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<blockquote>[T]he money market can also have its own crises (wholly or mostly unrelated to industrial disturbances) .... In this connection there is still much to be ascertained and investigated especially in the last twenty years. - Engels, Letter to Conrad Schmidt : London, October 27, 1890.</blockquote>Marx deduced the possibility of a general crisis from the asymmetry latent in the process of capital expansion itself. Namely, the possibility that "the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities." (Marx-Engels reader, Crisis Theory) In times of crisis, money becomes scarce, ruining those who get caught holding the bag (of commodities). Behind all this is the necessity that value, in order to expand, must transform itself continuously between use and exchange values, ''and that only in the passage from commodity to money can surplus value emerge''. In M-C-M', C-M' is therefore the critical junction, and the problem which emerges time and time again is that C cannot become M' without the ruination of countless capitalists. | <blockquote>[T]he money market can also have its own crises (wholly or mostly unrelated to industrial disturbances) .... In this connection there is still much to be ascertained and investigated especially in the last twenty years. - Engels, Letter to Conrad Schmidt : London, October 27, 1890.</blockquote>Marx deduced the possibility of a general crisis from the asymmetry latent in the process of capital expansion itself. Namely, the possibility that "the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities." (Marx-Engels reader, Crisis Theory) In times of crisis, money becomes scarce, ruining those who get caught holding the bag (of commodities). Behind all this is the necessity that value, in order to expand, must transform itself continuously between use and exchange values, ''and that only in the passage from commodity to money can surplus value emerge''. In M-C-M', C-M' is therefore the critical junction, and the problem which emerges time and time again is that C cannot become M' without the ruination of countless capitalists. | ||
All of this is in the context of falling profits. "The gradual growth of constant capital in relation to variable capital must necessarily lead to a gradual fall of the general rate of profit." In Capital Volume III Marx outlined several "counteracting influences" by which capitalists could escape this dilemma - if only for a time. My thesis here is that the mitigative role played by central banks is to be understood as such a 'counteracting influence,' one unrecognized by Marx. Whether this takes the form of | All of this is in the context of falling profits. "The gradual growth of constant capital in relation to variable capital must necessarily lead to a gradual fall of the general rate of profit." In Capital Volume III Marx outlined several "counteracting influences" by which capitalists could escape this dilemma - if only for a time. My thesis here is that the mitigative role played by central banks is to be understood as such a 'counteracting influence,' one unrecognized by Marx. Whether this takes the form of direct asset purchases and bailouts or an elastic money supply is unimportant - the essential function is to secure the purchase of those commodities which, if the Market remained 'free,' could not have been sold without ruin. <blockquote>In so far as the payments balance one another, money functions only ideally as money of account, as a measure of value. In so far as actual payments have to be made, money does not serve as a circulating medium, as a mere transient agent in the interchange of products, but as the individual incarnation of social labour, as the independent form of existence of exchange-value, as the universal commodity. This contradiction comes to a head in those phases of industrial and commercial crises which are known as monetary crises. Such a crisis occurs only where the ever-lengthening chain of payments, and an artificial system of settling them, has been fully developed. '''Whenever there is a general and extensive disturbance of this mechanism, no matter what its cause, money becomes suddenly and immediately transformed, from its merely ideal shape of money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the presence of its own independent for'''m. On the eve of the crisis, the bourgeois, with the self-sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money. But now '''the cry is everywhere: money alone is a commodity!''' As the hart pants after fresh water, so pants his soul after money, the only wealth. In a crisis, the antithesis between commodities and their value-form, money, becomes heightened into an absolute contradiction. Hence, in such events, the form under which money appears is of no importance. The money famine continues, whether payments have to be made in gold or in credit money such as bank-notes.<ref>Marx, Capital V1, [https://www.marxists.org/archive/marx/works/1867-c1/ch03.htm Chapter Three: Money, Or the Circulation of Commodities]</ref></blockquote>A variable money supply allows liquidity infusions which circumvent the breakdown of payments described above. When there is a crisis, what happens is that no one will part with money to buy commodities which need to circulate, and so the whole cycle breaks down. Under and elastic currency regime, such a crisis will be met with infusions of artificial liquidity. It is a sort of cardiopulmonary recitation of the economic body - blood stops flowing, but an outside pressure can get it going again. | ||
It is only a temporary measure, as it had to be, lest inflation be rampant, something undesirable at that time. The idea was that the 'elastic currency' would be self-liquidating as businesses and banks paid off their loans, returning it to the federal reserve where it would be retired from circulation. This allows capital to deal with crises on a case-by-case basis, but what of the falling rate of profit in general? In theory, the falling rate of profit should continue, and ultimately, however sophisticated the methods of dealing with individual crises become, the situation should become untenable. At some point, as the rate of profit goes on decreasing, the 'elastic' currency can't stretch anymore. But after WWI, the gold standard was effectively smashed, and since 1971, even the formal pretense of 'elasticity' (stretching with respect to gold) has been abandoned. As a distinguished assembly of bourgeois simpletons explained to a fiscally anxious congress during the 90s, failure to expand US debt: "could worsen the economic downturn, causing greater loss of jobs, production, and income."<ref>Congressional Record Volume 141, Number 27 (Friday, February 10, 1995) https://web.archive.org/web/20240208025511/https://www.govinfo.gov/content/pkg/CREC-1995-02-10/html/CREC-1995-02-10-pt1-PgS2457.htm</ref> In other words, US debt (the global money supply) must continuously expand - the alternative being prolonged global capitalist crisis. | It is only a temporary measure, as it had to be, lest inflation be rampant, something undesirable at that time. The idea was that the 'elastic currency' would be self-liquidating as businesses and banks paid off their loans, returning it to the federal reserve where it would be retired from circulation. This allows capital to deal with crises on a case-by-case basis, but what of the falling rate of profit in general? In theory, the falling rate of profit should continue, and ultimately, however sophisticated the methods of dealing with individual crises become, the situation should become untenable. At some point, as the rate of profit goes on decreasing, the 'elastic' currency can't stretch anymore. But after WWI, the gold standard was effectively smashed, and since 1971, even the formal pretense of 'elasticity' (stretching with respect to gold) has been abandoned. As a distinguished assembly of bourgeois simpletons explained to a fiscally anxious congress during the 90s, failure to expand US debt: "could worsen the economic downturn, causing greater loss of jobs, production, and income."<ref>Congressional Record Volume 141, Number 27 (Friday, February 10, 1995) https://web.archive.org/web/20240208025511/https://www.govinfo.gov/content/pkg/CREC-1995-02-10/html/CREC-1995-02-10-pt1-PgS2457.htm</ref> In other words, US debt (the global money supply) must continuously expand - the alternative being prolonged global capitalist crisis. | ||