“Being a Socialist” Facebook Page Sinks to a New Low

•2014 07 12 • Leave a Comment

There’s a saying that goes: “The bigger you are the more they attack you.”

Two days ago the so-called “Being a Socialist” Facebook page posted an image of someone talking about me and proceeded to attribute their comments to myself when I was not the author.

being a socialist lie

The association fallacy is obvious here. I have not made this statement or any like it, but these people (particularly Barry) see fit to dishonestly stick me with its authorship. This was intended to use someone’s statement to attack me. Why else would the author of the post be censored and then my name attached to it in its place? They deliberately obscured the commenter who said what they didn’t like and substituted my name. This is even assuming the comment wasn’t fabricated to begin with.

Eventually someone who supports me flagged the post as harassing and as such it was removed.

being a socialist lie 2

This is unacceptable. Once the post was removed they proceeded to claim that they posted something I wrote and that it was this that was removed. They’ve changed the attack from falsely associating me with the post to outrageously claiming I wrote it. The libelous nature of this attack is laid bare for all to see. It is not enough that they make false accusations of homophobia, sexism, transphobia, for which they display no evidence. They have now lowered themselves to fabricating evidence for it. This is nothing short one of the most despicable acts they’ve taken.

I would think that a Facebook page which is about “being a socialist” would have better things to write about than myself. Their abnormal fixation on me is perturbing. I have insisted since day one that I am merely some guy on the internet. I am not important; I’m just a person giving an opinion. I have had pure haters who make entire series of videos to attack me who pay less attention to me than they do.

Their obsession with me crosses the line into despicable.

Facebook is a medium which can be used for education and discussion. Instead of raising the knowledge level of its visitors they instead use this medium as their own personal attack page like children. They are no better than any page titled “Shit X Say”. They are childish and counterproductive. “Being a Socialist” should be ashamed of themselves for their behaviour.

Their behaviour is a bright example of the uselessness, petty mindedness, and inherently reactionary nature of First Worldists. They cannot see beyond their own ignorant grudges and name calling to see the need for global revolution. While they libel and ad hominem each other on the internet there are tens of thousands in the Third World who struggle to end their oppression.

These people only wreck unity with their small mindedness and libel. These kinds of things don't happen in the Third World where struggle actually takes place.

“To indulge in personal attacks, pick quarrels, vent personal spite
[...] This is a fifth type.”
– Mao Tse-tung, Combat Liberalism 1937

The Absurd Contradiction of Bimetallism: Gold & Silver

•2014 07 07 • Leave a Comment


Nevertheless, price depends upon the actual money commodity. Apart from all the little things that may cause disturbances, the tailor can set the price of the coat at 10 grams of gold, if there is that amount of socially necessary labour embodied in such a quantity of gold as in the coat. If the tailor expresses the value of his coat, not in gold, but in silver or copper, the price expression will be different.

When two different commodities function as a measure of value, (i.e. gold and silver), all commodities will then possess two different price expressions (gold price and silver price). Every change in the value-relation of gold to silver causes price disturbances. Having more than one measure of value is an absurdity, a contradiction of the function of money as the measure of value. Whenever an effort has been made to legally make two commodities a measures of value, it has always been only one which has in fact functioned as the measure of value.

In 1903, in several countries gold and silver were the official co-existing measures of value. However, life has always shown this to be absurd. Like every other commodity, gold and silver are subject to constant fluctuations in value. If both are made legally the same value by law, and if you can make a payment in either metal, then payments would be made in the metal whose value was falling. The other would be sold according to the price of it somewhere else abroad. People will just buy commodities with the metal that has less value and then just sell off the other metal for more in another market where the price for it is high. In countries at the time where there was a double currency, (so-called Bimetallism,) only one of the commodities actually serves as a measure of value, and that is the one whose value is falling. The other whose value is rising will measure commodity prices by its own value, not the commodity itself. If gold’s price is rising, the value of the gold will serve as price, not the value of the commodity. If gold is really valuable it will be worth more than the commodity it will be exchanged for. If the coat is worth 10 grams and the price of gold doubles, the buyer won’t give all 10 gram for the coat, they’ll demand they only pay 5. The greater the discrepancy between the value of gold and silver there is, the more obvious the absurdity of Bimetallism becomes.

If your gold was worth more than your silver why would you exchange with your gold, if in exchange it is worth the same as silver? If the price for a commodity is 10 grams of gold or silver, why would you give say $2 worth of gold when you can give $1 worth of silver if they were considered the same? You wouldn’t, you would hoard the gold and trade with silver. This in turn would cause the price of gold to increase because everyone would be seeking it more than it would be if it were equal to silver, and they would be hoarding it.

For the sake of simplicity in Capital, Marx always assumes gold to be the only money commodity. As a matter of fact, gold tended to become the money commodity standard in all capitalist countries. This is something that is completely overlooked, and often outright lied about in Libertarian literature on Marxist economics. They frequently say that Marx wasn’t taking the gold standard into account, when he in fact was basing all money on gold.

The Class Nature of Hipster Economics

•2014 06 17 • Leave a Comment

Hipster Economics

As manufacturing has left the urban center and pretty much everywhere else, the lack of jobs is creating a severe gap in value generation. This leads to lower incomes for First World working and middle class people which translate to a lack of taxable income. This lack of tax revenue is causing many cities infrastructure to crumble. This lack of income and jobs means housing properties plummet. Those declining values and rents lead to an increase in decaying housing. As the burden of physical commodity production is shifted to the Third World, workers in the First are left with underemployment in the service industry. These incomes are not enough to live off of which is the leading case of poverty. All of this together makes up our society today across North America.

The capitalist class is well aware of the situation we all face with declining value. They know that manufacturing which is the engine of value creation is not coming back to their cities, no matter how many tax breaks and incentives they give it. No amount of freebies to the capitalist class can compete with the poverty wages and murderous working conditions of the Third World. Because of this they have been seeking a new source of employment for their cities. The question before them is where do they get it from? What jobs can still be created or attracted?

The answer lies in our new First World economy. Some office jobs and mostly service jobs have become the new norm. The problem is these jobs, specifically the service jobs, don’t pay its’ workers enough to tax them. So the city planners, the municipal government, have to attract other kinds of businesses like software developers, Google, all kinds of tech companies. These businesses have a fair amount of high wage employees who have a significant amount to tax. These are the new in demand jobs that cities are going out of their way to attract. It brings in large disposable income spending employees and big rich corporations to tax.

How do they attract these companies, these jobs? The city spends public money on renewed infrastructure particularly with regards to internet and beautification projects for the down town business area. Tax payers are forced to have their money spent for the benefit of capitalist class, pandering to them. These usually involve restoration projects, removing lower income housing and increased police presence. Making the city (the business area) more pleasing to the eye is often a huge plus in the eyes of such companies. It is often equated with the “world class city” they want their headquarters in. Often the drive to attract them gives huge tax breaks to technology companies which leave the public with a larger burden to pay for it all. The class nature of this spending of money and use of resources should be very clear.

Here is a prime example of such a beautification project: In north Philadelphia Amtrak was bothered by its riders having to see the ruins of the city. They are offended by the buildings that have gone into disrepair as a result of the 2008 Global Collapse of Capitalism as well as the effects of neoliberalism. The city has a high poverty rate of about 28 percent [1] with some elementary schools where almost all of the students are below the poverty line. [2] Needless to say, much of the north end looks like a war zone. Well neither the city nor Amtrak want any of it to be seen from their train station. The city hired German artist Katharina Grosse along with the National Endowment of the Arts to undertake a large-scale art project to cover it all up. The project is called “Fighting Urban Blight With Art”. The supposed purpose of the project is “an experience that asks people to think about this space that they hurtle through every day” according to its curator Liz Thomas.

Of course the real purpose of this project is to shield Amtrak customers who don’t live in these blighted areas from having to see it. Who are they asking to think about that space? The people who live there don’t have to think about it, they experience it every day. It’s the people who don’t live there that have to. It’s for the professionals who live out in the suburbs who don’t want to be offended by poverty. I can think of little more that could be insulting to the working and poor class.

Tax money collected from the people is used to whitewash their own poverty, and fund their own exploitation serving the capitalist class for the purpose of attracting higher income, upper middle class workers for the tech industry. Nothing about this cures the poverty and lack of value generation being produced. It leaves the working class marginalized, ignored and pushed further into property. It benefits white professionals and excludes minorities, a point acknowledged by Spike Lee. [3] These people moving in are hipsters… welcome to hipster economics, the wave of the future.

It’s an economic policy that panders to the upper middle and upper class in society. Once these hipsters move in and take their tech jobs the property values go up. These increased values end up pushing lower income people out of homes and apartments. This disproportionately affects minorities causing an increase in gentrification. Once they’ve arrived the city starts developing the neighborhoods for them. Those schools that were ignored for so long suddenly receive the funds to do upgrades and repairs. Much needed public services suddenly appear for residents. When poor communities were asking for these things they went ignored. A greater police presence is provided so that the lower classes don’t bother the upper classes.

The shipping of manufacturing jobs to the Third World has increased social antagonisms between the domestic workers and capitalists. The ruling class now uses the influx of upper-middle class hipsters to make claims of economic revitalization and job creation. All of it a gigantic fraud to convince people that the recession is over, that any remaining poverty must be their own fault because “the jobs are there”. The new supply of jobs is nowhere near the amount actually needed to repair the economy. It’s another illusion brought to us by those who know manufacturing will not be coming back to the First World.

This is the marriage of Keynesianism and trickledown economics, the belief that infrastructure spending is only worthwhile for the urban centre so long as it attracts the predominantly white professional types. It is more of capitalism serving the capitalists and privileged classes. The hipsters that move in often describe themselves as ‘social liberals, fiscal conservatives’. The ideology they bring is typical of that of the middle class: ‘I don’t hate minorities and gays, so long as they stay away from me and my family’.

The class nature of this plan should be stark. It blatantly shoves the decimated working class out of the way in favour of the new hipsters, all the while making sure they’re not offended by remnants of the working and poor class. Proof positive that capitalism cannot pull itself out of this recession and that perhaps the limit of capital has been reached. All they have now is to lie to us about a recovery.

[1] Making the Safety Net More Visible in Philadelphia, New York Times


[2] Unrelenting Poverty Leads To ‘Desperation’ In Philly Schools, NPR


[3] Spike Lee’s Racism Isn’t Cute: ‘M—–f—– Hipster’ Is the New ‘Honkey’, Time


Was the KCNA Being Racist, Sexist and Homohobic?

•2014 05 15 • Leave a Comment

Just recently there has been an awfully hypocritical outrage against the DPRK for allegedly publishing some statements that were homophobic, sexist, and racist. When I first heard about this I was of course skeptical given that it’s almost daily that some outrageous claim is made against them with nothing to back it up. Every so often the imperialist media claims the DPRK said this or that outrageous thing. The media has claimed the DPRK has promoted the existence of unicorns, or Kim Jong-il claiming to have invented the hamburger. This time however I was thrown quite a curve ball as people making the claim were actually able to point to something published by the KCNA!

Since people have appointed me a DPRK spokesman against my will on YouTube, I certainly cannot allow this to pass without investigating it. Besides are we really going to trust the anti-DPRK media to tell us the truth? After all they do lie about the most contemptible and frankly downright childish things.

Please allow me to go through these claims one by one and investigate them.

After all, such political swindlers as Kirby were mobilized so as to internationalize the nonexistent “human rights issue” of the DPRK.

As for Kirby who took the lead in cooking the “report”, he is a disgusting old lecher with a 40-odd-year-long career of homosexuality. He is now over seventy, but he is still anxious to get married to his homosexual partner.

This practice can never be found in the DPRK boasting of the sound mentality and good morals, and homosexuality has become a target of public criticism even in Western countries, too. In fact, it is ridiculous for such gay to sponsor dealing with others’ human rights issue.

- KCNA, KCNA Commentary Slams Artifice by Political Swindlers, April 2nd, 2014 (Juche 103)

The first and most obvious issue here is the obvious translation error. This grammar usage is clearly not translated properly. The sentences are poorly constructed and this can lead to misunderstanding. What is also strange is the inexplicable use of the word “gay”. The KCNA doesn’t use Western slang words in their articles, which leaves me puzzled as to why it is there.

The First paragraph makes clear that the article is taking issue with Kirby’s dishonesty surrounding the country’s supposed “human rights” problems. This is clearly the focus of the article itself.

The first sentence of the second paragraph acknowledges that he is homosexual, but not that that is a criticism itself. The following sentence indicates his age and that he has not yet gotten married. The DPRK unfortunately has rather backward conservative ideas surrounding marriage and that those who have been together for long periods of time without having gotten married are wrong. This view is of course incorrect, but it is one held by DPRK culture.

The third paragraph is even more convoluted. “This practice can never be found in the DPRK”, is referring to the lack of marriage at Kirby’s age. The wording indicates that it is referring to the previous statement not a new one that has not yet been made. In the same sentence separated by a comma is “and homosexuality has become a target of public criticism even in Western countries, too.” This sentence points to the fact that sexual minority rights are an issue in Western countries right now. Not just Russia, but the US and the UK as well. The US particularly still has terrible discrimination against sexual minorities. In fact the leading cause of death among homeless transgender youth is murder. The suicide rate among sexual minority youth in general is 4 times higher than heterosexuals. This is what the KCNA article is referring too, the hypocrisy of the West to claim such unproven human rights abuses by the DPRK while they commit so many against their own sexual minorities.

The last sentence is tremendously confusing: “In fact, it is ridiculous for such gay to sponsor dealing with others’ human rights issue.” The KCNA doesn’t use Western slang words in their articles which leaves a huge question as to why it is there. Due to the fact that “gay” is spelled with a small g instead of a capital, it might indicate that they are using the traditional meaning of happy. Even if this is the case the sentence still doesn’t make any sense. It seems to be a translation error that questions why he is making such ridiculous human rights abuse accusations about the DPRK while he faces such discrimination as a sexual minority himself. The wording and grammar here is terribly confused and, as it stands it doesn’t make any sense.

I don’t think the KCNA was attacking Kirby on the grounds that he is a sexual minority. I think this is a terrible translation given the previously mentioned slang use and grammatical errors.

Now let us move on to the claim of sexism with regards to the South Korean president Park Geun Hye. Here is what was published by the KCNA:

What she has done, kowtowing to outside forces since she took office as “president,” clearly proves that she is no more than a dirty political harlot and old prostitute without an equal as she is steeped in sycophancy and treachery.

- KCNA, Park Geun Hye Censured as Root Cause of Disasters of Nation, May2nd 2014 (Juche 103)

We should understand right away that the terms “harlot” and “prostitute” are being used in the context of imperialism. Meaning they denote the oppressive subservience of Park to Obama. The language is very harsh and is frankly inappropriate. The use was however not intended to be used as an insult to Park’s sex. It was meant to describe her relationship with the public and her role in compliance with US imperialism. Again the wording was inappropriate but the context is not what the imperialist media is claiming it is.

Let us now move on to the claim of racism:

Park made waste water-like reckless remarks slandering the DPRK’s line on simultaneously developing two fronts after inviting her American master reminiscent of a wicked black monkey to visit south Korea on April 25.

- KCNA, Park Geun Hye Censured as Root Cause of Disasters of Nation, May2nd 2014 (Juche 103)

On the surface this would be incredibly racist. The problem here is that it transplants a common Western racial insult onto a culture that doesn’t use it. In Western cultures it is common to compare African-Americans to monkeys as an insulting way to call them unintelligent and uncivilized. This is not the case in Asia. In many Asian cultures the monkey is a trickster, an animal that deceives people. When placed in the context of the article, we see the KCNA referring to the US imperialist control over South Korea and their manipulation of world view to paint the DPRK as the aggressor. When we take the subject context and the cultural context into account we get something very different from a racial insult.

The black reference was simply a description of evil. The colour black is commonly associated with evil in many cultures globally. It stems from a primal fear darkness as well as other social factors. It literally was not referring to Obama’s skin colour.

What we have here is the KCNA failing to understand how certain cultural expressions will be interpreted by Western readers. The KCNA should know that Westerns will apply their own cultural values and use of langue on others. The Western media is failing to understand the Korean context to what they’re saying. It’s a common Western arrogance to assume everyone sees (or should see) things the same way they do. If anything this was merely a projection of their own racist language onto others, it is not a reflection of the DPRK’s own statements or attitudes.

The fact is the U.S. population including its political leaders are the ones who are racist towards Obama. How many times have these conservative politicians made racist remarks about the man? How many times have US civilian groups, particularly the Tea Party made unacceptable racist attacks upon him? How long was the birth certificate and claims of foreign birth dragging on? With all this they are making accusations of racism on the part of the DPRK?

Before I finish I’d like to take exception to one particular Western media personality. That person is Cenk Uygur of the Young Turks. His outrage towards these remarks was particularly animated and as equally ignorant. It’s very common of First World liberals to project their ignorance as outrage. The reason I take exception with Uygur is because of his past incident of doing this. Some time ago he made a news report about a Dutch company who designed a building that resembled the World Trade Centre being destroyed. The designers issued an apology saying that they did not see the resemblance. Uygur was outrage that they didn’t notice saying that they could not have missed it. It was Richard Coughlan who pointed out that the rest of the world doesn’t go around thinking about 9/11 all the time. This is true Americans do get the arrogant impression that everyone is thinking what they think and that they are the centre of the universe. What happens to America happens to the world, what is important to them is important to everyone else.

This ignorance has manifested itself in continued dishonest attacks against the DPRK. It is also incredibly hypocritical when we consider what a racist, sexist, and homophobic society America is. If this were not enough, they extend their imperialist influence to other nations that they dominate through economic and military oppression. They have no moral ground on which to attack the supposed human rights violations of the Democratic People’s Republic of Korea.

How can capitalism a system predicated on inequality claim to be the champion of equality and human rights?


KCNA Commentary Slams Artifice by Political Swindlers, Korean Central News Agency

Park Geun Hye Censured as Root Cause of Disasters of Nation, Korean Central News Agency

Mark Harrison’s Liberal Confusion of Marxist Economics

•2014 04 27 • Leave a Comment

Ed. Note: Normally I wouldn’t find it necessary to respond to such an old post, but I felt it was important given the prevalence of the opinion that Harrison is giving. Many liberals feel Marx has some relevance to their criticisms of capitalism without realizing that they in fact do not.

In a post made by Mark Harrison of Pieria (Oct 14th, 2013) he attempts to make a point about Marxist influence on modern political life. In the course of doing so he demonstrates that he doesn’t understand Marxist theory at all. His post centers on comments made by George Osborne, Chancellor of the Exchequer (UK) making a criticism of Ed Milliband the leader of the opposition:

“For him the global free market equates to a race to the bottom with the gains being shared among a smaller and smaller group of people. That is essentially the argument Karl Marx made in Das Kapital. It is what socialists have always believed.”

From here he goes on to claim that Marxism has been discredited. I find it interesting that if it was so discredited I see no reason why its “influence” on modern intellectual life would be so prevalent. If this was so perhaps he would care to explain all the Marxist movements still making theoretical breakthroughs. His lack of knowledge is quite apparent when he uses Marx’s own words, ‘Haven’t the economic policies of Marxist regimes generally failed to provide for “an association, in which the free development of each is the condition for the free development of all” – the words by which Marx once distilled the goal of communism?’ The problem with Harrison’s words is that communism was not reached, socialism was achieved which is the transitional period towards communism. His statement is essentially that socialism isn’t communism, thus communism doesn’t work. Once can make the argument that communism to a limited degree was achieved in some of Mao’s communes, but I do not thing it is enough to prove it on a national scale.

Ironically he continues by complaining that other people don’t understand Marxist economics:

“What are the experiences to which Marxist economics correspond? Behind the complicated terminology of capital and value and Marx’s elaborate philosophical and historical argumentation of them are four simple ideas:”

What he proceeds to do is completely fail to understand Marxist theory. As he attempts “Marx’s elaborate philosophical and historical argumentation” in his own words he ends up completely misrepresenting them. In attempting to explain them to the reader he reduces Marxist economics to “four simple ideas”. These ideas are in reality, liberal complaints of the functioning of capitalism. They are by no means the criticisms Marx made, nor do they correspond to the elaborate theory regarding the system of commodity production that he laid out. Allow me to go through them one by one and explain how they are liberal misrepresentations.

  • The market is a jungle, a chaotic struggle of each against all, in which the strongest, most ruthless predator wins. Lurking behind every transaction is the chance that someone will rip you off.

  • Of all the possible functions of market prices – accounting, economising, distributive – the only one that matters is distribution. A rise in the price of food or fuel cuts the real income of workers and redistributes it in favour of the producers that employ them.

  • Work is hard and stressful, and the main source of pressure is the employers’ drive to make you work harder and longer, in order to save them money or increase their profits.

  • You can’t do anything about this on your own. Idealistic advocacy has no traction without numbers. Everyone should get together and intervene forcibly to bring about radical improvement.

  • To deal with the first claim, this is not the point Marx makes at all. Marx attempts to analyze capitalism as fundamentally a system predicated on the private ownership of the means of production combined with competition which requires greater and greater effort to extract surplus value. It is inevitably destructive to the environment and production for human need. His framing of it is incorrect. Capitalism does not incentivize these “ruthless predator” behaviours. Further his wording seems to try to imply that “ruthless predators” are some kind of byproduct of the capitalist mode of production. That is to say it sounds like his words claim that it is not inherent to the systematic pursuit of profit that socially destructive outcomes occur… But competition and relentless drive towards profits are key dynamics of capitalism require the capitalists to behave in socially destructive ways (denying global warming for example). Harrisson’s framing of the issue is incorrect, or incorrect insofar as he tries to associate with Marxist thought. He moralizes the issues in such a way that it obscures the functional analysis of capitalism, which is the primary task Marx undertakes in Capital. Profit is the key measure, and whether it is obtained by helping a wealthy old woman across the street or by charging more than cost such that extraction from the working classes systematically occurs, it doesn’t matter. They do what they do because that’s where the profit is, if it was in helping an old lady cross the road they’d do it. It does not incentivize such behaviours, capitalism IS those behaviours. The competition dynamic of capitalism requires the capitalist to behave in socially destructive ways (denying global warming for example), there is no avoiding it.

    Furthermore, Marx uses the term anarchy of production, he is not characterizing capitalism as some sort of arbitrary chaos, but rather as a relatively unstable system due to capitalism’s relentless drive towards profits under competitive conditions. This may also include much of the socially destructive aspects of capitalism, depending on the context in which it is used.

    To deal with his second claim, to Marx the market prices are much more than distribution. For example market prices in Marxist theory is used as an input price for the next capitalist. It comprises many of the contradictions of capitalism that give rise to the social antagonisms that flow from it, largely inequality. The market (and corresponding price) is the determining factor in the realization of exchange-value in monetary form. This is linked to all kinds of things like rates of profit and how social labour is apportioned throughout the economy. As one industry becomes unprofitable, the social labour is moved to another sector that is. The buying and selling of commodities regulates the division of labor, supply and demand send signals that appoint labor to different tasks. This can only happen if labor power itself is also a commodity to be bought and sold, moved about. Wage-labor is the mechanism by which the “hidden hand of the market” moves labor inputs around.

    To deal with his third claim, while what he says is correct, it leaves out the important capitalist necessity of it. The rate of profit has been shown to historically fall according to Marx’s theories and predictions. The only way to maintain profitability is for the capitalist to cause more “pressure”. There are other ways in which the capitalist increases their rate of profit (exploitation), technological innovation for example. It also manifests by expanding into new markets, Lenin investigates this further with his works on imperialism. This drive is necessary and it in fact has manifested in some unexpected ways. For instance the lion’s share of physical production has been shifted to the Third World with a super rate of exploitation on their workers leaving some First World workers not to be exploited at all, or to minimal degree. Capitalism is predicated on the production of surplus-value which can come only from an unequal exchange.

    To deal with the fourth claim, there’s much to go over as this isn’t even close to what Marx was talking about. Marx never supported idealist advocacy with numbers, he supported social change through a materialist understanding of the development of history, what he called historical materialism. Marx showed how history developed through an evolution of the means of production, the mode of production, the method by which society produced and distributed the products of that society. The realization of this historical truth is what allowed people for the first time not to be slaves to this historical process. We know with this knowledge that we have the power to shape our future societies through the deliberate use and organization of the means of production. This demonstrates that economic planning is essential in the construction of that future society. This of course requires the use of force through revolution, which requires the working class to rise up against its oppressors. It is not a matter of, as Harrison puts it, “Everyone should get together and intervene forcibly”. It is the working class that must come together and overthrow the capitalist class.

    What Harrison has given here is no demonstration of what Marx put forward as his theory. At best these are liberal complaints about the nature of capitalism that seem to correspond with “criticisms” that Marx makes. Marx does not criticize capitalism; he shows the very inner workings and function of the system, how it operates. In his analysis these byproducts of capitalism that liberals complain about are the inherent functioning of the system itself. This is why liberals always resort to regulation to tackle the evils of capitalism instead of opposing the system outright. These are not the side effects of the capitalist mode of production, these are capitalism.

    This is why Marx makes it so clear that a revolutionary overthrow of the ruling class is necessary.


    Who’s a Marxist Now?, Mark Harrison, Pieria

    Where Does the Power of Money Come From According to Marxism?

    •2014 04 20 • Leave a Comment

    We can all see that money has power in society, but where exactly does it come from? More specifically, how do we Marxists see where the power of money comes from? There are many differing opinions on this, the most famous one being the religious idea that money is the root of all evil. But of course this doesn’t tell us very much.

    Money has power in society, but where does this power come from? The desire to obtain money is an end in itself. It takes on all things in society, class status, symbol of prestige and social power. It appears as though money has a power onto itself. Money seems to have a will and consciousness of its own. This phenomenon where objects have social power or will of their own is called “the fetishism of commodities” by Marx.

    In this context Marx uses the term “fetishism” in the original religious meaning. It’s the view that inanimate objects hold power, or that these powers are attributed to them. Commodities and money can seem to have the same power, but really they are only expressions of our own labour.

    People produce things in a work place; people directly interact with one another during their production. The organizations of work, the division of labor, are direct social relations between people. When something needs to change in the process someone from management walks in and tells everyone what is up, or a collective decision is made.

    This is different in the market; instead there are indirect social relations that are the exchanges of commodities. The things that happen in the market place feed back to the act of production itself i.e. make more, make less or make them differently.

    Farmers, people who make cars, people who make furniture interact through the market place when their products meet each other. We see only exchanges of value. These social relations are indirect as they interact only through their commodities. In a single factory we have material relations, in the market those material relations are replaced with a social relation between things. This process of social relations between people manifesting as a relations between things, Marx called “reification”.

    When we purchase a commodity we are experiencing a commodity not the social relation behind it. Even if we know that there is a network of social relations there we still do not experience them. In this we understand that every economic relation is experienced via a commodity.

    This act of exchanging all things in society is where money gets its power from. The value of all commodities is expressed through money. The social labour that goes into the production of a certain commodity is expressed as a particular amount of money. As a result of this process of manufacture and exchange, money itself becomes the source of social power. The act of exchange gives it this power because it is an expression of social relations. The market is a collection of social relations, the more money you have the more social power you have.

    Thus we see the source of the power money has.

    Assumptions of Inflation: Post-Friedman Assumptions of the “Equation of Exchange”

    •2014 04 13 • Leave a Comment

    Section 1: Introduction
    Section 2: Milton Friedman’s View of the Cause of Inflation
    Section 3: John Harvey’s Response to Friedman and the Creation of Money
    Section 4: Additional Examples of Inflation Not Caused by Money Creation
    Section 5: My Response to Harvey’s Assumptions of Fractional Reserve Banking
    Section 6: A Bit of Marxist Perspective on Inflation


    Section 1:

    Most common economic thought on inflation comes from renowned economist Milton Friedman. His views are the ones most prevalent today. Interestingly his ideas spread into all walks of economic thought, accepted by many. Flip through an economics text book or read any of a billion blogs and you’ll find his ideas there no matter their leaning. Unfortunately his theory of inflation isn’t all that accurate and relies upon certain assumptions in order for it to work. This should by no means be limited to Friedman; all economists make certain assumptions about economics. The question here is to try and get the most accurate assumptions possible.

    This is not always an easy task. Real life is constantly throwing endless new variables and circumstances at us. This can make it difficult to keep up to date on the latest information. This in itself is a large undertaking, unceasingly keeping up with massive amounts of data coming at us. The task of collecting data can easily turn into a full time job. More to the reason why we have a whole employment field of economists to analyze it for us. Even a great deal of knowledge in economics can lead to a poor understanding of how inflation works and the assumptions made behind it.

    Since the global collapse of capitalism in 2008 the topic of inflation has been brought to the fore of economic debate, particularly on the internet. There has been much screaming from the right and the far right saying that hyper inflation is around the corner and going to strike us at any moment. For me this is like the “boy who cried wolf” situation. Anytime a Democrat gets elected the right screams a lot of things like gun seizure and hyperinflation are due. When we listen to the far right they say hyperinflation will happen in two to four months. Of course they have been saying this for around fifty to forty years. So I tend not to listen, but it is worthwhile now and then to go back a refresh myself on their argument.

    This is completely natural, anytime we face a crisis we are forced to take a second look at our prevailing ideology. It’s also a smart thing to do, we might see a flaw in our ideology somewhere that lead to the disaster we face. There are two approaches we can take to this: 1) we can stare very hard at the mechanics of our system and try to poke it to see if there is a leak anywhere in its operation. We may even return to its drawing board to see if there was something we missed. Or, 2) we can take the path of the religious and merely grip tighter to our faith when it is challenged. I’m sure we’re all familiar with the Christian in a crisis of faith praying twice as much repeating the prayer twice as fast.

    In our modern society we have seen both reactions take place in America. The now famous line by Alan Greenspan comes to mind when speaking about our prevailing ideology: “Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.[1] While I disagree with the capitalist mode of production and its corresponding social relations, I do give the man credit for acknowledging that there is a flaw and it must be looked after or the consequences will become much worse. This is the smart thing to do, question everything you think you know about the way things are run because you never-know where you don’t know something. Here I’m tempted to recall the historic line by Donald Rumsfeld: “There are known knowns; there are things we know we know. We also know there are known unknowns; that is to say, we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.[2] To put it plainly for you the reader, Greenspan is saying there are unknown unknowns that lead to the catastrophe we witnessed. Well, known to bourgeois economics anyway.

    On the other side we have a desperate cling to ideology in a time of crisis. Unfortunately the people who do this are being given far more credence than they deserve. Their reaction to the collapse is one that doesn’t analyze anything and merely grips the fundamentalist texts of capitalism even harder. Many simply resort to denial and insist that the problems can only stem from straying from the righteous path. In economic and social theory circles these people are known as libertarians (also “Anarcho”-capitalists). Their idea is that we must return to a principal that hasn’t corresponded to material reality in hundreds of years, or at all. It is from this fundamentalist view that we get the iconic libertarian phrase, “that’s not real capitalism”. The statement indicates a sincere (yet very misguided) wish to return to the economics of the Founding Fathers.

    We face the situation where libertarians won’t question the economic system of capitalism to see if it isn’t perfect. Much like the fundamentalist Christian won’t question the Bible on certain issues no matter how flimsy they are. Ron Paul is one of the most iconic of libertarians who I would think is probably quoted the most on it. (I’m not sure I’m just guessing based on my own experience.) He’s constantly insisted that the US return to a system of capitalism the prevailed in 1776. Of course for some reason he doesn’t realize that the productive forces and material reality of America has changed since that time. He sounds like an old man claiming things were better in the 50’s because there was a more proper Christian family structure (nuclear family).

    These ideas by libertarians to just simply ignore the way the world is and just steadfastly demand that we return to a “simpler time” are just irrational, even dangerous. We don’t live in a country that existed like the Founding Fathers did. Capitalism has had time to progress to what it is today with all the concentration of capital that Marx predicted. At present there are about 147 companies that control the majority of the economy of the entire world.[3] It is impossible to simply go into a denial of Marx’s writings and claim this never happened. (Actually I have had to call one college professor out on that very issue. I’m still waiting for your reply Dr. Flynn.)

    This is why we need to really look twice at the basic assumptions we have about this system. More specifically we should look at our prevailing ideas about inflation and what causes it. The established counter assumptions of inflation that exist are not entirely accurate and also must be called into question. This is the very point of the work you are reading right now. It is based off of a blog post I read by John T. Harvey of the Forbes website.[4]

    I read his post where he takes a critical look at inflation as it is laid out by Milton Friedman. He notes that Friedman’s theory of inflation is wrong because it makes certain assumptions about the variables in the equation of exchange (MV = Py). When Harvey looks at them in a different light we can see the mistakes Friedman makes. Along with this he also covers the misconceptions that everyday people have about how the Federal Reserve expands the money supply. A view that is not unique to that of the libertarians, it’s a misconception that many, many people hold. It has spread quite rapidly because of the internet. The right wing has fallen for it because of the rantings of Ron Paul. The left has fallen for it, I think, because of the popular Zeitgeist movies. They think the Fed just prints more money and it goes out into the public without question. To use Friedman’s example, a helicopter just comes along and dumps it on the country.

    What Harvey does is respond by correctly showing how the Federal Reserve creates more money and gives new light on the variables in the equation. His new light makes much more sense than Friedman’s does. It also corresponds to reality in a way Friedman’s couldn’t. Harvey is taking the material conditions of our modern capitalist system into account where Friedman relied too much on Econ 101 to formulate his theory. After reading his blog post I noticed some things were left out that caused Harvey not tell the whole story. Of course, as a Marxist, I am going to have a different view than he does. I’m only seeing the equations and its interplay with the other variables from a Marxist perspective. I think my view certainly has something to add to the topic.

    1) Milton Friedman’s idea of inflation and misconceptions that surround public ideas around money creation

    2) John T. Harvey’s response to Friedman’s concept of inflation and truth behind how the Federal Reserve creates new money

    3) More examples of why Harvey’s more flexible assumptions of the equation of exchange are more accurate

    4) My investigation into the assumptions of Harvey’s variables from a Marxist perspective

    It is my hope that this work will increase the reader’s understanding of the nature of inflation and how it works. On top of that I hope it increases the reader’s understanding of Marxist economics.


    Section 2:
    Milton Friedman’s View of the Cause of Inflation

    Friedman puts forth a basic concept of how inflation occurs in the economy. This concept has been almost universally taken as truth with little or no investigation by libertarians. The idea is this: printing more money causes inflation. It’s pretty simple and gets straight to the argument. It’s not surprising that it is taken so easily, it’s short and simple to understand. That’s not a criticism mind you; it’s just an explanation for the ease of its travel around opinion of non-economists. Superficially it makes a lot of sense and seems reasonable. We hear about this all the time, the talk of QE or Quantitative Easing has entered into our mainstream economic language. We’ve now gone through three rounds of QE which has a lot of people nervous.

    The question as to whether or not to be nervous is very subjective depending on your opinion of what QE will actually do. (Investigating QE is not the purpose of this work.) Personally I think that the first two QE did not accomplish what they were intended to (repair the economy). So in my view the QE3 is pretty much useless and won’t accomplish what the previous two rounds failed to. Let us disregard this for a while as it is distracting us from what we are supposed to be discussing. We should therefore begin with the “equation of exchange”:

    MV = Py

    The variables in this equation are defined as follows. M is equal to the supply of money in the economy at any given time. V is the velocity of money, meaning how many times the average dollar is spent in a given time period. P is the average price of goods and services, while y is the total quantity of all goods and services sold during the time period in question. With this we can create a temporary fictional economy to explain the equation. Let us say as Harvey, “Thus, if there were 100 goods and services that sold for $10 each (on average), then that means a total of $1000-worth of transactions took place. Were there 200 one-dollar bills in this economy, then it must be that each was used 5 times (hence the “velocity” of money, or how fast they were spent again).” It would be expressed in this way:

    MV = Py

    200 x 5 = 10 x 100

    This is the standard equation that all economists use, there is nothing outrageous here. This is not some Marxist conception of what the equation should be or anything like that. What is before us is used by every economist in the world (or something similar). I’m sorry to have to go off track again but some people don’t understand this. They automatically assume that when a Marxist writes something, it has been changed in some way to fit another view despite the fact it has been written in plain bourgeois economic formulae. I’ve done no such thing here, when I do I will state that I am so that way no one will get confused.

    From this we can now get our equation that shows what inflation is according to the commonly accepted belief of it.

    Money Growth ==> Inflation


    M ==> P

    The idea is that if you simply increase the money supply then the price of the goods and services will automatically rise with the drop in the value of the dollar. This devaluation of the dollar occurs because there is now more money in the system. This view is based off of certain assumptions that are made about the variables in the equation that are commonly accepted without question. The mistake is made when we assume certain things about the very nature of the variables. This can be very hard for some people because our opinion and views of them can vary according to things like life experience which can be very subjective. Friedman (and many others) for example sees them in an overly simplistic way that leaves out much of the context of society and the prevailing social forces within it. What do I mean by this? I’ll explain later on when it’s appropriate to get into it with more detail on it. For now we’ll take a look at exactly what assumptions are being made when someone holds the inflation view M ==> P. Meaning the assumptions that have to be made in order for this view point to work. I’ll be quoting directly from the Harvey article for the sake of simplicity.

    M: That which is money is easily defined and identified and only the central bank can affect it’s supply, which it can do with autonomy and precision.

    V: The velocity of money is related to people’s habits and the structure of the financial system. It is, therefore, relatively constant.

    P: The economy is so competitive that neither firms nor workers are free to change what they charge for their goods and services without there having been a change in the underlying forces driving supply and demand in their market.

    y: The economy automatically tends towards full employment and thus y (the existing volume of goods and services) is as large as it can be at any given moment (although it grows over time).

    Taking these assumptions of the variables we can now go back and look at our equation of exchange and see how it is that the “money growth ==> inflation” belief comes about.

    It is theoretical here that P cannot change on its own and y is currently assumed to be as high as it can be given the current level of technological development and availability of resources. When we look at V we see that it is insisted that it is constant. So what remains? Obviously we see that P is the only variable that is assumed to have the power to change. By working on these assumptions it is only logical to immediately look at P when we see any fluctuation we observe or introduce. This is why P is automatically said to be the cause when inflation occurs.

    This is what leads us to Friedman’s famous claim about the Federal Reserve just printing more money. In his book “The Optimum Quantity of Money” Friedman uses the example of a helicopter flying in and dropping new money into the money supply. By this we get the idea that the central bank has the power to simply double the money supply at will. This is what Friedman’s helicopter example is supposed to express. Alright, let us work under the postulation that this occurs.

    MV = Py

    400 x 5 > 10 x 100

    If this is to be considered a problem we have three possible solutions that don’t involve simply reducing the money supply (lower M back to 200). To quote Harvey again, “1) y could rise to 200, but of course it can’t because it’s already at its maximum; 2) V could fall to 2.5, but it is constant (something Friedman takes pains to emphasize in the original article); or 3) P could rise to 20. It is of course the third that proponents of the “money growth==>inflation” view say will occur.

    MV = Py

    400 x 5 = 20 x 100

    We must go back and look at why this can be the only outcome. Because we are operating under certain assumptions that only allow us to have this one conclusion. “Friedman says that y is constant at the level associated with the natural rate of unemployment, while V is indirectly related to agents’ demand for cash. When people want to hold more cash, V, the rate at which they spend cash, naturally falls, and vice versa. But, Friedman further specifies that V is relatively constant and so, therefore, is the demand for cash.” The conclusion is that when the central bank created more money it means people are now holding more money than the care to have. It’s saying that the Federal Reserve has increased the supply of money beyond the demand. It assumes that the demand remained at the original level so the Fed printed money because it felt like it. (Or that it was a part of an evil conspiracy to destroy America.) The only possible outcome of an increase in the money supply by people who hold this view of inflation is that people go out and spend this money on goods and services. But they don’t purchase any more or any less because they are also assuming in aggregate, more does not exist. The only result is that the suppliers of goods and services bid up their prices up. Voilà, money growth led to inflation!

    As we can see there has been no investigation as to why inflation occurs in an economy. There has only been a set of assumptions that can only lead to this one conclusion. These assumptions of the variables in the equation are in reality preconceived notions of modern capitalist society. The variables are supposed to reflect truths of the system in which we live, yet their function cannot produce a scientific result. The assumptions are made about the equation because bourgeois economic theory makes certain assumptions about the social relations between individuals that spring from the productive relations between them.

    Harvey does correctly point out that Friedman’s assumptions are incorrect. However what he does not do is determine why they appear the way they did. The reason is because of the notions that capitalism makes about people and their motivations that are not true, they are only repeated for the sake of preserving the capitalist economic order. Take for example the claim that people only act in their own self-interest, yet if this were really true, charity could not exist, but this is considered something society can rely on.

    In the next section I will be discussing Harvey’s response to Friedman and these incorrect assumptions that are made, as well as giving us alternative explanations as to why inflation occurs.



    Section 3:
    John Harvey’s Response to Friedman and the Creation of Money

    Harvey’s response to Friedman and to the commonly held belief surrounding inflation is very important. In real life much of this is completely untrue, particularly on currency creation. The problem here is that this explanation is very superficial and is usually given out at Econ 101 lessons. Harvey points out that people only seem to remember the “M ==> P” part and not the assumptions surrounding the variables that lead to it. When people do this they fail to scientifically understand why they arrive at the conclusion they do. We need to always keep in mind (for many things not just economics) that our assumptions have to change over time as material conditions change. Unfortunately bourgeois economics isn’t concerned with material conditions and instead stick to such assumptions, often starting from a priori information.

    On this level Harvey does acknowledge this by saying the following about the assumptions made of y: “One need only look out the window to see that it is not currently at the full-employment and therefore maximum level.” Of course, capitalism can never have full-employment, it’s literally not possible. Harvey acknowledges these flaws in the variables and proposes alternative ones. What he is saying is that there is no reason why other variables can’t change in the equation with an increase of the money supply. For example:

    MV = Py

    400 x 5 = 10 x 200

    Harvey suggests that if you increase the money supply there is no reason that it won’t result in more consumer spending. People will go out and spend that money which businesses will gladly accept and use to invest in more products and services to meet the increased demand. The theory holds that this will stimulate job creation in order to meet that new demand. This is what the government is trying to do right now with deficit spending. This is the plan that those who are opposed to the current economic policy are trying to stop from happening. Whether or not it will work is another matter completely, I’m merely giving Harvey’s argument at this point.

    Harvey goes on to discuss the V in the equation. He says the velocity of money is not constant. I whole heartedly agree with this statement, consumption of goods and services does not remain at a near fixed rate. It fluctuates all the time given the various material conditions consumer and the economy find themselves in. As an example he gives, consumer spending tends to decline during a recession. It’s only natural that when people become concerned that the economy is going to crash they tend to begin saving more money than they normally do. When they lose their jobs they don’t have money to spend. Of course, they’re concerned about paying bills in the future because of instability that may be just around the corner. None of us really knows when we might lose our jobs, especially if we’re among the working class. We worry even more so if we’re in the minimum wage income bracket. We can definitely see for economic data that people do save during a recession.

    US Personal Saving Rate and GDP Growth (2000-11)

    Now let us take these two new assumptions made of the variables as Harvey did and apply them to the equation. What we have is a combination of factors; the money supply is increased during a recession as people are also beginning to save more out of concern for future expenses. Obviously this is done to combat the effects of recession which include people saving more than usual. To quote Harvey: “Or it could be some combination of a rise in y and a fall in V–this would make perfect economic sense. Notice how the process of making the initial assumptions of this approach more realistic is making it far from certain that a rise in M leads to a rise in P, particularly during an economic downturn.

    As Harvey investigates even further he goes into the definition of M itself. Friedman assumes that all money in the system is what directly comes out of the central bank. This is demonstrated quite clearly if we return to the definition given:

    M: That which is money is easily defined and identified and only the central bank can affect it’s supply, which it can do with autonomy and precision.

    A good question that Harvey asks here is what constitutes money? What exactly in the system counts as money? It’s a very good question as even economists have differing definitions of what money is. Is it the physical currency that is in your pocket right now? Does it include the ones and zeros that exist on the digital balance sheets of the private bank? Is it the line of credit that exists on your credit card? If you make a purchase on it does that count as money? These are all questions we should ask ourselves when we’re trying to determine what the supply of money actually is, what constitutes money that is out there. This is, I say again, why economists have several possible definitions for what money is. Now because of this act, it becomes suspect how much money is actually in the economy. If we don’t know how much money there is, what interference does this have on the operationalizing of the equation?

    To make matters even worse for determining what the money supply is we have to take into account the private banking sector. After all, banks expand the money supply every time they create a loan. Yes this is fractional reserve banking that is creating new money out of thin air. The bank keeps only a fraction of total necessary reserves in the in bank’s vault. This goes completely against the assumption that is made about M. When we acknowledge this it completely alters the possibilities surrounding the equation of exchange and correspondingly the possible causes of inflation.

    To finish off the incorrect view “money growth ==> inflation”, Harvey reminds us that this notion that the Federal Reserve simply dumps new money into the economy is completely wrong. Milton Friedman is just simply outright giving a complete falsehood here. Remember his example of the helicopter flying in and dropping new money in the money supply? It’s not a metaphor that is intended to make the process seem simpler to understand, he is claiming that is how it works. Supposedly the Federal Reserve just prints more money and drops it on the public without their consent. But there is a problem with this, it’s not true, this is not how money is created.

    Harvey gives us a good explanation as to how the money supply is actually expanded:

    “However, that can’t happen in the real world because the actual mechanisms available are Fed purchases of government debt from the public, Fed loans to banks through the discount window, or Fed adjustment of reserve requirements so that the banks can make more loans from the same volume of deposits. All of these can raise M, but, not a single solitary one of them can occur without the conscious and voluntary cooperation of a private sector agent. You cannot force anyone to sell a Treasury Bill in exchange for new cash; you cannot force a private bank to accept a loan from the Fed; and private banks cannot force their customers to accept loans. Supplying money is like supplying haircuts: you can’t do it unless a corresponding demand exists.”

    This incorrect view of money creation is a part of the misguided assumptions made about the variables; particularly the M. Friedman uses the helicopter metaphor because it’s the only way for the idea that simply increasing the money supply causes inflation can work.

    To make investigations into inflation more reasonable and actually allow an analysis to be conducted, Harvey gives us some new definitions of the variables in the equation:

    M: A precise definition and identification of money is elusive in a modern, credit-money economy, and its volume can change either with or without direct central bank intervention. In addition, the monetary authority cannot raise the supply of money without the cooperation of the private sector. Because central banks almost always target interest rates (the price of holding cash) rather than the quantity of money, they tend to simply accommodate demands from banks. When private banks communicate that they need more reserves for loans and offer government debt to the Fed, the Fed buys it. It’s the private sector that is in the driver’s seat in this respect, not the central bank. The central bank’s impact is indirect and heavily dependent on what the rest of the economy is willing to do (which is, incidentally, why all the QE and QE II money is just sitting in bank vaults).

    V: The velocity of money is, indeed, related to people’s behavior and the structure of the financial system, but there are discernable patterns. It is not constant even over the short run.

    P: While it is true that factors like production bottlenecks can be a source of price movements, the economy is not so competitive that there are not firms or workers who find themselves able to manipulate the prices and wages they charge. The most important inflationary episode in recent history was the direct result of a cartel, i.e., OPEC, flexing its muscle. Asset price bubbles can also cause price increases (as they are now). The key here, however, is that P CAN be the initiating factor–in fact, it has to be, since M can’t.

    y: The economy can and does come to rest at less-than-full employment. Hence, while it is possible for y to be at its maximum, it most certainly does not have to be.

    These assumptions are far more reasonable and allow us to look at different factors in the economy that might affect the equation. He gives us an example of how this is possible with his assumptions:

    “…the most important inflationary episode in post-WWII history was that during the 1970s and early 1980s. From 1968 through 1972, consumer price inflation averaged 4.6%. Over the next ten years it was 7.5%. What happened? What caused this sudden and dramatic acceleration in prices? Did the Fed accidentally print too much money? As already explained, that can’t happen–you simply can’t raise the money supply above the demand. M did rise, however, and largely proportionally to the increase in P. This is a much more realistic story of those events.

    As the price of oil skyrocketed, so costs of production rose for many, many US businesses. Because there is a lag between purchasing inputs and selling output, most firms have to borrow money (working capital) to bridge the gap. As the ripple effect of the OPEC price increases moved throughout the economy, the demand for cash by these businesses rose. Quite reasonably, private banks and the Fed did what they could to accommodate. These were fair requests on the part of US entrepreneurs. Loans were extended and government debt sold by the private sector to the central bank. This raised the supply of money. Therefore, the rising prices led to an increase in the supply of money and not the other way around. QE, QE II, and the federal government deficit cannot by themselves cause inflation.”

    Harvey gives a very good refutation of the questionable assumptions made by Friedman concerning the variables in the equation of exchange. He’s adequately shown why they are incorrect, offered his own assumptions and shown why they are superior. In the next section I will describe the limitations of assumptions made by Harvey on the variables, and assumptions on fractional reserve banking. I am intending to look at this not only from Marxist but also a bourgeois perspective.


    Section 4:
    Additional Examples of Inflation Not Caused by Money Creation

    The trouble with discussing inflation is not just getting past the false concept of it, printing more money causes inflation and so forth. The additional problem is that people don’t know how to correctly define what inflation is. Harvey gives a very good straight forward explanation: Inflation is simply a rise in the average price of goods and services in the macroeconomy. Which particular goods and services depends on the measure we are examining. This gets right to the heart of the matter. Too often people (particularly libertarians) see the increase of the money supply itself as inflation. No, it is the increase in prices of goods and services that is inflation. This is the main point we have to keep in mind as we look further into other causes of it.

    Harvey did a blog post about two weeks later where he gives some really good examples of inflation where the cause had nothing to do with the creation of new money.[5] I’ll be giving those here along with my own to give you the reader a better view of the different forces in the economy that can cause this misunderstood problem.

    1973 Energy Crisis

    Everyone remembers the oil shortage during the Yom Kippur War in 1973. The war began when a group of Arab states led by Egypt and Syria attacked Israel to take back land that had been stolen including the Sinai Peninsula. (In addition to attempting to stop the Israeli genocide of Palestinians.) Regardless of the cause of the war, it happened. At some point the US became involved by sending arms supplies and $2.2 billion in appropriations to Israel. In response to this Saudi Arabia declared an embargo against the US which was joined later by other OPEC countries. What they did was reduced oil supplies by 5% leading to what today we call the 1973 energy crisis. This was possible because there was a cartel and they were able to avoid competition. The increased cost in fuel had a huge effect. Transportation alone is a good chunk of the cost of products. It also plays a big part in the production of plastic goods. Businesses suddenly became faced with a shortage in funds unable to meet production costs. As a result they had to return to the banks in order to get more credit for the cycle of production. This caused the banks to go to the Federal Reserve and request more money. Thus the money supply was increased.

    MV = Py

    300 x 5 = 15 x 100

    As we can see the increase in the money supply resulted not from the Friedman-copter making an unrequested delivery. The increase in prices (the inflation) was not driven by the increase in the money supply, just the opposite in fact. The increase in the cost of fuel increased the cost of production leading to all kinds of businesses seeking more credit to make up for it. There were other consequences as a result of the oil shortage. Some firms actually sold assets to meet the increased cost in fuel instead of borrowing. There were even households that took out consumer credit to cover their bills during this time which also added to the money supply.

    This phenomenon is called “market power”. OPEC has the ability to restrict the supply of oil because they have so much control over the supply of it. Once in a while this can happen; a firm makes a grab at extra profits because they hold so much control over the supply. Of course they can only go so far before people just stop purchasing their product, but this was impossible to do with oil as so much of the world’s economy depends on it. There are other examples of this happening in the economy but this one does the job of explaining it.

    Housing Booms

    Another cause of an increase in prices can be a sudden increase in demand in a sector that is not prepared for it. If there is, for example, a housing boom there can be supply problems. Take for example several years ago when oil production in Alberta, Canada began to really take off. Many, many people immediately moved there to take advantage of the new demand for labour in the energy sector from new production. When tens of thousands of people moved there housing became a more serious issue. Many of these jobs were well paying jobs that allowed people to purchase homes. As a result there was a housing boom in the province due to a sudden increase in the demand for homes.

    So you have all these home builders suddenly having a great deal more homes under construction than before. This sudden demand can cause shortages in certain building materials such as lumber. It takes a while for the market mechanism of incentivising others to enter into producing these same materials to begin. In the mean time there is a bottle neck in the supply. When this shortage goes on contractors who build the homes have to bid up in order to get the materials they need. These price increases have a ripple through the economy. Consumers and firms now require a larger money supply in order to operate. The Fed gets the signal for this need from the banks and accommodate accordingly. This phenomenon is called “demand pull”. Here we can see it is an increased demand in a material (or several others like brick) suddenly that can cause a rise in prices that can spread out into the rest of the economy. Because of the sudden demand for housing, including rents, Burger King for example had to raise it starting wage to $15 to $22 an hour because of the cost housing and a lack of labour. This is an example of how “demand pull” can have a further effect in the economy.

    Asset Market Boom

    When the market for an asset booms it can have a huge affect on price, meaning inflation can be injected from the asset market. This one is especially true today as finance capital become more and more powerful. The link between the cost of goods and services and financial assets is not always solid; sometimes there is no link at all. It’s particularly important to keep this one in mind as it takes up so much of the US economy, and can therefore exert so much influence on it. This is put well by Harvey here: Witness the 1990s, with a massive increase in stock prices but very little movement in the consumer price index. However, lines of causation can exist, particularly though commodities futures.

    Here is what happens; speculative money makes a guess that the price of something is going to go up in the future, anywhere from a few days to a few decades. Some speculator says that the price of oil is going to go up in a few weeks; we see this on the news all the time. In response, those who are actually selling the commodity withhold the supply in favour of the time in the future when the price will be higher. They do this because there is an incentive to do so, the supposedly higher price in the future will lead to higher profits. The rising spot price then convinces people that his speculation had been correct and increases his prestige. Often as a result the producer of the commodity takes the blame for the increase in price. The money supply does increase as agents take out loans and sell government securities. The problem here isn’t the increase in money, it actually stems from the power speculators have.

    This one of truly great ironies of capitalism is that something that doesn’t exist (guessing what will happen in the future) has such an effect on something real and physical that exists here and now. Literally nothing has happened to the supply of any commodity, but because someone is guessing something, the price can drastically increase. What someone thinks the market is going to do can have more of an effect than what is really going on.

    (I have firsthand experience with this phenomenon. For several years I worked in a gas station behind the counter working the cash register. At least twice a month people would come in to buy gas after hearing on the news that the price was going to go up in a day or a few days. I rarely saw this increase take place. Twice I had heard from customers that some talking head told the public that gas was going to increase to $1.50 to $1.60 a litre during the summer. This never happened the entire time I was working there. However as a result of the talking head’s claim, there were days when I had far more customers than usual even though literally nothing had changed in the supply of oil. Other times they would say the price was about to go down so people held off from buying it, only to see the price increase a few days later.)

    Supply Shock

    This one is pretty simple and doesn’t require much of an explanation. Harvey does it justice: If a storm rages through the Gulf of Mexico, taking out oil derricks and refineries along the way, this may well raise the price of oil and gas. As it should, for this creates incentives to build more derricks and refineries and for consumers to find alternate energy sources. Again, this is what capitalism is supposed to do. In terms of who wins with this sort of inflation, it’s obviously more complex since it depends on whose derricks were destroyed and who gets to build new ones. In any event, this, too, can lead to a rise in the money supply and there is no logical reason for the Fed to block this.


    Now I would like to add my own example. Let’s take a much more complicated inflation situation and look at it closely. What I’m going to talk about here is what happened in Zimbabwe to cause their hyper-inflation situation.

    First off let’s deal with the immediate accusations that are made. This is not what happened to the Weimar Republic, this is not proof government deficits will generate hyper-inflation and this is not proof that a fiat monetary system doesn’t work.

    The roots of the inflation lie in the end of its colonial era when Whites owned about 70% of the country’s productive land. After the revolution that ousted the White-only rule, the fighters immediately began taking land that was owned by the White minority and thrust it into the hands of Black farmers. This was an absolutely correct thing to do as a measure of ending the remnants of the colonial period and create equality. (If Whites had been left to own 70% of the productive land they would have held all the economic power.) The problem is that the land reform was not so much implemented, as it was a grab from one group to another. When we view it through the lens of economics it was a disaster. Unemployment rose to 80% and most people are just scraping by on minimum wage. The land reforms represented the first big contraction in potential output. A demand contraction was needed but it was impossible to carry out because 45 per cent of the food output capacity was destroyed.

    To make matters worse, much of the infrastructure in the country was being ruined and these demand constraints reverberated throughout the supply-chain. The National Railways of Zimbabwe had disintegrated to the point where much of its ability to transport minerals was drastically reduced. This resulted in a 57% decline in mineral exports. This also affected manufacturing:

    The Confederation of Zimbabwe Industries (CZI) publishes various statistics which report on manufacturing capacity and performance. Manufacturing output fell by 29 per cent in 2005, 18 per cent in 2006 and 28 per cent in 2007. In 2007, only 18.9 per cent of Zimbabwe’s industrial capacity was being used. This reflected a range of things including raw material shortages. But overall, the manufacturers blamed the central bank for stalling their access to foreign exchange which is needed to buy imported raw materials etc.

    Now, because there is a shortage of food, the central bank used its foreign reserves to purchase agricultural imports. So we can see the problem here, domestic food production was almost completely ruined so they had to rely on imported food which blocked manufacturers from access to foreign exchange. Essentially what happened was that both ended up getting ruined in the end. Much of the goods and services end up not being imported because of the high import duties. When you consider both of these factors together we get the 80% unemployment rate. Having this is destroying aggregate demand for goods and services.

    Further, the response of the government to buy political favours by increasing its net spending without adding to productive capacity was always going to generate inflation and then hyperinflation.

    But while the hyperinflation was almost inevitable it provides no intrinsic case against a government that is sovereign in its own currency and who runs permanent deficits to pursue full employment – under the guidelines specified above – responsible fiscal management.

    When you so comprehensively mismanage the supply side of your economy as the Zimbabweans did the only way to avoid inflation is to severely contract real spending to match the new lower capacity. More people would have starved and died than already have if the Government had have cut back that severely.

    But this disaster has nothing much to do with budget deficits as a means to ensure high levels of employment in a growing economy (where capacity grows over time) where the non-government sector also desires to save. A private sector investment boom would have caused the same outcome both in inflation and the political problems of fighting it. So will the hyperventilators also say we should not have net private investment?

    The historical context is important to understand because it created the political circumstances which have made the hyperinflation inevitable. But these historical vestiges from the colonial white-rule bear very little relevance to the situation that a modern sophisticated fiat monetary system will face.



    Section 5:
    My Response to Harvey’s Assumptions of Fractional Reserve Banking

    What Harvey says about the private banks not being forced to take money from the Federal Reserve is true. I however have seen a problem that has arisen out of the 2008 Global Collapse of Capitalism. The role of banks in any recession is to lend money out so that it may be invested (or spent) in order to stimulate production which would lead to jobs being created. In turn those newly employed people will be taxed and they will spend their income on goods and services they need to survive. Unfortunately the banks don’t seem to be lending out the money they have taken from the Federal Reserve. The money that is being put out is seemingly being kept in the bank’s vault and written in as profits. Some of it is being loaned out, but much of what is actually spent on is their own investments, not loans out for people to start businesses. Jobs have barely been created while bank and Wall Street profits have sky rocketed.

    Wall Street firms — independent companies and the securities-trading arms of banks — are doing even better. They earned more in the first 2 1/2 years of the Obama administration than they did during the eight years of the George W. Bush administration, industry data show. [...]

    The largest banks, including Bank of America, Citigroup and Wells Fargo, earned $34 billion in profit in the first half of the year, nearly matching what they earned in the same period in 2007 and more than in the same period of any other year.

    Securities firms — the trading arms of big banks and hundreds of other independent firms — have fared even better. They’ve generated at least $83 billion in profit during the past 2 1/2 years, compared with $77 billion during the entire Bush administration, according to data from the Securities Industry and Financial Markets Association.[6]

    Unemployment Rate Jan08-Jan13

    It’s clear that the money is not really being loaned out into the economy for people to start businesses or even to make consumer purchases. Despite that, banks are reaping in huge profits from trading themselves and hoarding the rest to keep up their reserves and entering it as profit. Yes, some is being turned into profits but enough to justify the huge numbers. It is also clear that it is not being loaned out to start production creating jobs if we look at the unemployment rate (Jan 2008 to Jan 2013). We must also take into consideration that there has been three rounds of QE. In Harvey’s article the third one had not taken place yet, nor do I think it was even being discussed publicly. I believe (because there is no concrete proof) that this is why multiple rounds of QE have been carried out. All we have to go on for sure is the reason why Federal Reserve is carrying out this policy and the fact that it is not meeting its stated objective. The banks are not loaning the money out and instead keep it as reserves. It seems (at least to me) that the Federal Reserve keeps giving the money to the private banks because that money needs to go out into the public. I supposed the government keeps hoping the banks will eventually give some of it out. (This is also a part of why some think there will be a “second dip” in the recession, but that’s not the focus here.)

    The question then arises, why are the banks doing this? Despite the beliefs of some people, banks actually do harmful things for a reason. They are not merely secret evil communist organizations as Tea Partier and Libertarian organizations claim. Banks do horrible harmful things, but I as a Marxist recognise it as a part of their function. What is economically rational is not usually what is socially rational.

    The Global Collapse of Capitalism in 2008 taught the banking and financial industry a very hash lesson. They found that they were not invincible and that recession can still happen. Often many claim that another one is impossible supposedly because we learned from the last one. I’m not accusing traders and whatnot of thinking this, but it was an idea that was spread around. Banks learned there are limits to how much fictional money they can create as is what happened with the housing crisis in the form of mortgages. The lesson they learned is that they need to keep a greater reserve in vaults. (Of course they should have learned not to be so risky, but they’re not going to acknowledge that. It’s tempting here to get in to the whole cause of the Global Collapse of Capitalism, but I’ll leave that for another paper.) Several banks went bankrupt and ceased to exist. This was a scary wakeup call to the financial industry. They needed something to help prevent this in the future, or at least minimize the impact.

    What they were looking for was a preventative measure(s) that doesn’t threaten profits. Having larger reserves to back up the amount of fictional money they create through a fractional reserve banking system seemed like an ideal solution. When the debt all failed they lost a massive amount of the money they had, because remember, that amount created through loans also counts in the money supply. What many may have seen as a problem is the lack of “real” or physical currency in reserve. Of course this could not have avoided the crisis, but a larger reserve could have made the difference between a bank going bust and it just barely surviving, albeit very unhealthy. The preventative measure is, keep larger reserves in the vault.

    The best way to do this is to ask for it from the Federal Reserve. If a bank asks for the money and then keeps it, there is no risk for them. The money is real and it doesn’t count as a subtraction from any investments or deposits they current hold. They didn’t have to sacrifice anything in order to get it, nor did they have to raise the money by subtracting from their investments or raising banking fees. This is the perfect solution for them.

    All of this perfectly fits within what Harvey said about banks taking from the Federal Reserve. “You cannot force anyone to sell a Treasury Bill in exchange for new cash; you cannot force a private bank to accept a loan from the Fed; and private banks cannot force their customers to accept loans.” This is what happened; no one forced anything on anyone else. It wasn’t necessary; the banks wanted the money so the Fed seeing the demand created the supply they asked for. The only problem with what was laid out by Harvey is not recognising that the banks can ask for money if they don’t intend to loan it out. The assumption he makes is that a bank is only going to ask for money from the Fed if they see a demand for it. This is incorrect, as we have seen the money has been granted to them in three rounds of QE, but has not been given out as demonstrated by the previously given data. It is not being loaned out.

    Commitment Status, Percent of Amount of Loans Made Under Commitment by Size of Loan- (thousands) 100 to 999, Large Domestic Banks

    The problem here with repairing the economy is a contradiction within capitalism. Marx spoke of contradictions within the system that makes up what it is. The economy can only recover when production begins again and the products are profitable in sale. In Marxist terms the circuit of capital has to be restored. Money has to be loaned out into production, commodities are purchased (raw materials etc), production is done with the commodities, commodities of a greater value are made, and then those commodities are sold for a greater amount of money. Commodities of a greater value are created through the application of labour. (Most production is done by borrowing money ahead of the creation of profits, which is why money needs to be loaned out, but not always). This can be expressed in the following circuit:

    M – C … P … – C’ – M’

    P = [labor power + constant capital]

    Essentially profitable production has to begin once again in order for the economy to recover from the recession. The money goes into production where materials have to be purchased; people are hired creating jobs, they produce commodities that are sold. This begins the recovery of the economy which beings with an increase of production which usually requires a loan of money ahead of that production to be paid back when profits are realized. All of this means the banks have to loan the money they took from the Federal Reserve out. So if this is all it takes to repair the economy, why aren’t they doing it?

    Here comes the contradiction: Banks have to loan out in order to repair the economy, but the banks are not loaning out because the economy is bad. The very thing the banks need to do to end the recession they won’t do because there is a recession. This is one of those contradictions that I alluded to earlier. Banks are justifiably hesitant at this time to loan out money because the average household is carrying a large amount of debt. In addition they can also see that the financial industry is returning to the same risky operations that ignore the production of commodities and services for quick return trickery.

    On the other hand they have to loan this money out because it is the only way for the economy to recover. As I have shown previously the banks have the money, they’re just not loaning it out. If we’re giving the banks the money and they’re not loaning it out, what do we do about it? What can we do about it? In essence, right now, there is nothing we can do. This is why I think the Fed keeps giving the banks more money; they’re hoping they will eventually start giving it out. It seems rather senseless doesn’t it, repeatedly giving the banks more money under the premise that they are going to use it for loans? Rightly, the Fed shouldn’t say no to giving money to help repair the economy. All the Federal Reserve can do to help is supply that money to the banks upon request.

    The question before us now must be asked: What would it take to solve this problem? Well one primary thing in my view: A mechanism with which to force the banks to lend it out the money they have been given.

    This may be a bit tricky, private banks are not too fond of regulators or government telling them how to run their business. But then again thanks to that same attitude the world went into a major recession primarily because of their inability to regulate themselves. Clearly we are in a situation where the money needs to be loaned out and the banks are not doing it. Since the recession won’t recover without it we’ll need to brute force it (the lending) with state regulation.

    I’m not advocating very much here. We could have something simple like determining how much would have to be loaned out in order to get the economy going once again. Let’s say we set a particular percentage rate for the loan that is attractive to people looking to enter production, or begin another round of production. The rate, I don’t think, would have to be very low, I’m pretty sure there is a decent amount of people looking to get started. Perhaps not all that would be preferable, but enough at least to get things moving.

    The Federal Reserve could dictate how much of the money given to them must be put out in loans only if the application for the loan met certain minimal requirements. The Fed could do this quite easily and hand a paper to each bank making it flexible enough for them. This mandatory loaning would be a condition of the money given to the banks, meaning they could take the money back if the banks refused to carry out the loans. Once the loan has been made, the bank could be left relatively free to do as they saw fit with their relationship with the customer. Of course there would be massive resistance to such a policy, but since we’re talking about saving the economy I think the banks can shut up while we save the economy from their actions.

    Americans particularly hate to hear this, but the only solution I see in this situation is government control. The banks and financial sector are doing what is not in the interests of the economy in keeping it sustainable. What they are doing is only in their own best interests, and that is eventually going to cause another drip in the ongoing recession. This is another contradiction of capitalism; the self-interest motive is inherently driving the destruction of the system of self-interest. Many haven’t managed to get this through their heads yet. They’re still thinking that the free market will solve problems for them; it’s an assumption that still lingers in even the most educated of minds.

    I think it is this assumption by Harvey that leads us into the dead end we face. Banks can ask for money without intending to loan it out. They can do it with the purpose of only protecting themselves and not thinking about the health or even sustainability of the economy. This is what I mean when we have to keep re-thinking our assumptions when it comes to economics. To my knowledge this problem of banks refusing to loan out money has not happened before, thus we don’t see this possibility in our assumption. We have to learn from the changes in material conditions in order to keep up-to-date assumptions. If not, we all risk ending up like libertarians, still thinking this is 1776 and world works according to that time period.


    Section 6:
    A Bit of Marxist Perspective on Inflation

    The Marxist understanding of inflation is quite different from the incorrect mainstream one that both Harvey and I have attempted to push into the back ground hoping to never see again. For example our understanding doesn’t include things like assuming perfect competition or full employment. Instead when we analyze it we seek to also understand who is benefitting from the inflation taking place. Inflation and deflation have real serious social costs like increased unemployment, lower real wages and an increase in exploitation. It often shifts income distribution towards the capitalist class along the balance of social forces towards capital and, particularly financial interests. Even more accurate ideas about inflation such as those espoused by Harvey don’t take these latter points into analysis. He does acknowledge that inflation is beneficial to one group over another.

    What this means is that workers and capitalists fight over the share of profits generated by production.

    Inflation never affects everyone equally. It shifts buying power from one group to another (even though the winners may still complain because they see themselves as hurt by the overall price increases–what they don’t understand is their role in causing the latter!). In fact, it is the very attempt to capture more income that is at the heart of the inflationary process under these circumstances. Money supply growth did not cause prices to rise, OPEC’s attempt to grab a larger income share did.[7]

    The difference here with us Marxists is that we see social forces behind the distribution of wealth in an analysis of inflation. Modern economists tend to see social forces as separate from economics, where as Marx saw how they flow together. Marxist analysis begins with an understanding of the social forces in society to see how they relate to the economic system.

    Obviously this brings us to the question of how Marx saw inflation. The problem is that we don’t really know how he saw inflation all that well. He didn’t write very much on it and as a result his view on it isn’t clear or even relatively clear. So we have to be careful when dealing with it because it’s not too specific.

    Distributive Conflict Inflation

    People, like Marxists, who see the world through class struggle tend to support it because it seems to vindicate it. It sees inflationary episodes as something that appears as a result of actions taken by key agents, particularly monopoly capitalists and unionised workers. It implies that these key agents have the ability to set prices of goods and services (mostly) independent of demand for them. Inflation happens because the central bank collaborates with the struggle for control over the ownership of the national income through monetary accommodation. This happens in conjunction with support of the financial system in order to protect financial stability and the continuance of production.

    The inflation rate is usually a positive function of the size of the overlapping claims, the frequency of price and wage changes and the degree of capacity utilisation, and a negative function of the rate of productivity growth (the basic model can be refined endlessly by incorporating target income levels, expectations, reaction functions, and limits on the wage claims because of unemployment, or on the mark up because of competition).[8]

    The problem with this view of inflation is that it is very vague. There isn’t a clear view of the internal structure. As a result this theory can viewed as correct from different economic standpoints. When it is not grounded by a broader structure it conflates cause and effect since inflation has distributive implications, income disputes cause the process.

    A further blow to the quantity theory is that, in very high inflation countries, inflation rates exceed the growth rates of the money supply, because the velocity of circulation of money increases with high inflation rates (De Grauwe and Polan 2005: 257). This instability in the velocity of circulation is contrary to the quantity theory, which posits a stable velocity of circulation, as we will see below. Finally, De Grauwe and Polan reach the conclusion:

    “Our results have some implications for the question regarding the use of the money stock as an intermediate target in monetary policy …. The ECB bases this strategy on the view that ‘‘inflation is always and everywhere a monetary phenomenon.’’ This may be true for high-inflation countries. Our results, however, indicate that there is no evidence for this statement in relatively low-inflation environments … In these environments, money growth is not a useful signal of inflationary conditions, because it is dominated by ‘‘noise’’ originating from velocity shocks. It also follows that the use of the money stock as a guide for steering policies towards price stability is not likely to be useful for countries with a history of low inflation.”
    (De Grauwe and Polan 2005: 258)[9]



    1 Greenspan Concedes Error on Regulation, New York Times

    2 There are known knowns, Wikiedia

    3 The 147 Companies that control everything, Forbes

    4 Money Growth Does Not Cause Inflation!, Forbes

    5 What Actually Causes Inflation (and who gains from it), Forbes

    6 Wall Street Traders Have Profited More Under Obama Than In Eight Years Under Bush, Think Progress

    7 What Actually Causes Inflation (and who gains from it), Forbes

    8 The Value of Marx, Alfredo Saad Filho

    9 De Grauwe and Polan 2005: 258


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