, as Marx himself clearly stated, the worker is entirely capable of acting as her own capitalist, and has not the slightest need for the capitalist to accomplish this disgusting task. Second, he and Engels noted by the late 1800s the personification itself was being socialized through the emergence of  joint-stock companies and cartelization. Finally, Engels argued it was inevitable the state would become the national capitalist.

The ultimate exploiter of labor power is not Mr. Moneybags, but Barack Obama; which is to say, the modern executive branch of the state, whose lineage is directly traceable to the crown, not the much praised and condemned private entrepreneur. Properly understood, the state is not corrupted by property interests in society, it is both the general form of these property interests within society and an interest its own right.

This is the background to the Occupy and Tea Party movements, a general social discontent with this independent and unaccountable social power among all classes and strata within society. The fascist state is an unaccountable social power made all the more so by the modern money system, which frees the state from any dependence on taxes and debt, and, which has allowed it to become entirely “self-financing”, so to speak. With the capacity to print money into existence, the state achieved a degree of independence hitherto unequaled in the history of the state. It has acquired the monetary and practical means to commit the nation to war on any pretext whatsoever; it has expressed absolute hostility to every form of property that it cannot make subordinate to its own interest as property. Most of all, it has become the largest and most ruthless exploiter of labor power in the annals of history — actually converting other national capitals into mere means of its own self-expansion.

The absolutism of the fascist state, its totalitarian character, has brought the category of state to its most perfect expression: it is, at once, both the perfection of the state and the perfection of capitalist relations in one social body. Against this absolutist power is arrayed nothing more than a rebellion of the ignorant — those who are so uneducated and uncultured only they can see through the silly mystifications of fascist state ideologues.

Today and tomorrow Washington will publish a host of meaningless, but anxiously awaited, jobs numbers. Indications are these numbers will be unprecedentedly awful by any historical standard, but your expectations will be managed in such a way, that, by the end of the nightly news, you too will view them as at least weakly positive.

So, what does it mean to say the jobs numbers are positive? Are fewer jobs bad when you’re utterly dependent on wage labor? Are more jobs good, when you’re nothing more than a wage slave? Frankly, in my opinion the only good jobs figure is zero, folks: No one has a job; no one has a wage; we are all unemployed. When that makes sense, you’ve figured out the secret of capitalism.

Anti-statists wax eloquent about abolishing the state, but here is a hint: wage slavery is the state.

The number of Marxists who know the state is founded on wage slavery, yet weep when unemployment increases, is shocking. Marxists typically treat any rise in unemployment as if it is the end of the world. The argument made by some silly Marxists is that if we do not demand an end to unemployment we are banking on the resulting mass suffering as a trigger for a revolution.

I’m not buying into that argument. Honestly, to my mind this seems to place us in a bind: to prevent mass suffering from unemployment, we have to promote ever increasing wage slavery. We end up opposing wage slavery only to the extent it does not cause any actual suffering.

By contrast, libertarians of the Austrian type, who oppose any state effort to stabilize the economy, come off looking like cold-blooded savages. In the public mind, to oppose state countercyclical policy intervention, you have to be an Austrian knuckle-dragger, who views society as some Darwinistic nightmare.

Frankly, this predicament is not the least bit satisfying; I don’t want to have to choose between wage slavery and starvation. I’m just thinking out loud about this problem. It seems to me we are not limited to the two choices offered by capital and the state.

I think, we should be prepared to state that, as anti-statists, we would rather starve than live on handouts from the state — fuck the state, and fuck politicians who promise to ease our burden of wage slavery.

Of course, some will argue we are being heartless as @zappdos pointed out graphically on Twitter:

“I’m not sure about that one. Opens up to a myriad of “let them die” moments- they don’t tend to go over well.”

I agree that this position is subject to that interpretation, but @zappdos is only looking at one side of the equation: the dirty little secret of capital is they need unemployment insurance more than we do. Refusing any offer of state aid has a bigger impact on the business cycle than on us — which is why they prefer it.

As @PunkJohnnyCash argued

“Safety nets are to prevent uprising. It’s what @StatelessWonder calls the pressure relief valve.”

I think this is precisely correct. I think we have to call the Democrat/GOP bluff, and demand they end all state welfare of any type. This is a very hard argument to make — one that cannot be made effectively by Austrian knuckle-draggers, because — frankly — they hate working people.

Fundamentally, however, the Austrians are correct: state subsidies of poverty only make it possible for inefficient capitals to exist. Remove state subsidies and these capitals must go belly up, including those devoted to state militarism. The end of these subsidies will be deflationary in the extreme; which is why they were implemented in the first place. Deflation shifts income from profits to wages; inflationary state countercyclical economic policy, does the reverse — it is purposely designed to reduce the purchasing power of wages and increases profits.

We have been fooled for decades into believing state economic policy helps the poor, when, in reality, it only enriches the wealthy and increases poverty. The term “poverty program” is a slick marketing gimmick; ending state welfare programs is the surest way of ending poverty. The argument is extremely bizarre unless you actually understand how poverty programs work. But. think about what food stamps do to subsidize industrial agriculture, and you get some idea of how this program serves only to subsidize Archer Daniels Midland — without in the least ending the scourge of hunger.

I think we should not be embarrassed to call for the end to these programs, and to state they are designed to perpetuate poverty not end it. No doubt, we will get a lot of pushback from progressives, who will rightly point to the results of neoliberal policies since the Reagan administration. I would not disagree with them on this. Exporting industrial capacity has intensified the crisis of poverty. But, logic dictates the state only creates so-called poverty programs by diverting social resources. And, it alone has been responsible for the unequal distribution of social resources in the first place, though its neoloberal “free trade” policies.

The state has purposely created the mass poverty it now pretends to address with its neoliberal policies. Washington has encouraged the export of industrial capacity to the lowest wage nations in the world market, and propose to fix this by offering retraining here. On this basis, it is no surprise neoliberal policies only exacerbates poverty — how could it be otherwise. We should tell them: “Fuck you, sell your iPods to poverty-stricken Chinese peasants, bitches.”

We should not be embarrassed to confront progressives with the patent insanity of their worldview. They will paint anti-statists as heartless insensitive bastards who thrive on hunger and poverty — we need to call them out on this shit. Not once in the past forty years has progressive politics succeeded in reversing the decline in wages and living standards.

We should have no illusions that progressives will be convinced by these arguments. They are fascists ideologues who only see progress measured by the size of the fascist state and its programs.

As @postleftanarchy stated:

“It’s a difficult task. When I try to talk to statists about anarchy they immediately shut down. Either troll me or insult me.”

Another anarchist, @ChuckBaggett, made the progressive argument, when he asked me:

“Would you deny the starving the right to take what they need to eat? Does that sound familiar?”

No. I would not deny this — the problem is that Washington is denying it right now. They are taking supposedly scarce social resources and pouring them into wars of aggression all over the planet. Yet, progressives have been mute about this vile practice to preserve their alliance with the Democrats. The past 40 years has been rule by misdirection: Progressives want to keep our attention on the GOP, while the Democrats voted to export the industrial base of the country through NAFTA and other such “free trade” agreements. They played this role just as they kept our attention on Bush, while the Democrats voted for the Patriot Act, authorized the Bush wars, etc.

I think anti-statists need to give serious thought to opposing all forms of state aid for unemployment and poverty on the right grounds. We need to be able to make the argument not that working people are shiftless welfare recipients, but that the state is deliberately creating poverty. We need to show Washington is engaged in spreading poverty and these “poverty programs” are a fig leaf to cover official state policy.

I am not saying this is an easy argument to make, but it is a necessary one if anti-statism will gain any following. For too long the anti-state message has been abandoned to cranks, racists, and Koch-suckers — we need to change this. The hardest argument to make is why ending unemployment compensation entirely will force the end of all joblessness – if you can’t make that argument, you’re finished. If you cannot make that argument, you have no argument against the state. Unemployment under capitalism is as normal as sunrise — if the only way to deal with it is unemployment compensation and job retraining, it will not be politically possible to abolish the state.

That is a political fact all anti-statists should memorize. Anti-statism is a pipe-dream, if we have no solution to poverty and joblessness, but state programs. I just want to call on all anti-statists to craft their own argument for why the state itself creates poverty. All of our arguments will necessarily be different, but we should have one when confronting silly fucking progressives.

While I was outlining this post, one anarchist, @roastydog interjected that some agorist and mutualist type models focus on non-state support networks. He argued:

“mutual aid networks are the only effective way to tell the State to fuck off without dooming millions to starvation.”

While I do not agree the mutualism is the only alternative to the fascist state, at least mutualism and agorism have thought about how to make an argument for an alternative approach to poverty — something most anti-statists, like, for instance, Marxists, don’t even think about.

Don’t concede the argument to those statist assholes. Don’t let them intimidate you on moral grounds. Shove Obama’s “failures” in their pie holes and watch them choke on that shit. Poverty today would be impossible without the active participation of the state in maintaining and spreading it.