Monday, November 09, 2015

Will Hutton, a reply to a reply

A reply to Will Hutton’s article on global banking and the creation of money drew a reply (Guardian Weekly, 23.10.15) from a reader in Australia.  The reply serves to highlight the crank nature of those who ascribe powers to bankers that they do not possess.  There is only one thing, writes the respondent, which can be done to avoid the imminent crises that will result from the collapse of the house of cards that he asserts global finance is.  That thing is the exposure of too much money as the cause of economic instability.  Money, he argues, should be a mere means of exchange, a ‘convenient fiction to enable trade’ but has come to promote ‘uncontrollable greed’.  Supplied in only the amounts needed for trade, he continues, there would not be a problem: ‘As long as all nations restricted its creation, it [money] was harmless.’  Unrestricted creation of money is held to have become ‘the end in itself’ rather than the ‘means to an end’ of trade.

Hutton wanted to go back in time before so-called neo-liberalism, his respondent wants to go back even further to the nineteenth century.  It was in the 1830s that similar arguments were put forward by Thomas Gray and John Francis Bray in Britain and later by Pierre-Joseph Proudhon in France.  Their argument was that the need to obtain money could be overcome by producers being able to exchange goods directly, without the need for an intermediate means of exchange, that is, money.  Gone, they thought, would be money’s power over producer’s lives.  The error of this line of thought was pointed out at the time by Karl Marx who argued that money was more than just an imagined symbol (a ‘convenient fiction’ as Hutton’s respondent would have it) given the role of means of exchange.  Rather, Marx pointed out, money was a means of exchange because it itself was a commodity that had acquired the role of a universal equivalent.  Money was not imagined but had arisen hand in glove with commodity production (that is, production for the purpose of exchange rather than direct use) as a means of measuring the magnitudes of value of commodities in exchange (value being the socially average amount of labour embodied in a commodity), ultimately expressed as an exchange value, or money price.  Gold and silver had taken on the role of universal equivalent because their value remained relatively stable over time and they could easily be divided in standards of price as coins of different weight.  Money as a universal equivalent, is a measure of value, is ‘a means to an end of trade’ but it also the ’end in itself’ for those engaged in producing commodities.  Practical production of things (the basis of material life) has to result in exchange for money in a society of commodity production otherwise businesses fail, wages are not paid, rent goes unmet, food is not put upon the table.

Given the historical development of money, Marx said, it was absurd to suggest that money was the problem for producers struggling to make ends meet.  They may struggle to exchange their goods for sufficient money to live comfortably but because social labour in a society based on commodity production (capitalism) is carried out indirectly – things are produced not as use-values to be directly consumed or utilised but as goods whose values are expressed in exchange as exchange-values, as money prices.  Money is integral to a society of commodity production and to imagine a society of commodity production without money, said Marx, was like removing the Pope from Roman Catholicism or the King from a monarchical society.  A universal equivalent, money, would spring up again just as surely as Roman Catholicism necessitates a Pope and monarchical society a monarch. 

Money is no longer a commodity in the sense that it was when Marx was writing because the gold standard (where coins and notes are exchangeable with a fixed amount of gold) ended in Britain in 1931 (in the USA not until 1971).  Instead we have what is known as fiat money, which is a symbol of money (though still not a mere imagined symbol – it represents gold).  A currency operating to a gold standard could not be detrimentally over issued (only needlessly because only so much currency is needed as to enable the amount and rapidity of transactions taking place in an economy).  Fiat money can because it represents the value in gold of all of the commodities in an economy.  If it is issued in excess of any increase needed to reflect changes in total transactions or their rapidity the value of the currency unit depreciates relative to the commodities exchanged for it.  This causes a rise in the general price level (inflation).  So the over creation of money does have economic consequences but not the sort that Hutton and his respondent argue for.  In fact if banks could create money in the way that they suggest (as unchecked multiples of deposits) then there would be generalised hyper-inflation - but they can’t so there isn’t. 

What then is the solution to economic instability?  What do we need to do to avoid crises?  What should we do about money?  Well, we should get rid of it but not in the way envisioned by Gray, Bray and Proudhon who wanted commodity production without money.  Instead production for exchange (indirect social labour) has to give way to production directly for use (direct social labour), freeing up the vast productive resources developed by commodity production to meet direct human needs.  Imagine all the labour that currently does not count because it cannot be exchanged for money profitably or the labour that is concerned with the exchange process in commodity production (banking, accountancy and so on, that do not produce anything useful in terms of fulfilling human needs) being available to produce to produce goods and services to directly serve human needs.  Marx wrote of society based upon commodity production as a ‘process of production [which] has the mastery over man, instead of being controlled by him’.  Socialists work towards establishing the mastery of people over the productive process.  How? By the establishment of a system of society based upon the common ownership and democratic control of the means and instruments for producing and distributing wealth by and in the interest of the whole community.  That is the object of the Socialist Party.  Marx talked about production directly for use utilising the productive resources built up by commodity production as the end of human prehistory.  What other political party stands for beginning real human history.  We want it, to get there we need you to want it too.