Panitch on the lack of ambition and self-confidence of the Left

In 2011, Leo Panitch wrote a piece, The Left’s Crisis, examining the Left’s response to the present crisis. He noted the Left’s response could be broken into two types: “irresponsible” and “fundamentally misleading”. In the irresponsible group, he puts those who called on Washington to let the banks fail, which, he asserted, gave no thought to the consequences of such an event. In the fundamentally misleading group he put those who called for tighter regulation of banks, which he asserted are already the most regulated in the world market.

The Left’s “lack of ambition” in the crisis, says Panitch, was indicated by the fact that there were far more calls for salary limits on top mamagers of Wall Street investment firms, than calls for turning the banks into public utilities. This was true, Panitch notes, despite the fact that turning banks into publicly owned utilities is a long-standing communist measure dating back to the Communist Manifesto. The fact that even some bourgeois writers were calling for just such a measure while the Left was not shows its lack of ambition and self-confidence.

Panitch states, fundamental change can only happen through a class struggle that would involve a massive transformation of the state itself. Getting reforms like converting banks into utilities is not going to happen by bringing a bunch of lawyers into a room. Even something as mundane as better regulation cannot be won without a mobilization of the working class:

“[We] ought to be trying to educate people on how capitalist finance really works, why it doesn’t for them and why what we need instead is a publicly owned banking system that is part of a system of democratic economic planning, in which what’s invested and where it’s invested and how it’s invested is democratically decided.”

The banking nationalization that is now occurring in the wake of the financial crisis by the government all over the world only involved socializing financial losses, while leaving the structures that lead to these losses in place:

“…this really represented “not the nationalisation of the banks, but the privatisation of the Treasury as a new kind of fund manager.”

Panitch argues the most important reason to nationalize the banks is to cripple finance capital and change the balance of forces. Additionally, according to Panitch, the socialist argument for nationalizing the banks would be to put credit to work for socially useful ends. Despite the disastrous collapse of the Soviet Union, socialists can’t avoid the need for planning, says Panitch, and credit is the core of any planned alteration of industry. Controlling credit provides for democratic control of investment. However, Panitch notes, people are not motivated by democratic control of investment, which, even if it does not fall prey to the errors of the Soviet Union, will not deliver benefits for decades.

“People need to be mobilized by immediate demands, as they were by the demands for trade union rights, a reduced workweek, a public educational system a welfare state, etc”

The solution is to combine a long term vision of democratic investment with immediate benefits that sustain it and make it possible. A case for this might be made for a massive public housing program, universal public pensions, free public transit, etc. These efforts would be aimed at decommodifying basic needs as far as this is possible within capitalist society. People like these things, but you very quickly face the problem of where the money for such programs will come from. This question can be addressed by bringing credit under the control of the state.

The Left on defense

The Left, Panitch argues, has been very defensive in its thinking:

“We need to try to see this moment of crisis from the perspective of what openings it could create. The limitations of a purely defensive response to the crisis lie in not taking advantage of the opportunity that the crisis creates. Despite the ‘Another World Is Possible’ rhetoric, the left has been more oriented to attempting to hold on to things than to taking things in a new direction.”

This is the defect of the view that says you can change things without taking power: we are left preventing the state from doing things, but do not advance our goals. You don’t engage on the terrain of the state or transform the structures of the state. While Panitch understand the current streak of anti-statism, he argues, “we need to go beyond protest, or we will be trapped forever in organizing the next demo.”

The state will transfer the crisis down to regional and local levels, and hopes thereby to impose limits on the response to the crisis. We must learn how to link up local struggles and turn them into a struggle for state power, otherwise we will be trapped by local limits.

I don’t think Panitch’s argument can just be dismissed. Unlike a lot of the shit I read, this guy appears to have decades of practical work and an encyclopedic knowledge of organizing history covering many countries. I was just floored by the breadth and depth of his argument here and here for instance. Moreover, there are two things about his argument that I find fascinating. First, he admits his ideas have gone nowhere practically — this admission is very fucking refreshing on the Left. Second, his argument that the Left has no ambition or self-confidence is frighteningly on fucking target.

On the basis of just those two statements alone, this guy deserves everyone’s attention, I think. He has given a lot of thought to the problem and invested a lot of effort figuring out a solution and clearly he cannot be accused of thinking on the margins. Moreover, I don’t think it is enough to say his conceptions of change are fundamentally flawed, since they are evidently no more flawed than any other ideas among, for instance, parties like SYRIZA, etc.

SYRIZA is rushing headlong into a crisis right now for ideas not much different than the ones for which Panitch argues. The only difference here is that the crisis for SYRIZA results from actually winning political power, not by a failure to win it. But failing to win political power and winning it makes all the difference in the world no matter how flawed our conceptions.

See, for instance, the Paris Commune, when the communards were faced with the necessity of breaking the state power, not reforming it. There is no hint of this necessity to be found in the Communist Manifesto — it was imposed on the Communards by the reality of implementing their program. All the measures indicated in the Communist Manifesto program had to take the back seat to the necessity, first of all, to break the state. When Panitch refers to this program — “Marx made – among his list of ten reforms – for the centralization of credit in the hands of the state” — he completely overlooks that these demands were superseded by breaking the state, not simply “transforming the structures of the state”.

Is breaking the state as valid as public banking?

Was this lesson from the Commune valid? By the time of the Great War there were clearly two opinions on this. Some Marxists held the state had to be broken, others argued the existing state did not have to be broken. The Bolsheviks, who argued for the former, upon taking power changed their view and actually proposed to employ the existing state to build socialism. By the end of World War II, this debate over the state was further distorted into whether there had to be a violent revolution or not. So the question hinged, it seems, on whether this state would be “seized” or simply won by “peaceful means” in an election.

In Panitch’s opinion, the distinction is now between “change the world without taking power” and “engaging on the terrain of the state”. But, there is a fallacy in Panitch’s argument regarding the need to engage on the terrain of the state: simply stated society at large is the terrain of the state. By supposedly engaging on the terrain of the state, Panitch clearly means engaging within the machinery of state itself, as distinct from society. Which is to say, Panitch is suggesting we attempt to transform society by means of the state machinery. This is pretty much the gist of what he means when he says,  “a system of democratic economic planning, in which what’s invested and where it’s invested and how it’s invested is democratically decided.”

However, if these decisions are not already being democratically decided, they must be despotically imposed by the state. The leads us to another problem with Panitch’s argument: if the decisions of the democratic state are being despotically imposed on society despite democracy, it seems to me this would be easier to explain this to people than it would to explain, “how capitalist finance really works, why it doesn’t for them and why what we need instead is a publicly owned banking system that is part of a system of democratic economic planning.” It should, in other words, be easier to explain why democracy itself is a farce and must be replaced by an association of producers. This is particularly true since it is widely felt that Washington is just not at all responsive to the control of voters.

It seems Panitch is ready to accept the then innovative ideas of mid-19th century communists when it comes to such standard present day bourgeois practices as a progressive income tax, credit socialization, land use regulation, free education, public roads and infrastructure, etc., but he is not willing to accept the addition of the lesson, hard won at the cost of the lives of many communards, that the state must be broken to this list. I am not sure why this is, and can find no reason for this except that it is the one item not accepted by the fascists. Almost every measure in the Communist Manifesto is standard practice by the fascist states in every country except the replacement of the state itself by association.

A further objection can be made to Panitch’s argument: As he states,

“But you do have to be a Marxist to understand that [reform] is not going to happen by bringing some lawyers into a room and signing a few documents. … fundamental change can only really happen through a massive class struggle, which would involve a massive transformation of the state itself.”

If even a simple reform recommended by bourgeois writers, and proposed by communists 150 years ago, like making banks public utilities, requires a massive class struggle involving a massive transformation of the state, why not simply aim at the outset to replace the state by association — thus ending the false distinction between changing the world without taking power and engaging on the terrain of the state. The only argument for not aiming at the outset to replace the state by association is that simple reforms like public banking is easier than wholesale reorganization of society. Panitch’s argument is that this is not true: even such a modest and self-evident reform of banks, recommended by a bourgeois writer, requires a massive class struggle.

Changing the world without taking power over others

I think Panitch definitely falls for a phony and entirely meaningless distinction between “changing the world without taking power” and “engaging on the terrain of the state”, i.e., within society itself. Both can be accomplished by changing the world without taking power over others, i.e., by replacing the state by association. If, as Panitch argues, even simple reforms require massive class struggle, the working class cannnot afford to dispense with its own organization. The aim of mobilization cannot be to turn this power over to the state, as was done in Egypt, but to become the new conditions of society.

In Tahrir Square all were equal and no one was able to dictate the views of others, this short-lived association, however, soon gave way to talk of constitutions and ministries. The association that had brought down the Mubarak regime was deemed unfit to manage its own affairs. Although for three decades no political party was able to do what the association did in 18 days, “commonsense” ruled this association too inept to manage society. In other words, “commonsense” decided that the working class should only serve as cannon fodder. The working class should be “mobilized” whenever some faction or another wishes to marginally change the existing state with some piecemeal reform and then rapidly demobilized once success has been secured.

I am not suggesting this is what Panitch is trying to do, but he has to see events like Egypt in this light as well as the danger hidden beneath SYRIZA’s growing popularity and likely victory. If upon winning the coming election, SYRIZA does not immediately begin replacing the state with association it must fail.

T.I.N.A.: There is no alternative to the fascist state?

Panitch’s essay led me to contemplate what he called the lack of ambition and self-confidence of the Left. People have completely accepted T.I.N.A. The Left is now incapable of articulating an alternative that does not go through the existing state. The healthy section of the Left now no longer even tries — it has given up entirely — while the unhealthy section is mired in opportunism.

I think this is a good thing.

Fascism has completely broken the Left down: appropriated its symbols and converted its highest ideals into election Newspeak. Fascism has made it impossible for the Left to formulate its argument in a political form by immediately expropriating every instance.

Just look how Tahrir Square turned into the FSA — T.I.N.A writ large.

Every time the Left looks for a political exit from this crisis it must fall into the lap of fascism — T.I.N.A. Fascism thrives on politics, since it is an entirely political mode of production — the production of surplus value in the form of the state. If the Left are having a problem articulating their aims in a political form is it not just possible “political aims” are the problem? It is not a problem of finding the correct political aim, but of realizing politics itself is a dead end.

For you mainstream Marxists out there, that means there is no longer any possibility of a so-called “minimum program” for the working class. Another way to put it: the first act of the Commune was to break the state. This is no longer possible without breaking capitalism entirely. When the state is the capitalist, the first cannot be separated from the second. Breaking the state was always the “minimum program” of communism — you just forgot this. Everything else proposed to be undertaken in the Communist Manifesto — which is still the only common program adopted by all communists  alike, irrespective of whether they call themselves Marxist or anarchist — depended on immediately breaking the state. It is the development of the capitalist mode of production itself that has altered this and made it impossible to do one without the other. So the task hasn’t changed in 150 years, the implications of breaking the state has: it must immediately lead to breaking capitalism itself.

So let’s assume there is a need for a so-called “minimum program” as proposed by mainstream Marxism. This means a set of measures communists propose must be accomplished by the working class upon assuming power. This is based on some assessment of the current situation and the difficulties the class will face once in power. This fucking minimum program itself rests on the assumption the working class will replace the state with its association. It is not as if replacing the state is a long term goal; it is the precondition of an assumption of power, the form this assumption takes. Before embarking on any sweeping changes to society, in other words, as Marx argued against Bakunin, “the whole thing begins with the self-government of the commune.”

I mean, how much clearer could Marx have been on this, Marxists? Did he mumble? So before you can even articulate a minimum program, you have to explain how the existing state must be replaced by association. In other words, you can’t articulate political aims but aims that are entirely anti-political. You begin with the notion that, in any case, the existing state will be leveled in its entirety and replaced by association — no fucking minimum wage, no fucking social security, no fucking EPA, no fucking defense department — only association. If you can’t get on-board with this — which is ONLY the precondition for a minimum program — stop calling yourself a Marxist, please. Call yourself a progressive, or better yet, a fucking fascist, which you are.

Do we need a state to care for the elderly?

Yes, the environment, the disabled, the elderly, the unemployed etc. have to be cared for — but it is the association that does this! The task is not left to a bunch of elite managers who move back and forth from Wall Street to federal agencies. The association of producers decides EVERYTHING. This is already a more audacious program than conceived in any party program produced by a Marxist party today. And I think I can say this without reservation: Marxist programs do not even come up to this minimum requirement for a minimum program.

The point is not how much of the social product is devoted to education of children, but who decides this. Is this decided by bureaucrats in the Department of Education or by an association of producers?

T.I.N.A. is not about where social resources go or how they are employed, it is about where these decisions are being made. Once the association of producers has taken command of the social resources, these resources no longer exist as forms of capital. They are transformed into mere use value — objects of utility for the mass of society and subordinated to their needs alone. Marxists and the Left in general focus on how the social product will be divided, when the real question is who is making this decision.

Folks, the capitalist class is trapped. It is utterly dependent on the state and has no options in this regard. It cannot go back to an earlier mode of accumulation, which is why as a class it is desperate and violent in the extreme. There is not one country today where the capitalist class can survive the replacement of the state by an association of producers. And, as Egypt proved, there is not one country today where the working class can “take power” without replacing the state with its association.

Marxists and the Left in general keep trying to avoid this brutal fact, by articulating a set of demands aimed at less than association. It will not work: as Tahrir Square shows, anything less than association will be co-opted by the fascist state.

CLUELESS: QE to Infinity, or How national currencies die

Based on what I have described of Bernanke’s policy failure so far, is it possible to predict anything about the future results of  an open ended purchase of financial assets under QE3? I think so, and I share why in this last part of this series.

CLUELESS: Bernanke’s desperate gambit

I stopped my examination of Bernanke’s approach to this crisis and the problem of deflation after looking at his 1991 paper and his speech in 2002. I now want to return to that series, examining two of his speeches this to discuss the problems confronting bourgeois monetary policy in the crisis that began in 2007-8.

CLUELESS: “Deflation is bad. M’kay?”

The world market had been shaken by a series of financial crises, and the economy of Japan had fallen into a persistent deflationary state, When Ben Bernanke gave his 2002 speech before the National Economists Club, “Deflation: Making Sure “It” Doesn’t Happen Here”. Bernanke was going to explain to his audience filled with some of the most important economists in the nation why, despite the empirical data to the contrary, the US was not going to end up like Japan.

CLUELESS: How Ben Bernanke is managing the demise of capitalism

So I am spending a week or so trying to understand Ben Bernanke’s approach to this crisis based on three sources from his works.

In this part, the source is an essay published in 1991: “The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison”. In this 1991 paper, Bernanke tries to explain the causes of the Great Depression employing the “quantity theory of money” fallacy. So we get a chance to see this argument in an historical perspective and compare it with a real time application of Marx’s argument on the causes of capitalist crisis as understood by Henryk Grossman in his work, The Law of Accumulation and Breakdown.

In the second part, the source is Bernanke’s 2002 speech before the National Economists Club: “Deflation: Making Sure “It” Doesn’t Happen Here”. In this 2002 speech, Bernanke is directly addressing the real time threat of deflation produced by the 2001 onset of the present depression. So we get to compare it with the argument made by Robert Kurz in his 1995 essay, “The Apotheosis of Money”.

In part three, the source will be Bernanke’s recent speech before the International Monetary Fund meeting in Tokyo, Japan earlier this month, “U.S. Monetary Policy and International Implications”, in which Bernanke looks back on several years of managing global capitalism through the period beginning with the financial crisis, and tries to explain his results.

To provide historical context for my examination, I am assuming Bernanke’s discussion generally coincides with the period beginning with capitalist breakdown in the 1930s until its final collapse (hopefully) in the not too distant future. We are, therefore, looking at the period of capitalism decline and collapse through the ideas of an academic. Which is to say we get the chance to see how deflation appears in the eyes of someone who sees capitalist relations of production, “in a purely economic way — i.e., from the bourgeois point of view, within the limitations of capitalist understanding, from the standpoint of capitalist production itself…”

This perspective is necessary, because the analysis Bernanke brings to this discussion exhibits all the signs of fundamental misapprehension of the way capitalism works — a quite astonishing conclusion given that he is tasked presently with managing the monetary policy of a global empire.

How Quantitative Easing really works: Occupy Wall Street Edition (2)

As a contribution to Occupy Wall Street’s efforts against debt, I am continuing my reading of William White’s “Ultra Easy Monetary Policy and the Law of Unintended Consequences” (PDF). I have covered sections A and B. In this last section I am looking at to section C of White’s paper and his conclusion.

Back to the Future

It is interesting how White sets all of his predictions about the consequences of the present monetary policies in the future tense as if he is speaking of events that have not, as yet, occurred. For instance, White argues,

“Researchers at the Bank for International Settlements have suggested that a much broader spectrum of credit driven “imbalances”, financial as well as real, could potentially lead to boom/bust processes that might threaten both price stability and financial stability. This BIS way of thinking about economic and financial crises, treating them as systemic breakdowns that could be triggered anywhere in an overstretched system, also has much in common with insights provided by interdisciplinary work on complex adaptive systems. This work indicates that such systems, built up as a result of cumulative processes, can have highly unpredictable dynamics and can demonstrate significant non linearities.”

It is as though White never got the memo about the catastrophic financial meltdown that happened in 2008. If his focus is on the “medium run” consequences of easy money that has been practiced since the 1980s, isn’t this crisis the “medium run” result of those policies? Why does White insist on redirecting our attention to an event in the future, when this crisis clearly is the event produced by his analysis.

Worthless money as a rational absurdity

INTRODUCTION

For a while now, I have been trying to come to grips with the neoclassical theory of money, which states anything can serve as money and that money doesn’t have to be a commodity. The theory is patently theoretically absurd, contradictory and internally inconsistent as John weeks explains in the paper I discuss in my post. Despite these defects, however, neoclassical money theory not only maintains its dominance in economics, its alternative, commodity money theory, is ridiculed and marginalized even among Marxist theorists.

While reading the John Weeks paper, it began to dawn on me why this is true. I had been spending my effort trying to argue for the superiority of commodity money theory, when I should have been trying to understand the circumstances under which neoclassical money theory made sense. Weeks, in his paper, explains two assumptions which are necessary for neoclassical money theory: 1. the economy has to produce only one composite commodity; and 2. the state must be able to control the money supply.

Weeks thinks both of these conditions make neoclassical money theory wrong, but now I believe he is wrong on this. In the capitalist mode of production, the only true commodity is labor power — the single composite commodity required by neoclassical theory. Moreover, contrary to Weeks’ assertion, the state can control the money supply, if we a speaking of classical commodity money. It need only declare commodity money is not money and replace this money in circulation with its own token, i.e., impose an inconvertible currency in place of gold. This was done in the 1930s in the US and Europe. The state can control the money supply, if by “control” that term includes also setting that supply to zero.

The result was a bit of an epiphany for me, since Weeks is describing how Washington directly manages the US economy as a single giant corporation, despite the economy appearing superficially as numerous separate capitals.

The article was rushed and is in need of serious editing, but I welcome criticism and challenges to this idea.

*****

I want to recommend everyone read John Weeks’ paper, “The theoretical and empirical credibility of commodity money“, because he presents a key to the analysis of neoclassical economic theory that unlocks its inner logic. I missed the juicy goodness of his argument in my first read because I have an aversion to mixing math with social criticism. However, in his math Weeks uncover why money is not a commodity-money in neoclassical theory, and why it cannot be a commodity-money.

Weeks tries to make sense of a troubling rejection by neoclassical economic theory to admit to the obvious internal consistency of Marx’s commodity-money theory:

Th[e] theoretical superiority of commodity-based monetary theory has had little practical impact because of a perceived empirical absurdity of the commodity money hypothesis.

I came to my understanding of fascist state issued fiat money based on one closely held idea that neoclassical economics is not irrational, capitalism is. Yes, capitalism is as irrational as it has been declared by Marxists to be, however no one but an idiot would buy into the neoclassical argument unless it made sense in the context of fascist state economic policy. Since capitalism itself is irrational, a rational person looks like an idiot when he buys into its propositions; on the other hand, accepting the irrationality of capitalist relations of production as the basis for formulating fascist state economic policy is rational.

Theories of the current crisis: Closing thoughts on the hyperinflationists

This is my final installment on the hyperinflationists section of theories of the current crisis for now. As I find in any good examination of a theory out there, I come away from this one with a better understanding of some of the problems of capitalism under conditions of absolute over-accumulation. The hyperinflationist argument forced me to confront several  problems from the standpoint of the law of value, including, world market prices versus existing prices; ex nihilo currency and price behavior; definitions of price deflation, inflation and hyperinflation; definitions of depressions and recessions; the purchasing power of ex nihilo currency; and the rivalry between the monetary policies of the various nations states in relation to the Fascist State.

One of my conclusions from this examination is that FOFOA, properly understood, should not be in the hyperinflationist camp. I have no idea why he is advocating for dollar hyperinflation, since he, more than any other writer in the hyperinflationist camp, realizes the relationship between the purchasing power of an ex nihilo currency and the circulation of commodities. In 2010, he wrote:

Gold bids for dollars. If gold stops bidding for dollars (low gold velocity), the price (in gold) of a dollar falls to zero. This is backwardation!

Fekete says backwardation is when “zero [gold] supply confronts infinite [dollar] demand.” I am saying it is when “infinite supply of dollars confronts zero demand from real, physical gold… in the necessary VOLUME.” So what’s the difference? Viewed this way, can anyone show me how we are not there right now? And I’m not talking about your local gold dealer bidding on your $1,200 with his gold coin. I’m talking about Giant hoards of unencumbered physical gold the dollar NEEDS bids from.

Don’t let the term “backwardation” throw you. It is one of those insider terms among commodity traders, which, for our purpose, can be safely ignored, since it adds nothing to FOFOA’s essential argument. What FOFOA is saying in this excerpt is that the purchasing power of an ex nihilo currency rests on the willingness of gold owners to accept it as means of payment in exchange for their commodities. Unfortunately, FOFOA limits his argument to gold and misses the significance of his insight. This is because, for reasons previously mentioned, he articulates the viewpoint of the petty capitalist, who, unable to operate independently, must of necessity hand his meager wealth over to Wall Street investment banksters if it is to operate as capital, or, failing this, accept the depreciation of its dollar purchasing power, or, convert it to a hoard of useless gold.

There is, however, no reason to limit FOFOA’s insight to gold. Having been displaced in circulation as money, gold is simply another commodity whose particular use value is that it serve as a store of value. It is excellent in this regard, but broccoli is excellent as a vegetable, while gold is not. The specific quality of gold is its limited use as mainly a store of value, and, in this regard, it has few substitutes, while broccoli has many substitutes. This, however, should not blind us to the fact that it is now an ordinary commodity like any other. The true significance of FOFOA’s insight is that the purchasing power of any ex nihilo currency is directly a function of the willingness of commodity owners to accept it in exchange for their commodities.

If commodity owners are unwilling to accept an ex nihilo currency in exchange for their commodity, or prefer another currency in exchange for their commodity over that particular currency, its purchasing power will quickly fall toward zero — hyperinflation. This is precisely what happened in the case of the Zimbabwe dollar, which was undermined not only by the profligacy of the state, but also, by the preference of commodity owners for dollars and euros as a result of this profligacy. As FOFOA knows, the dollar is not likely to suffer such a fate, since its purchasing power rests on the fact that it is accepted for any commodity on the world market, and, consequently, is “undervalued” against all other ex nihilo currencies. Even if the purchasing power of a single ex nihilo dollar falls, the purchasing power of the total sum of dollars in circulation is not affected — it is still “undervalued” in relation to all other ex nihilo currencies, and must be undervalued as long as the total quantity of all other currencies is greater than zero.

By the same token, FOFOA’s insight demonstrates why, despite the constant depreciation of a single ex nihilo dollar, the sum of existing prices within the world market must be higher than world market prices denominated in dollars. No matter the depreciation of a single ex nihilo dollar, the sum of world market prices must fall toward world market prices denominated in dollars. Thus, the monetary policies of other nations is determined by the monetary policies of the Fascist State. Any nation wishing to pursue a so-called loose monetary policy, as Zimbabwe did, must find its ex nihilo currency displaced by dollars as commodity owners demand dollars in place of the national currency. On the other hand, the “tightening” of monetary policy by other nations cannot save these national currencies, since such “tightening” only leads them to the same fate as gold itself — they are withdrawn from circulation in a deflation of prices.

The end result, in either case, is the demonetization of all ex nihilo currencies except the dollar, and the equalization of the sum of prices within the world market with world market prices denominated in dollars. Hyperinflation and deflation do occur, but they occur in every other ex nihilo currency except the dollar.

From John Williams and FOFOA, I better understand the likely consequence of Fascist State economic policy — the front-loading of a series of events leading to the collapse of ex nihilo currencies by the fall of the sum of prices within the world market to the price level imposed by the dollar. This is because, as opposed to the deflationists, the hyperinflationists show the Fascist State will not sit by and let its dominant position be threatened by mere accounting identities. It will defend that position even at the expense of all other currencies. FOFOA is clearer on this point than Williams, but Williams implies it as well.

Paradoxically, FOFOA’s argument lends support, not for the hyperinflationist camp, but Modern Monetary Theory (MMT). His insight confirms the assumptions of the modern money theorists that the Fascist State faces no external constraint on its expenditures, since all ex nihilo currencies are only worthless dancing electrons on the computer terminals of central banks. The question raised by Fascist State expenditures is not its effect on national accounting balances, but the effect of these expenditures on other ex nihilo currencies. The accelerated spending of the Fascist State drives all of these currencies out of existence.

I look forward to examining this in a similar survey of modern money theory at another time.

Theories of the current crisis: Why non-dollar currencies are finished

In a recent post, Deflation or Hyperinflation, FOFOA begins the meat of his argument with investment adviser Rick Ackerman (who, until recently, predicted this present crisis will end in a debt deflation) by directly addressing Ackerman’s core deflationist argument, which originally was set forth in a 1976 book by C.V. Myers, The Coming Deflation:

Ackerman wrote:

My instincts concerning deflation were hard-wired in 1976 after reading C.V. Myers’ The Coming Deflation.  The title was premature, as we now know, but the book’s core idea was as timeless and immutable as the Law of Gravity. Myers stated, with elegant simplicity, that “Ultimately, every penny of every debt must be paid — if not by the borrower, then by the  lender.”  Inflationists and deflationists implicitly agree on this point — we are all ruinists at heart, as our readers will long since have surmised, and  we differ only on the question of who, borrower or lender, will take the hit.  As Myers made clear, however, someone will have to pay.  If you understand this, then you understand why the dreadnought of real estate deflation, for one, will remain with us even if 30 million terminally afflicted homeowners leave their house keys in the mailbox. To repeat: We do not make debt disappear by walking away from it; someone will have to take the hit.

FOFOA’s response to the deflationist argument was both simple and fatal for the deflationist argument:

Yes, someone will pay. But there is a third option that is missing from Myers’ dictum. “The hit” can be socialized…

What the deflationist miss, says FOFOA, is that Washington will never accept the collapse of its failing economic mechanism. It will create whatever quantity of ex nihilo dollars it takes to socialize the losses of financial institutions, pension funds, etc. — even if this threatens the viability of global financial system and the dollar itself.

Like FOFOA, I want to begin this post by directly addressing the core argument of both camps, that this crisis must end either in the deflation or hyperinflation of dollar prices, or both. As FOFOA has argued, the present crisis will likely end in both hyperinflation and deflation at the same time. I agree with this analysis, but I disagree with his targets. Both hyperinflation and deflation of prices will occur, but they are likely to hit every ex nihilo currency on the planet except the dollar. If other currencies survive at all, they will do so only as boutique items marketed to private collectors, like their predecessor, gold. The deflationary/hyperinflationary hit will be not just socialized, but globalized as well.

Is this argument true? I don’t know for sure. To be honest, there are so many variables in the current crisis that any attempt to make a firm prediction must end in embarrassment for someone — a whole lot of “someones”, in fact. But, let’s assess the probabilities determining the outcome of this crisis using Marx’s Law of Value, rather than Austrian economics:

Zero divided by zero equals ?

To be absolutely clear at the outset, there is no difference between the fundamental facts underlying the dollar and the fundamental facts underlying all other national currencies — they are all worthless and possess infinitely more purchasing power than their actual value. From the standpoint of the law of value, any exchange rate between any two ex nihilo currencies is meaningless, since it is merely the ratio between one object that is entirely worthless and another object that is entirely worthless. For the past decade, the purchasing power of the euro has risen against the dollar despite the absolute worthlessness of either currency. The Zimbabwe dollar is collapsing into hyperinflation, but not so far as to actually represent in circulation its actual value — a Zim$1.00 note has exactly the same value as a Zim$1,000,000,000.00 note (and exactly the same value as a one hundred dollar bill for that matter).

Likewise, prices denominated in any ex nihilo currency are meaningless, since they can never rise to actually reflect the values of the commodities which the ex nihilo money denominates. An increase in the purchasing power of an ex nihilo currency would, in any case, conceal the utter worthlessness of the currency. And as to the fall in the purchasing power of any currency, it suffices to state no matter how far the purchasing power of Zimbabwe dollars fall, Zimbabwe dollar denominated prices of commodities never reflect how worthless the currency really is.

What both the hyperinflationist camp and the deflationist camp need to explain is why, despite the absence of value of all ex nihilo currencies, no major currency was put back on the gold standard after Washington closed the gold window in 1971? Why was gold, despite its value as money, relegated to the basements of major central banks or the private collections of hoarders? Why was it necessary for all major trading nations to remove a commodity standard for the general price level from the world economy? The questions answer themselves: a commodity standard for the general price level is incompatible with an economy founded on capitalist social relations at this stage of its development — absolute over-accumulation. The rather stunning fact presented by gold is this: if prices of commodities were denominated in gold, no commodity would be “worth” the gold standard price quoted for it, i.e., the purchasing power of gold as money would be below its value as a commodity — a situation previously found only during over-production of commodities is now a permanent feature of the capitalist mode of production. It is this situation that initially drove gold from circulation as money, that compelled it to strip off its monetary form.

Without understanding this piece of the puzzle, it is not possible to understand the nature of the present crisis, which, despite appearing as the product of a massive accumulation of worthless debt threatening all existing currencies, is actually the cause of this accumulation of fictitious capital. It is futile to try to understand the current crisis by comparing the attractiveness of various existing or imagined alternative ex nihilo currencies on the world market, since each is worthless, and are as prone to sudden and unexpected hyper-depreciation of their purchasing power as the dollar — and which, moreover, owe their role as money to the fact the gold has ceased to be able to function as money. Since there is nothing about the currencies themselves that set them apart from each other or from the dollar, predictions about their respective fates as currencies must rest, not on the respective attraction of the currencies themselves, but solely on the material relation between respective national states — we must ignore the apparent differences in the purchasing powers of various ex nihilo currencies and delve into the actual economic relations between and among the various states.

World market prices versus existing prices

No matter the differences in the exchange rate between dollars and all other currencies, the following conditions hold: on the one hand, world market prices are denominated in dollars, while, on the other hand, the total sum of present prices throughout the world market as a whole are determined by the ratio of the total sum of currencies of every nation to the total quantity of commodities in circulation throughout the world market. If the dollar was the only currency in circulation there would be no difficulty with regards to world prices and existing prices — they would be identical. However, if we have two currencies — we will call them ex nihilo dollars and an ex nihilo “Rest of the World Currency” (rotwocs) — the situation is changed. Although the dollars and rotwocs are identical — i.e., both are worthless — in circulation the effect on the total sum of world market prices is the ratio between all ex nihilo currency in circulation (X dollars plus Y rotwocs) to the total quantity of commodities in circulation throughout the world market.

Despite this fact, world prices are determined by dollars alone, and under the following circumstances: the dollar is not accepted for all commodities because it is world reserve currency; rather, the situation is precisely the opposite: because it is universally accepted in exchange for any commodity, it is the world reserve currency. This means the dollar’s purchasing power is absolute, while the purchasing power of the rotwoc is only relative — the rotwoc can purchase any commodity whose price is denominated in rotwocs, but to purchase a commodity denominated in dollars, it must be exchanged for dollars before the transaction can be completed. If we assume the world market is divided into two zones — a dollar only zone and a combined dollar/rotwoc zone — of equal size, it is obvious that the existing stock of dollars can readily serve as means of purchase in the entire world market, while the existing stock of rotwocs can serve as means of purchase only in the rotwoc zone. The purchasing power of the stock of dollars is, therefore, twice that of the stock of rotwocs, i.e., there are twice as many commodities available to be purchased by dollars as there are by rotwocs.

It should be obvious now that the sum total of all other ex nihilo currencies provide no additional purchasing power to global demand — they are entirely superfluous. On the other hand, the dollar actually exchanges with all other ex nihilo currencies at a rate significantly below its purchasing power throughout the world market — even against ex nihilo currencies that are, at any given moment, appreciating in purchasing power against it. Since the purchasing power of any ex nihilo currency is not inherent in the currency itself, but depends solely on the total quantity of commodities available to be purchased by it, it follows the purchasing power of the ex nihilo dollar is not limited to the commodities available to be purchased in the dollar zone alone, but all commodities that are available to be purchased by it throughout the world market.

On the other hand, it should be equally obvious that the total sum of prices in the world market must be above world market prices. Since world market prices are here determined solely by the ratio of the total sum of ex nihilo dollars in circulation to the total sum of commodities in circulation within the world market, but the actual sum of prices is determined by the ratio between total sum of dollars in circulation plus the total sum of all other currencies in circulation (x dollars plus y rotwocs) to the total sum of commodities in circulation, any quantity of non-dollar national currencies in circulation above zero results in prices that are above world market prices.

The endpoint of this crisis

The question is how all this works out in the crisis as it is now unfolding. While I don’t have a crystal ball, I will attempt to outline a likely course.

As we have seen in this crisis, no matter how profligate the Fascist State is in its spending on a massive global machinery of repression, and on socialization of the losses of incurred by the failed economic mechanism, the more expenditures it undertakes, the greater the pressure on other national monetary authorities to tighten their own monetary policies in response — to impose naked austerity on their citizens, to further constrain domestic prices in the face of rising global prices. Rising global prices translate into a falling rate of profit in the non-dollar states. To offset this falling rate of profit, the domestic labor forces of the various non-dollar states must be squeezed still further, and the resultant surplus product exported. The profligacy of the Fascist State and the austerity regime of these non-dollar states are only two sides of the same process, feeding on each other, each reinforcing the other.

The two do not merely reinforce each other, however, they also act to make their opposite insufficient in resolving the crisis. Insofar as the profligacy of the Fascist State increases, the pressure on the non-dollar states toward domestic austerity increases, and with this also increases its exports. Insofar as exports increase, global overaccumulation is intensified and the world market settles even more deeply into depression. But, as we have already seen, with an ex nihilo currency regime depressions are now associated not with deflation of prices, but the inflation of prices — so actual prices rise still faster in response to domestic austerity.

A straight-line assumption of the crisis indicates constantly rising world market prices, combined with increasing austerity and monetary policy contraction of non-dollar states. However, living processes do not move in a straight line; in any event non-dollar currencies are likely to experience an existential endpoint — separately, or in groups — since the collapse of any one of them involves fewer complications than replacement of the dollar as world reserve currency. Moreover, replacing the dollar with another currency does not solve the problem that these non-dollar currencies are superfluous. Non-dollar currencies are likely finished; nothing in this crisis appears to offer them another fate.

The question provoked by the above is not “What is the fate of the dollar?” Nor, is it, “What is the fate of non-dollar currencies?” Rather, the real question posed by my analysis is this:

“Why should any of these worthless currencies survive?”

Continued

Theories of the current crisis: How FOFOA renders Williams more profound

I know I promised to examine John Williams’ argument that hyperinflation hinges on an exogenous political event: the rejection of the dollar as world reserve currency by other nations. I will return to this point. But, before I do, I want to respond to Neverfox, who asked me to evaluate the argument of the writer FOFOA’s theory of the imminent hyperinflation catastrophe:

To summarize the argument of John Williams: The economy is spiraling into a severe depression of the 1930s or 1970s type. To meet its various present public obligations, future promises, and prop up the economic mechanism — which, for the moment, we can call debt-driven economic growth — the Federal Reserve is forced to monetize Washington spending. This monetization is itself producing a collapse in the credibility of the dollar. Sooner or later this loss in credibility will result in the outright rejection of the dollar as world reserve currency, triggering a hyperinflationary depression. In the course of this hyperinflationary event, lasting about six months or so, the dollar will become worthless.

To a great extent, although differing on some subtle points with Williams, FOFOA throws light on Williams’ own thinking. In FOFOA’s description of events, the hyperinflation event is front loaded with the essential dry tender: the accumulation of fictitious assets denominated in dollars over an 80 year period produced as a by product of the economic mechanism — debt fueled economic expansion. The event is triggered by a collapse of debtors’ ability to make good on their debts. This, in turn, is followed by an attempt by the Fascist State to rescue the financial institutions on whose books the fictitious assets reside, which produces a loss of confidence in the currency and its rejection as world reserve currency. It is only at this point, government begins printing money to survive and pay its obligations, generating the onset of extremely rapid price increases and the core hyperinflation event..

A deflationary episode can, and probably will, proceed the actual hyperinflation of prices. The hyperinflation episode does not invalidate the arguments of those who predict a deflationary depression; in fact, the hyperinflationary episode will in all likelihood start out as a deflationary episode. Those predicting a deflationary depression, however, miss the response of the Fascist State. Moreover, the deflation does occur just as those who predict deflation assert; only the deflation takes place in gold terms, not dollar terms. Expressed in gold terms, it is a deflation; however, in dollar terms, it is a hyperinflation. FOFOA believes the difference between a deflation measured in gold and a deflation measured in dollars is key to understanding the hyperinflation that is imminent:

“What’s the difference between a deflation denominated in gold versus dollars?” Well, there’s a huge difference to both the debtors and the savers. In a dollar deflation the debtors suffocate but in a gold deflation they find a bit of relief from their dollar-denominated debts. And for the savers, the big difference is in the choice of what to save your wealth in. This is what makes the deflationists so dangerous to savers.

A deflation imposes an extremely heavy burden on debtors, requiring them to repay their debts with ex nihilo denominated debt whose purchasing power is increasing, and which, therefore, requires increasing amounts of effort to repay. By contrast, a hyperinflation reduces the burden of accumulated debt by depreciating the purchasing power and burden of ex nihilo denominated debt. In the thinking of those predicting deflation, as the debt bubble of the last 80 years bursts, the Fascist State will find it impossible to reflate the debt bubble and will be forced to accept deflation. Thus, a full scale debt deflation depression is in the offing.

FOFOA argues that while it is not possible to reflate the debt bubble, the Fascist State can save the paper assets of financial institutions that are the fictitious claims on these debts. Decades of debt fueled growth has swollen dollar-denominated assets held by these institutions to fantastic dimensions. FOFOA argues the Fascist State will not and cannot let these institutions fail because it is merely the political expression of these financial institutions. The aim of Fascist State intervention is not to save the debtors — which it cannot do even if it wanted to — but, as events of the last three years show dramatically — the Fascist State aims to save the the assets of these institutions. FOFOA quotes another writer from whom he derives his own name, FOA:

hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today’s dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)

The process of actual hyperinflating prices begins with the attempts to monetize bad debts — to socialize the losses of big capital — not with money printing; the money printing only begins in earnest once monetization of bad debt leads to a loss in the credibility of the dollar.

…it is the US Govt. that will make sure this becomes a real Weimar-style hyperinflation when it forces the Fed to monetize any and all US debt. And as dollar confidence continues to fall, that’s when the debt must go exponential just to purchase the same amount of real goods for the government. One month the debt will be a trillion, the next month it will be a quadrillion just to buy the same stuff as the previous month. How long will this last? Less than 6 months is my guess.

According to FOFOA, on the balance sheets of the failed banks there now is more than enough reserves to fuel a sudden burst of hyperinflating prices should society suddenly lose confidence in the dollar. As this base is pulled into circulation by a general demand for goods in the face of rising prices, the Fascist State will be forced to begin printing money to cover its own obligations. Each month the amount of ex nihilo dollars needed to fill the same demand for government spending increases, and with this increase, the amount of new ex nihilo money created will increase. This compounding growth in the supply of ex nihilo currency will provide added impetus to the explosion of prices. The explosion of prices will not be contained short of a new monetary regime in which assets and debt are somehow tied to gold.

The problem is that the present monetary system, in FOFOA’s view, is that lending and saving both take the same form — either a gold backed system or an ex nihilo money system. FOFOA argues money lent out inevitably dilutes the value of money being saved, since they both come out of the same pot:

The problem is that the expanding money supply due to lending always lowers the value of a unit of currency. Even if it is gold. If I loan you a $1 gold money, you now have $1 gold and I have a $1 gold note. The money supply has just doubled, and the value of $1 gold just dropped in half.

This is a fact of money systems. We can try to get rid of it by outlawing lending, but that is like outlawing swimming in the summertime, or beer drinking.

The solution is quite simple. And I didn’t come up with it. The problem is that at the point of collapse, some of the savers are wiped out, whether gold money or fiat. Think about those at the back of the line during the bank runs of the 1930’s. They didn’t get their gold. They lost their money.

Today we don’t have this problem anymore. The guy at the back of the line gets all his money, it’s just worthless in the end. We solved the problem of bank runs (bank failures) but not the problem of value.

This problem, which is often referred to as debt deflation, is inherent in the prevailing monetary system, and will lead to financial crises even if the United States went back to a gold-backed dollar. He proposes instead to bring gold back into the money system, but within strict limits: split the functions of store of value and credit into two separate monetary systems — ex nihilo for lending, and gold for saving — so that ex nihilo currency lent out will indeed be diluted, but the gold-backed value of saving will freely rise to express this dilution:

The solution is that the monetary store of value floats against the currency. It is not the same thing that is lent! It is not expanded through lending and thereby diminished in value. Instead, as $1 is lent, and now becomes $2 ($1 to the borrower + $1 note to you the lender) and the dollar drops to half its value, the saver, the gold holder will see the value of his gold savings rise from $1 to $2.

I don’t want to get into the weeds on this proposal by FOFOA, since it is entirely beside the point of the examination of non-mainstream theories of the current crisis, and, in any case, a non-sequitur from the standpoint of capital. But, he inadvertently touches on a salient point for my examination: suffice it to say, capital is not and cannot be thought of as the accumulation of gold or any other commodity. It is the process of self-enlargement, or self-expansion, of the capital initially laid out in the capitalist process of production. At any given moment, this capital can take the form of money-capital, fixed and circulating capital, wages, and final commodities, but it is not identical with any of these momentary identities — it is relentlessly converted from one form to another constantly — both serially, and simultaneously in what, over time, comes to resemble a vast cloud of interrelated transactions — as it passes through the process of self-expansion. FOFOA’s proposal imagines the point of self-expansion is precisely what it is not: to assume the form of a hoard of gold — or any other store of value. This is true only insofar as we are thinking of capitals that are no longer capable of functioning as capitals — that are incapable of acting on their own as capitals, owing to the ever increasing scale of capitalist production, which renders these petty capitals insufficient to function on their own as capitals. Unable to operate on their own, they must be placed at the disposal of larger agglomerations of capital in order to continue functioning as capital, resulting in great stress for their owners, who now have to turn their otherwise lifeless hoards over to giant vampire squids of the Goldman Sachs type or cease being capitals at all.

This is, in part, what Marx meant by the concentration of capital, which is not simply the concentration of ownership of the means of production, but also the concentration of owners of capital who can continue to operate independently as capitalists. The existence of even very large savings does not permit these owners to operate independently as capitalists, given the scale of productive undertaking now required. Marx described the process 150 years ago:

A drop in the rate of profit is attended by a rise in the minimum capital required by an individual capitalist for the productive employment of labour; required both for its exploitation generally, and for making the consumed labour-time suffice as the labour-time necessary for the production of the commodities, so that it does not exceed the average social labour-time required for the production of the commodities. Concentration increases simultaneously, because beyond certain limits a large capital with a small rate of profit accumulates faster than a small capital with a large rate of profit. At a certain high point this increasing concentration in its turn causes a new fall in the rate of profit. The mass of small dispersed capitals is thereby driven along the adventurous road of speculation, credit frauds, stock swindles, and crises. The so-called plethora of capital always applies essentially to a plethora of the capital for which the fall in the rate of profit is not compensated through the mass of profit — this is always true of newly developing fresh offshoots of capital — or to a plethora which places capitals incapable of action on their own at the disposal of the managers of large enterprises in the form of credit. This plethora of capital arises from the same causes as those which call forth relative over-population, and is, therefore, a phenomenon supplementing the latter, although they stand at opposite poles — unemployed capital at one pole, and unemployed worker population at the other.

FOFOA’s proposal seems to confirm my identification of the social base of the hyperinflationist camp: a motley collection of petty speculative minnows, who are desperately trying to avoid the predation of the very biggest financial sharks and vampire squids — not to mention the Fascist State itself, which represents the interests of these predatory vermin. The hyperinflationists as a group imagine the dollar has reached the end of the line. They imagine this will lead to a revaluation of gold and the creation of a new monetary system to replace the dollar, driven by the dissatisfaction of the majority of the planet with the monetary policies of the United States.

So, we need to move on and examine this thesis.

Continued