Home > economics, political-economy > Inflation, the negative rate of profit, and the Fascist State (Part two)

Inflation, the negative rate of profit, and the Fascist State (Part two)

I made the following points in the first part of this series:

  1. As regards the definition of inflation: The definition of inflation found in the Wikipedia entry is deficient because it assumes that the value of money is simply the reciprocal of the prices of commodities. This argument is a tautology which provides us with no real understanding of the problem of inflation. We are led to believe that inflation can be thought of as a rise in the price of commodities or, alternately, the depreciation of the “real value” of money. And, what is the “real value” of money? According to the economist, the “real value” of money is its purchasing power, i.e., the reciprocal of the price of the commodity. I will show why this definition of the depreciation of money is inadequate.
  2. Prices versus consumption: The Wikipedia definition is superficial, i.e., it is limited to generally rising prices. This only looks at the problem from the least important aspect of inflation, the increase in prices of commodities. But, if the amount of money in circulation is fixed, as it is more or less for each member of society, we can see also that inflation implies the reduced consumption of the mass of society — the impoverishment of society.
  3. Consumption versus production: Moreover, the Wikipedia definition of inflation only examines the effects of rising prices on consumption. Once we go beyond money as mere means of purchase and consider it as the money form of capital, i.e., once we leave the world of consumption and enter the world of production, we find that these rising prices act to reduce the profitability of productive economic activity. The depreciation of money acts to reduce the average rate of profit. It can be thought of as a negative rate of profit resulting from the depreciating purchasing power of money-capital over time.
  4. Money and demand: The Wikipedia’s explanation of the causes of inflation is nothing more than a tautology. First, the two causes identified as the cause of inflation: 1. an excess of the rate of growth of the money supply over the general rate of expansion of economic activity; and 2. the imbalance between the rate of expansion of demand for commodities over the rate of growth of the supply of commodities, resolves themselves into one and the same cause: the excess in the money-demand for commodities over the production of these commodities to satisfy this money-demand, or, alternately, the decline in the production of commodities relative to the money-demand for those commodities. Second, whenever we find that the rate of growth of the supply of commodities falling behind the rate of growth of the money-demand for these commodities, we cannot be speaking of imaginary demand — such as the human need created by a hungry belly — but “real” money-demand — i.e., a hungry belly with a wallet full of cash. The capitalist is not in the business of producing for people who imagine they are hungry, homeless, and naked, but only those who can prove they are hungry, homeless, and naked, by presenting him with sufficient cash to purchase food, shelter and clothing. On the other hand, money-demand is not limited to satisfying hungry bellies — it is still money-demand even if the demand to be satisfied is that of generals, national security agencies, or failed banksters. The authors of the entry discuss the imbalance of money-demand over the supply of commodities to satisfy this demand as if this is the entire story.
  5. Inflation as a policy: Only in the fourth paragraph does the Wikipedia entry hint at the most important characteristic of inflation: that it is not a naturally occurring economic malady — the result of actual processes arising from the production, exchange and consumption of commodities, but is a matter of Fascist State policy. Thus, only here do we find that it is the deliberate policy of the Fascist State to reduce the consumption power of society, its productive capacity, and to ensure a general and secular, i.e, chronic, inadequate supply of means of consumption in relation to the money-demand for those means of consumption — that the economic policy of the Fascist State is to maintain society in a condition of a wholly artificial scarcity.

The Fascist State as a mode of Capital’s own existence

Before we continue further we have to deal with the unstated assumption of the Wikipedia entry that Fascist State policy can be treated apart from and independent of the capitalist process of production and distribution. This notion, which is the standard thinking on all economic issues, and permeates the thinking not only of economists, but also of social revolutionaries and society generally, divides society into Civil Society, on the one hand, and the State, on the other. The fallacy of this sort of thinking is revealed whenever we investigate the causes of social maladies like inflation. We begin with the notion that inflation, poverty, hunger and scarcity arise solely from Civil Society and natural conditions, only to discover, under the capitalist mode of production, that, in addition to the invisible hand of the market, there is also the iron fist of the Fascist State — that the very real material conditions determining the capitalist mode of production have their ideal expression in State action.

Our picture of Capital is incomplete if we naively consider it a purely economic relation. For his part, Marx understood Capital as a social relation that permeated society — penetrating, reconstructing, reconstituting and revolutionizing the sum total of those relations, and, by these means, transforming society in its own image. It is clear from Moishe Postone’s work, “Time, Labor and Social Domination“, that this process, in Marx’s mind, was far more insidious — pernicious, subtle — than is generally understood even by Marxists — who never miss the opportunity to reduce his ideas to caricature — and most certainly by the outright opponents of his ideas, for whom most of his argument passes overhead cleanly and without effect.

In Marx’s theory, the State is not simply, nor even primarily, a sphere of politics; it is, itself, a mode of Capital’s own existence. In every stage of human development up to the present, the State has been inseparable from Civil Society, a mere part  of society’s greater division of labor in the social act of production. In capitalist society, however, the State appears indifferent to Civil Society — aloof from it — and, it is under these conditions that Civil Society begins to imagine its own independent existence apart from, and in conflict with, the State. Although Civil Society is no more than a collection of petty interests in continuous conflict with its own very real, flesh and blood, communal interest, because this communal interest is not the starting point of individual activity, this communal interest arises as an abstraction, in the conception of a General Interest — e.g., the so-called “National Interest” — standing over against the individual’s very real material flesh and blood interest. This abstraction finds its ideal expression in the form of a State that is aloof and indifferent to the many and varied individual interests of society, and, only represents them in the abstract.

In Marx’s theory, I believe (and I stand to be corrected if I am wrong), this conflict between Civil Society and the State arises from the mutual conflict of all of these petty interests with each other that arises from their increasingly universal and all-sided competition, and because their innumerable separate activities are not subjected to their common control and direction. To really represent the General Interest of society, the State must be increasingly indifferent to the many petty interests that constitute Civil Society; yet, at the same time, it must be continually reconstituted by Civil Society in proportion as ever newer petty interests emerge.

Hence, the bewilderment of the progressive activist, who finds, despite all of her fulminating and effort to overturn a political regime that favors the “Rich”, the greater her effort, the more surely politics is subjugated to the interests of the very biggest owners of Property. Hence, also, the Tea Party activist, who rebels against the increasing encroachment of the State on her “constitutional liberties”, that the more forcefully she attempts to throw off this oppressive interference in her private commercial activities, the more completely the State dominates them. Hence, finally, the bizarre counsel of the economist, who, trying to solve the riddle of stagnating economic growth in capitalist society, recommends precisely the policy that only deepens this stagnation and destroys the productive capacity of society: Inflation.

Fascist State policy and Civil Society

The problem posed for us by Marx’s theory of social revolution is not why the Fascist State embarks on a policy that maintains society in a wholly artificial condition of scarcity. We can consider and discard any number of competing theories regarding the motives of the Fascist State: that is seeks power for its own sake; or, that it represents the interests of the very wealthiest members of society against the rest of society; or, that it is a body of individuals committed to a collectivist vision of society; or, that it is an instrument of a small group of men and women engaged in a far reaching conspiracy against society bound up with their financial interests, and/or their industrial interests, and/or their political, religious, ethnic, national, regional etc. interests. And, we can also advance any number of anecdotes and statistics to sustain any one or all of these arguments.

Yet, all of these arguments come down to one of two explanations: The Fascist State maintains society in a condition of scarcity for its own purpose, or, for the purposes of individual interests arising from the ongoing conflicts within Civil Society that proceed from whatever source among the innumerable divisions within Civil Society. Thus, even if we accept all of these competing motives as partial explanations for the policies of the Fascist state, all that these competing explanations can tell us is that both for its own interest and the interests of the whole of Civil Society, the Fascist State is engaged in the systematic destruction of the productive capacity of society, and an ongoing degradation of its consumption power — that, for any the reasons advanced (yet, at the same time, for all of them together) the Fascist State is deliberately and systematically trying to maintain a general condition of scarcity for mankind. From this point of view, all of the reasons for the policies of the Fascist State are merely accidental and transitory, as first one and then another reason for these policies come to the fore, and assumes in our mind the position of THE general explanation for Fascist State policies, beside which all the other explanations are merely specific expressions.

Thus, in one instance, the Tea Party activist can assert that the economic policies of the Fascist State result from the collectivist impulse of the Obama administration, while the progressive activist counters that these same policies result from the subjugation of the Fascist State to the interests of the rich; still another faction of society asserts that these very same policies result from the Fascist State’s aggressive foreign policy, while a fourth blames these policies for an alleged loss of national sovereignty and the conspiracy of men and women committed to a New World Order. What none of these competing theories can explain is why any of these alleged causes must lead to the systematic destruction of the productive capacity of society, and the ongoing degradation of its consumption power. All of these explanations cannot tell why, as the productivity of labor increases, the actual productive capacity of society must fall, and society remain trapped in conditions of scarcity.

We are thus forced to assume what Marx’s theory assumes:

First, under the capitalist mode of production the productivity of labor advances under conditions that tend toward what Marx called the absolute development of the productive forces of society — of the capacity to produce an entire world of commodities in a dazzling array and seemingly endless variety. This implies not an excess of money-demand, but its opposite: circumstances under which the production of commodities constantly run into the limited conditions of consumption, which threaten social production with a continuous crisis and wholesale ruin — not just a depression, but an unprecedented Great Depression erupting not in just one country, but throughout the whole of the World Market and at once — which brings society itself to the brink of catastrophe and threatens the very existence of Civil Society itself. And, under which, as a result of this crisis and the Hobbesian environment of universal competition it provokes, the actual flesh and blood material relations of Civil Society escape its control completely and take the form of the Fascist State — absolutely indifferent to it, absolutely hostile to it, and standing over against it as a totalitarian power existing for, and answerable to, no other mandate than its own logic.

Second, insofar as the productive capacity of society advances toward its absolute development, and, therefore, insofar as the onrush of a catastrophic collapse of existing society itself looms on the horizon, and Civil Society experiences this onrush with the level of horror appropriate to it — since it implies, above all, the abolition of all of the existing conditions that are its own premise, and, thus, sounds the death knell for Civil Society itself , and for the State  — the  State detaches itself completely from Civil Society, and, in turn, seeks to destroy the very productive forces that threaten the whole of existing society.

To be continued

  1. April 11, 2011 at 1:01 am


  2. May 4, 2011 at 12:16 pm

    “We can consider and discard any number of competing theories regarding the motives of the Fascist State: that is seeks power for its own sake; or, that it represents the interests of the very wealthiest members of society against the rest of society”

    Was not Marx right in maintaining that the State represents the economically dominant class? This interests of the super rich is of course not to increase the consuming power of the workers. But it is neither to reduce it. The super rich want to increase their amount of money wealth. And if that means that financial investments are more interesting and material production less, then so be it.

    Keynes thought that moderate inflation is a good thing because it is an easier way to lower real wages than directly cutting them.

    Still, there is missing of a convincing explanation of inflation. Yes, the urgeois state probably wants inflation, but why do they manage to get it. The will is no explanation: what is the economic mechanism?

    • May 4, 2011 at 5:43 pm

      My personal conclusion is that Marx was right in everything he wrote. I take this as my starting point. So, yes. the State represents capital, but capital is composed of not one but two classes: the capitalists and the wage laborers. Both of these classes, insofar as they acts within their conditions of existence as classes, have a common interest in maximizing the conditions for purchase and sale of labor power, without which neither could exist as a class. The maximization of the rate of profit is the best condition not only for the expansion of the wealth of the capitalist class, but also the best conditions for the expansion of wage labor.

      Thus Civil Society as a whole met the Great Depression with the sort of horror entirely appropriate to it — the Great Depression implied certain conditions which made the the realization of surplus value impossible, and which, therefore, made wage labor impossible. Keynes genius was in proposing a cheat to get around this problem for a time.

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