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Nothing Human Is Alien

6th December 2010, 20:00

As a metaphor for our troubled economic and financial era -- and the government's stumbling response -- this one's hard to beat. You can't stimulate the economy via the money supply, after all, if you can't print the money correctly.

Because of a problem with the presses, the federal government has shut down production of its flashy new $100 bills, and has quarantined more than 1 billion of them -- more than 10 percent of all existing U.S. cash -- in a vault in Fort Worth, Texas, reports CNBC.

"There is something drastically wrong here," one source told CNBC. "The frustration level is off the charts."

Officials with the Treasury and the Federal Reserve had touted the new bills' sophisticated security features that were 10 years in the making, including a 3-D security strip and a color-shifting image of a bell, designed to foil counterfeiters. But it turns out the bills are so high-tech that the presses can't handle the printing job.

More than 1 billion unusable bills have been printed. Some of the bills creased during production, creating a blank space on the paper, one official told CNBC. Because correctly printed bills are mixed in with the flawed ones, even the ones printed to the correct design specs can't be used until they 're sorted. It would take an estimated 20 to 30 years to weed out the defective bills by hand, but a mechanized system is expected to get the job done in about a year.

Combined, the quarantined bills add up to $110 billion -- more than 10 percent of the entire U.S. cash supply, which now stands at around $930 billion.

The flawed bills, which cost around $120 million to print, will have to burned.

The new bills are the first to include Treasury Secretary Tim Geithner's signature. In order to prevent a shortfall,the government has ordered production of the old design, which includes the signature of Bush administration Treasury Secretary Henry Paulson. That, surely, is not the only respect in which the nation's lead economic officials would like to turn back the clock to sometime before the 2008 financial crisis.

robbo203

7th December 2010, 13:40

As a metaphor for our troubled economic and financial era -- and the government's stumbling response -- this one's hard to beat. You can't stimulate the economy via the money supply, after all, if you can't print the money correctly..

You can't "stimuate the economy" via the money supply anyway. Pushing more notes and coins into circulation only pushes up the general price level. It what is called inflation. Keynesian style demand management or "pump priming" based on an underconsumptionist theory of the economy has been tried and proved to be a spectacular flop

ckaihatsu

7th December 2010, 18:22

You can't "stimuate the economy" via the money supply anyway. Pushing more notes and coins into circulation only pushes up the general price level. It what is called inflation. Keynesian style demand management or "pump priming" based on an underconsumptionist theory of the economy has been tried and proved to be a spectacular flop

If taken at (heh) face value, then, yes, the idea of adding more liquidity to an otherwise simple economy *would* theoretically cause inflation (devaluation) because of more dollars chasing after the same amount of goods and services.

*However*, the overall economy today is one that features uncertainty about the future, based on decreasing rates of growth (GDP). If banks cannot be certain that the loans they extend will in fact be repaid in the future then they will not make those loans in the first place. (This is after they already *did* the risky speculation step in the housing securities market, pre-2008.) This lack of lending / financing is more descriptive of an economic environment of *deflation* (over-valuation), wherein capital reserves get tied-up, balkanized, over-valued in standstill, and the lending system as a whole seizes up.

Since there's not much forward motion in the economy and pessimism about the future generally prevails, it falls on the shoulders of the state to attempt to fill in the gap by doing the "grunt work" in the situation -- it turns to Keynesianism, as robbo203 mentioned, as a desperate way to encourage a resumption in lending and overall economy activity. It *fails* as a strategy because there's nothing to be gained by having banks go through the exercise of passing around Monopoly money -- if there's no actual growth then there's no point in banking. Capital will just sit around and be meaningless without an expanding economy to drive business investments for exploiting labor, to produce profits for capitalists.

vyborg

7th December 2010, 20:59

robbo203

7th December 2010, 22:58

This is nonsense. it was ridicolous during the gold standard era. it is a complete idiocy now. in fact, during the last year governments all over the world have printed tons and tons of money and suprirse...inflation is nowhere to be seen. it is fantastic that in the XXI century there is still some idiot out there that uses monetarism to understand reality. in comparison, astrology is by far more scientific

Sorry but I dont think you have the slightest clue what you are talking about and I note that you provide absolutely no evidence to back up your outrageous claims. "Inflation nowhere to be seen"? Ha! Perhaps you might care to have a word with the the UK's Office for National Statistics (http://www.statistics.gov.uk/cci/nugget.asp?id=19) - or their equivalent in other countries - because they are clearly under the impression that the general price level has been rising.

Also I should mention I am not talking about monetarism. Monetarism has quite a different understanding of what is meant by "money supply" than is the case with the Marxian theory of inflation which postulates an excess issue of inconvertible paper currency as the basic cause.

Have a look at the following article which, although it is a bit dated, provides a good basic explanation ....

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Inflation: the endless farce

Every Prime Minister since the War has pledged himself or herself to tackle inflation as a top priority but rising prices have been with us continuously for half a century. Every year since 1938 prices have gone up and are still going up. The price level on average is about 24 times what it was before the war.
It was not always so. From 1850 to 1914 prices were stable; there were moderate fluctuations but the price level in 1914 was almost exactly the same as it had been 64 years earlier. And in 1919 the government decided to bring prices down and there was a fall of over 30 per cent between 1920 and 1925.
One of the rules of the game is that the party in opposition blames the government; that is, until it becomes the government itself, when it blames someone else, the greedy workers or the greedy shopkeepers and manufacturers; or the lenders of money not being greedy enough (according to the Chancellor of the Exchequer it is low interest rates that cause inflation).
There is a short answer to these glib excuses. Between 1850 and 1914 average wage rates went up by nearly 90 per cent, more than keeping up with the steadily rising productivity in industry - but no inflation.
If shop-keepers and manufacturers have the power, as well as the will to push up prices, why no inflation before 1914? And how come they allowed prices to fall heavily between 1920 and 1925?
As for interest rates, compared with the present 15 per cent bank minimum lending rate, the rates before 1914 were mostly between 3 per cent and 5 per cent - but no inflation.
Control of currency issue the key
It was not an accident that governments before 1914 and in the year 1919 knew how to stabilise prices, how to raise them and how to lower them. They, or their advisers, knew that the key to the situation is the amount of currency (notes and coins) in circulation. If this is kept in line with the needs of the growth of production, population, etc. prices will be stabilised. If currency is arbitrarily increased prices will go up. If arbitrarily reduced, prices will go down.
Before 1914 stability was maintained through the gold standard which closely controlled the issue of currency by the Bank of England. In 1920-25, on government instructions, the currency in circulation was cut. (The Bank burned £66 millions worth of notes).
Since 1938 there has been no control. Additional notes and coin have been issued in a continuous stream. The amount of currency in circulation with the public in 1938 was £442 million. It is now more than thirty times as much, at £14,388 million, and is still steadily increasing. The bath has been slopping over for fifty years and one dotty thing the Labour and Tory plumbers have been agreed about is that they need not turn off the tap. So why couldn’t they ask their professional advisers what to do? They did, but those advisers had all picked up the same dotty notion from the same original source. As early as 1923, in his Monetary Reform, the economist J. M. Keynes had argued that it is not necessary to have direct control of the amount of notes and coin.
Degeneration of Monetary theory
How monetary theory degenerated was told by Edwin Cannan, at that time Emeritus Professor of Political Economy at the University of London, in his Modern Currency and the Regulation of its Value [1931). Referring to what he called "the bank-deposit theory of prices", he wrote (p.88):
"Within, I think, the last forty years a practice has grown up among the people who talk and write on such subjects, of regarding the amount which bankers are bound to pay to their customers on demand or at short notice as a mass of ‘bank-money’ or of ‘credit’ which must be added to the total of the currency (of notes and coin ) whenever variations in the quantity of money are being thought of as influencing prices. This is one of the most obstructive of all modern monetary delusions."
Cannan went on to show that this alleged mass of "bank-money" does not exist:
"with the exception of a small amount of currency which they keep ready to meet any likely demands on the part of their customers, the banks have ... paid away money as they receive it, buying land and buildings for the conduct of their business with some of it, and investing or lending all the rest."
Cannan’s warning was not listened to. In the same year, 1931, the bank-deposit theory of prices received official endorsement from the MacMillan Committee Report of the Committee of Finance and Industry (p.34). In its report the Committee rejected the idea that deposits in banks are cash deposited by customers, and argued that:
"the bulk of the deposits arise out of the action of the banks themselves, for by granting loans, allowing money to be drawn on overdraft ... a bank creates a credit in its books which is the equivalent of a deposit."
Keynes was a member of the Committee and was credited with having drafted that section of the Report.
The Committee "proved" that, on a deposit of only £1,000 cash, a bank could lend £9,000. Their method of proof was a masterpiece of rigged argument. They assumed that only one bank existed. This, they argued, really made no material difference. But also, and without saying that they were doing so, they assumed a prolonged series of lending operations which would take several months and in all that time no-one ever withdrew cash from the bank. Cash was assumed to go into the bank but no depositor or borrower took any cash out. It was a kind of bank that never existed in the real world.
If the doctrine had been based on reality its significance in relation to prices would be obvious. If an individual with £1,000 spent it or lent it the measure of its influence on prices would be just £1,000. If lent to a bank which re-lent it, its influence on prices would be multiplied by nine. What is more the MacMillan Committee’s arithmetic was related to the 10 per cent cash reserve banks ordinarily maintained at that time. As the bank cash reserve is now only about 1 per cent of total deposits the multiplier now would be not nine, but ninety-nine.
In recent years there has been a seeming conflict of views on inflation between the followers of Keynes and their rivals, the so-called monetarists. It is a phoney war. The high-priest of Monetarism, Professor Milton Friedman, suffers from the same delusion about the mystical powers of the banks as did Keynes, as will be seen in Free to Choose (by Milton and Rose Friedman, p.298).
Unlike the politicians and many economists, the professional bankers ridiculed the Keynes-MacMillan Committee monetary doctrine. They knew that banks do not have this fanciful power to "create deposits". One banker, Walter Leaf, Chairman of the Westminster Bank, had this to say:
"The banks can lend no more than they can borrow - in fact not nearly so much. If anyone in the deposit banking system can be called a ‘creator of credit’ it is the depositor; for the banks are strictly limited in their operations by the amount which the depositor thinks fit to leave with them." (Banking, Home University Library, p.102).
Walter Leaf’s Westminster Bank is now the National Westminster. In the Financial Times (9 April 1984) it published as an advertisement a survey of its operations during 1983. Under the heading "Financial Highlights 1983" the following item appeared:
Money Lodged £55,200 Million
Money Lent £45,200 Million
No nonsense about receiving £55,000 million from depositors and lending 9 or 99 times as much.
Confusion about money supply
Government monetary policies have gone through several phases. From 1945 to the 1970s the Labour and Tory Parties both believed, with Keynes, that the cure for unemployment is for the government to run a budget surplus. (The present Tory government policy of using a big budget surplus to pay off the national debt is what the former Labour Prime Minister Lord Wilson specified in 1957 as the cure for inflation).
In 1977 the Callaghan Labour government, faced with prices and unemployment both rising fast, and the obvious impossibility of running a budget deficit and a budget surplus at the same time, threw overboard the Keynesian doctrine and adopted as their price policy studying the movements of what they call "money supply".
The favourite for several years was the index called M3 which is made up predominantly of bank deposits though it also included the relatively minor element of the currency. The latest M3 figures are:
Bank Deposits £225,260 millions
Currency £14,384 millions
Total £239,644 millions
Eventually the Thatcher government lost confidence in the usefulness of M3 and the Treasury has just decided to stop publication. The Thatcher government’s interest was then transferred to M0, which, unlike M3, is predominantly made up of the currency. But the government and its advisers have quite failed to see the point of the achievement of stable prices by the gold standard, and the reduction of prices in 1920-1925. It is not a question of just "watching" M0 but of actually restricting the issue of notes and coin, something the government is not doing and has not indicated the intention of doing. The amount of currency in circulation is still going up.
The politician who has for years taken an active interest in inflation is Enoch Powell. His line has been to criticise governments for their refusal to recognise that they and they alone are responsible for inflation. He argues that the prime cause of inflation is that government expenditure is too high:
"Nobody knows so well as the Bank of England ... that the expenditure of Government itself is the prime factor in causing mounting inflation" (from a speech on 11 November 1966).
He resigned from the Tory government in 1958 over that issue, though he served as a Minister again from 1960 to 1963. And during all the period 1955-1963 the government was pumping out more and more currency, pushing up prices. So Powell was just as much responsible for inflation as any other Minister. He has never understood the real cause of inflation. He shares the same delusion about banks’ supposed power to create deposits as Keynes and Professor Milton Friedman. He claims to see a difference between the government borrowing from "the public" and borrowing from the banks. In an article in Intercity (July/August 1989) he wrote:
"Only the banking system can provide purchasing power to one section of the public without the equivalent purchasing power having been transferred to it by another section."
This is nonsense. The banks can’t create purchasing power. As Walter Leaf rightly pointed out, the only way the banks can be enabled to lend is to persuade "the public" to lend to the banks, in the form of deposits.
Why inflation started
The question arises why do governments go in for inflation. In this country the three big inflations have started in wars, the Napoleonic wars and the two world wars.
It is a mistake to think that the British government’s interest in inflation is to provide revenue by printing notes, though this could happen as it has in some other countries. What happened in the three wars was that the government had to call in all the gold in circulation and in bank vaults to pay for desperately needed imports of food and war materials, which made continuation of a gold-backed currency impossible. The amounts of revenue the government actually gets from increasing the note issue is too trivial to count in relation to government expenditure. In the current year the £800 million from additional notes in circulation is less than one half of one per cent of Government expenditure of £181,000 millions.
Another issue of interest is who gains by inflation and who loses. Long experience supports the view that borrowers, including the industrial capitalists, gain under inflation by repaying loans in depreciating currency, and lenders do well from deflation. Bankers being both borrowers and lenders, generally prefer stable prices. Some property-owners to whom inflation has been disastrous are those who bought and held certain government and local government stocks the market price for which is now only £30 for each £100 nominal.
It is an error to suppose that inflation is bad for the workers. It is no harder (and no easier) for organised workers to raise their standard of living when prices are rising than when they are falling or stable: it all depends on the varying conditions in the labour market. In the great majority of years in the half-century of inflation wage rates have risen more than prices. And it happened when prices were falling sharply between 1920 and 1925 that wages fell more than prices. The workers were worse off.
One last word about the supposed evils or benefits that will flow from ending inflation. It will not have the effect either of causing unemployment and trade depression or of preventing them. Capitalism goes its own way irrespective of governments’ monetary policies (Socialist Standard April 1990)

http://www.worldsocialism.org/spgb/etheory/Early90's/html/90Inflation.html (http://www.worldsocialism.org/spgb/etheory/Early90's/html/90Inflation.html)

Kotze

8th December 2010, 00:20

Pushing more notes and coins into circulation only pushes up the general price level.No. The mainstream story about the invention of money making the economy more efficient is incompatible with the mainstream story about printing money just leading to a corresponding devaluation. Money isn't neutral, or else money would be redundant. So yeah, in the right circumstances putting more currency into circulation — and where! — can stimulate growth, a big indicator is high involuntary unemployment, even though there isn't a simple curve that tells you the inflation/unemployment tradeoff.

robbo203

8th December 2010, 00:58

No. The mainstream story about the invention of money making the economy more efficient is incompatible with the mainstream story about printing money just leading to a corresponding devaluation. Money isn't neutral, or else money would be redundant. So yeah, in the right circumstances putting more currency into circulation — and where! — can stimulate growth, a big indicator is high involuntary unemployment, even though there isn't a simple curve that tells you the inflation/unemployment tradeoff.

Sorry but I can't quite get the hang of what you are saying here. The discourse about money being needed to "make the economy more efficient" is quite a different one to what you call the mainstrean story about printing more money causing it to be devalued. "Incompatibility" doesnt come into it the picture in any way. The former is about the need for money to enable economic calculations - leading supposedly to the efficient allocation of resources but that doesnt mean that what is being suggested is that the more money there is circulating the more efficrint the economy is - if this is what you are suggesting

High levels of unemployment is a function of the capitalist trade cycle; its got little or nothing to do with inflation as such. Economic stagnation can coexist with inflation and indeed this gave rise to a new term "stagflation" which entered public discourse in the 1970s I believe. High unemployment can equally exist when there is no inflationat all and even deflation or a falling general price level .

Kotze

8th December 2010, 02:31

Economic stagnation can coexist with inflation and indeed this gave rise to a new term "stagflation" which entered public discourse in the 1970s I believe.That inflation didn't come from printing money like crazy though, but the oil shock.

The article you posted is very confused:
From 1945 to the 1970s the Labour and Tory Parties both believed, with Keynes, that the cure for unemployment is for the government to run a budget surplus.:closedeyes:

robbo203

8th December 2010, 08:04

That inflation didn't come from printing money like crazy though, but the oil shock.

The article you posted is very confused::closedeyes:

Er no. ... inflation did not come from the "oil shock". Oil is a commodity amongst many. Given a fixed amount of currency in circulation and a given level of production, if you put up the price of one commodity (e.g. oil) then the prices of all other commoditiues must on average fall. This is well explained by Marx in Value Price and Profit.

You are repeating old fallacies that have long ago been demolished and are still thoughtlessly regurgitated by media hacks who have little or no grasp of basic economics.

Besides the rise in the general price level was occuring long before the oil crisis of the 1970s

Jalapeno Enema

8th December 2010, 08:41

Kotze

8th December 2010, 15:11

Oil is a commodity amongst many.No. Some commodities are inputs that directly or indirectly enter production of just about any other commodity, so they are a constraint on the economy as a whole.
You are repeating old fallacies that have long ago been demolished and are still thoughtlessly regurgitated by media hacks who have little or no grasp of basic economics.You are Ron Paul meets Star Trek :P

The Fighting_Crusnik

8th December 2010, 15:19

So let me get this right... they increased the amount of cash overall by 10% with defective bills that cost $120 million to print... wow... they are truly dumber than I thought...

robbo203

8th December 2010, 16:43

No. Some commodities are inputs that directly or indirectly enter production of just about any other commodity, so they are a constraint on the economy as a whole.

Let me get this straight . I said oil is a commodity to which you responded "No". So so I take it then you think oil is not a commodity, is not bought and sold, and for which there is a no such thing as a price (as in "price of a barrel of oil")

OK, please sit down immediately! Try breathing in deeply and rhythmically and get someone to make you a nice cuppa tea. Thats it. It wont be long now before your spaceship docks on planet earth

You are Ron Paul meets Star Trek :P

I have no idea of Ron Paul's views on monetary policy (Im not a yank). I suspect he is what they all a "monetarist" which I have tried to explain before, has very different theory to a marxian theory of inflation - that it is caused by an excess of inconvertible currency. My suspicision is that you were completely unaware of the Marxian theory before and have some vague notion that anyone who talks about money supply must be some kind of right wing libertian type (hence your reference to Ron Paul , I guess). Of course this is absolute rubbish. You perhaps need to acquint yourself with the works of Edgar Hardcastle a renowned Marxian economist who wrote a lot about inflation. Here's just one or two of his articles

http://www.worldsocialism.org/spgb/education/EdDoc%28Inflation%29.rtf (http://www.worldsocialism.org/spgb/education/EdDoc%28Inflation%29.rtf)

http://www.marxists.org/archive/hardcastle/inflationfacts.htm

Kotze

8th December 2010, 18:40

I compared you to Ron Paul because Paul is a gold standard advocate and in the article you posted there are sentences similar to what comes out of his mouth ("But the government and its advisers have quite failed to see the point of the achievement of stable prices by the gold standard blahblahblah").
Let me get this straight . I said oil is a commodity to which you responded "No".You said this: "Oil is a commodity amongst many." I clarified that oil has a high priority. But of course, this is not something I expect someone who claims "post-scarcity" is just around the corner to admit (that's the Star Trek part of your personality).

I had a look at the two links you just posted.
The money commodity could function as universal equivalent for the exchange of all other commodities only because it, like them, embodied a given number of hours of socially necessary labour. If 1 ounce of gold needed the same number of hours of labour as a bicycle they would represent equal values.The explanationary power of "commodity money" theories, given that the production of a unit of fiat currency certainly doesn't require as much labour as the unit buys, is more than a bit questionable. Obsessing over "commodity money" strikes me also as eurocentric since fiat currencies aren't a new development at all (China).
Money arises out of commodity-exchange when one particular commodity emerges as the one which is universally acceptable in exchange for any other. With barter this is not the case: exchange can only take place if the two commodity-exchangers have matched wants, if they each want what the other has to exchange. With money this inconvenience is eliminated as everyone accepts the money-commodity in exchange for theirs sure in the knowledge that they can then exchange it for whatever they do want.Something "emerges" to eliminate some inconvenience and everybody "accepted" it — must have been some big social contract everbody discussed, collaboratively wrote, and signed, eh? This is an idealistic account. The state creates and enforces a tax-obligation which creates demand for its currency. You pay your taxes or you "accept" punishment instead. You are free to choose.
Government expenditure is financed first of all by taxation, then by borrowing and finally, as we shall show, by issuing more inconvertible notes.A state that is the monopoly issuer of its own currency can only collect units of it via taxation that it put into circulation before.

Your view is idealistic and ahistorical.

robbo203

8th December 2010, 20:59

I compared you to Ron Paul because Paul is a gold standard advocate and in the article you posted there are sentences similar to what comes out of his mouth ("But the government and its advisers have quite failed to see the point of the achievement of stable prices by the gold standard blahblahblah")..

You are talking crap here. Neither I nor the any of the articles I cited "advocated" a Gold standard. Im not interested in capitalism with a gold standard or capitalism without. The question of inflation doesn't arise in a
a socialist system in which money and commodition production no longer exist

You said this: "Oil is a commodity amongst many." I clarified that oil has a high priority. .

Hardly. When someone says oil is a commodity and you respond "no" then by any normal understanding of such an exchange this means you think oil is not a commodity. But assuming this is just a slip up on your part I cannot see how the fact that oil has a "high priority" has a bearing on the subject of inflation. It still remains the case, as Marx argued, that given a fixed amount of currency in circulation and given the same velocity of circulation, a rise in the price of one commodity - whether it be oil or chewing gum - will be compensated for by a fall in the averaged price of other commodities - necessarily.

But of course, this is not something I expect someone who claims "post-scarcity" is just around the corner to admit (that's the Star Trek part of your personality)..

Once again. I have no idea what connection this has to the subject of inflationary but if you want to hop grassshopper fashion from one subject to another on whim be my guest. But please start up another the thread on the subject. It will be my pleasure to demolish your ill informed nonsense on that thread as it is on this. ;)

Kotze

9th December 2010, 00:00

You said this: "Oil is a commodity amongst many."
Hardly.It's a quote.
I cannot see how the fact that oil has a "high priority" has a bearing on the subject of inflation.It was you who brought up inflation of the 70s. You really don't see the unexpected contraction of the oil supply having a bearing on the inflation during the 70s?
Once again. I have no idea what connection [post-scarcity] has to the subject of inflationaryThe connection is that it's another example of what you know about economics, Marxist or otherwise. Unlike you, Marx did not pretend that work doesn't need to be renumerated in the future, but proposed labour vouchers.

The model of how currency works that Hardcastle presents is, ahem, problematic: First, his story is all about how currency has value because of the necessary labour to produce it. Then, it's about how paper currency replacing the gold currency can also be sort-of okay, still he is spooked by it. The currency now just hangs there, in the air. Dark magic, for sure.

His description stands on the head. It stands on the head because for the state, things work differently than from the point of view of a single household. A state that is the monopoply issuer of its own currency doesn't need to collect units 1:1 in order to spend, whatever smokes and mirrors stuff they tell you. Indeed, any unit of it the state collects was put into circulation before by the state. Taxation, that is putting currency units out of circulation, is an anti-inflationary measure. But it isn't just that, and here Hardcastle fails big time: The STATE DECLARES that you owe tax payments and the STATE FORCES you to pay, OR ELSE.

What you did, despite your claims to the contrary, is that you presented an account of how money came into existence — that it conveniently "emerged" to everybody's delight and people freely decided to "accept" it — that is virtually indistinguishable from mainstream BS. Same goes for your talk about how the existing money system works, a "given" level of production, a "given" amount of currency, a "given" velocity — production and money don't exist seperately.

The story you presented is ahistorical and eurocentric, because of the major role it assigns to gold currency. It is contradictory, because it first claims production cost of the currency is important in the determination of currency value, then it claims that the quantity matters. It is idealist, because it downplays the importance of state power.

Look up Chartalism.

robbo203

9th December 2010, 09:20

.It was you who brought up inflation of the 70s. You really don't see the unexpected contraction of the oil supply having a bearing on the inflation during the 70s?.

Yep. No connection whatsoever and for the reason repeatedly explained. Do a bit of homework for once and read the relevant passages from Value Price and profit. A contraction in the supply of one commodity certainly pushes up the price of that commodity but - and this is the relevant point you keep on missing - with the price of all other commodities on average falling to compensate. This assume of course assumes no inflation of the currency, that the same amount of currency is in circulation, of course. Its all pretty obvious and straightforward. From a consumers point of view if the price of something on their shopping list unexpectedly goes up then there is less money in their budget for other things. In short they cut back on other things. So demand for other things falls and therefore the price. Elemementary my dear Watson.

You with your oil-price-rises-cause-inflation theory is much the same old dogma repeatedly and thoughtlessly churned out day in day out on the bourgeois media. It workers strike for higher wages then our bourgeois hacks claim it will put up prices. No it wont. It will cut into profits. Businesses in a competitive environment have little leeway about putting up prices. If they could just put up prices at will why didnt they do so when there was deflation, when prices were falling. Do you imagine there were no "high priority" commodities around then like oil? All of these points were made in the various articles I posted but which you evidently just skimmed over without taking in anything

.
The connection is that it's another example of what you know about economics, Marxist or otherwise. Unlike you, Marx did not pretend that work doesn't need to be renumerated in the future, but proposed labour vouchers..

Please. For someone who evidently hasnt read much Marx and has never heard of Marx's theory of inflation before now, dont tell me about Marx. The labour voucher proposal clearly related to what Marx called the lower phase of communism; he did not envisage any kind of remuneration for the higher phase when when the "spings of cooperative welath would flow more abundantly" (or words to that effect ) Ah, but I am forgetting that, according to you, a "post scarcity"society is impossible presumably becuase the bourgeois economics textbooks you religiously consult insist that our wants are insatiable. And you are telling me that I am ahistorical!

.
The model of how currency works that Hardcastle presents is, ahem, problematic: First, his story is all about how currency has value because of the necessary labour to produce it. Then, it's about how paper currency replacing the gold currency can also be sort-of okay, still he is spooked by it. The currency now just hangs there, in the air. Dark magic, for sure.
..

What sort of critique is this? Its all over the place. Any fanciful phrase that springs to mind like "dark magic" gets to be penned by you , directly bypassing any critical faculties you may have. Hardcastle was discussing the relation between the gold commodity and other commodities in terms of Marx's labour theory of value. If you want to criticise the labour theory of value then be my guest. Like any theory it is an abstraction, a simplification of reality, but that does not invalidate the theory

.
His description stands on the head. It stands on the head because for the state, things work differently than from the point of view of a single household. A state that is the monopoply issuer of its own currency doesn't need to collect units 1:1 in order to spend, whatever smokes and mirrors stuff they tell you. Indeed, any unit of it the state collects was put into circulation before by the state. Taxation, that is putting currency units out of circulation, is an anti-inflationary measure. But it isn't just that, and here Hardcastle fails big time: The STATE DECLARES that you owe tax payments and the STATE FORCES you to pay, OR ELSE...

I am not at all sure what you are trying to say here. It sounds like gibberish to me. Insofar as I grasp your meaning you seem to be saying that taxation is anti-inflationary because it is ..er... "putting currency units out of circulation". That incidentally is a dead giveaway because its an implicit admission that inflation does indeed have to do with the amount of currency units in circulation. But in any case you are quite wrong about taxation being anti- nflationary. The volume of taxation throughout the 20th century has risen enormously in both absolute and relative terms but so too has the general price level. How do you account for that . eh?

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What you did, despite your claims to the contrary, is that you presented an account of how money came into existence — that it conveniently "emerged" to everybody's delight and people freely decided to "accept" it — that is virtually indistinguishable from mainstream BS. Same goes for your talk about how the existing money system works, a "given" level of production, a "given" amount of currency, a "given" velocity — production and money don't exist seperately....

What on earth are you on about here? Who said production and money exist separately in a capitalist system which I assume is what you are talking about. Products take the form of commodities in capitalism with money being used as a means of exchange. So of course money is implicated. Money prices supplanted barter as as mode of exchange for the obvious reason that it was more adaptable. If you have an apple and I have an orange we might exchange them but only if we both want what the other person has got. With a money system I dont need to want your apple in order to effect an exchange with you.

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The story you presented is ahistorical and eurocentric, because of the major role it assigns to gold currency. It is contradictory, because it first claims production cost of the currency is important in the determination of currency value, then it claims that the quantity matters. It is idealist, because it downplays the importance of state power.....

Seems you havent yet got a hang of the labour theory of value. Come back when youve done some reading up on the subject. As for the claim that the theory presented is "idealist" because it "downplays the importance of state power" (incidentally how does downplaying the importance of state power making something idealist? Do you know what idealism means?) this is highly ironic. The article in question argues that it is governments alone that are responsible for inflation because of their control over the issue of currency. Hardly a case of downplaying the importance of state power is it now?

Kotze

9th December 2010, 17:09

ZeroNowhere

9th December 2010, 17:13

I read Kritik des Gothaer Programms and it's quite obvious when you look at the context that Marx was taking a bit of poetic license here (as he often did) and to each according to their needs is not so much a prediction, and certainly not a proposal, but something that is only insofar made reality as the progress of technology and society allows.If I recall correctly, he was paraphrasing a statement made in French.

robbo203

10th December 2010, 02:22

Intellectual strength is the ability to entertain a thought without necessary buying into it. You posted three articles, I read them all (they were all crap), when I asked you in turn to look up just one word you didn't do this, which didn't stop you from "replying". The problem, robbo, is that you want to put forth a critique of positions you are apparantly incapable of even paraphrasing..

"Intellectual strength" as you somewhat pompously and cringingly put it, friend, is the ability not just to entertain a thought but to present reasoned grounds for supporting or rejecting it. If calling the articles I posted, "crap", is the best you can muster then that speaks volumes for your "intellectual strength". You say you read the articles but I frankly doubt it. You may have quickly skimmed through them but I dont think you took anything in at all. Dismissing them as "crap" is not only dumb but arrogant - why should anyone be willing to accept what is only your word for it when you havent presented any serious counterargument. Crap? What - everything about the article? A paragraph? A sentence?. It seems to me that you dont really know how to go about dealing with what the articles have to say and it is so much easier to affect an air of knowlegeable authority by simply dismissing them as crap than to go about doing the hard graft of demonstrating how they are supposed to be "crap"

You are mixing up things. If physical output stays the same and the amount of currency in circulation stays the same while some achieve together getting a bigger share of the pie (whether we are talking about workers or a cartel) it can be plausible to say it will just cut into profits or it will make this or that thing more expensive and other stuff correspondingly fall in price. But when physical output goes down (you know what oil is?) you have inflation even when the amount of currency in circulation stays the same. Hence claiming the inflation of the 70s was just the result of increasing the currency supply is implausible...

Well if you had actually seriously read the articles in question you had you would have seen they easily deal with the points you raise here. Marx's explanation of inflation or currency depreciation is that it is caused by an excess issue of inconvertible currency. This has the effect of causing the general price level to rise. It is not the only factor to cause a change in the general price level. For example increased economic activity associated with boom conditions increase the velocity of currency circulation and so cause an increase in the general price level while recessions have the opposite effect. Booms and slumps are part and parcel of capitalism's trade cycle which is responsible for some variation in the general price level albeit within narrow limits. Over the long run, however, booms and slumps cancel each other out in terms of price movements so we we cannot look to them for an explanation for a long term secular trend of price increases.

The steady increase in the general price level - even at times of economic downturn (what has been called "stagflation")since the second world war has been due to the fact that governments have operated effectively without any ceiling on the issue of inconvertible currency. The amount of notes and coins in circulation is vastly greater now than in the early post wat period.

You refer to the oil crisis of the 1970s. As far as I understand it your argument seems to be that the general prise level rose as a result of cutback in oil production since "the amount of currency in circulation stays the same". Several comments are in order here.

1) Once again you are implicitly conceding the possibility that an excess issue of currency is indeed involved in a rise in the general price level even if you are not aware of the significance of what you are saying
2) Once again your are confusing a rise in the general price level with rises in individual commodity porices. Given the same velocity of transactions and the same amount of currency in circulation, an increase in the price of one commodity must necessarily entail a decrease in prices of other commodities relatively speaking. I explained this all in my previous post but you dont seem to have understood this
3) You might retort that with the oil crisis, production generally was cut back as economies plunged into recession leaving too much currency floating around so to speak and hence causing "inflation". This I take it is the logic of what you are sayiing but of course its is a quite false conclusion and demonstrates that you dont really understand the mechanism involved at all. Recessions or cutbacks in overall production do not lead to an increase in the general price level but rather the very opposite - they lead to a relative decline in prices. Of course this is masked in the post war era becuase of inflationary monetary policies which mean you can still have rising prices and recession. But in themselves recessions tend to reduce the velocity of transactions in the economy and so tend to lead to a reduction in the general price level
4) If the cutback in oil production crisis of the 1970s caused inflation as you claim then what in your view caused the general price level to rise prior to this date - say in the 1960s - and why when oil production later increased did inflation not tail off. Oil production today is about twice the level that it was in the 1970s but the general price level has continued to rise. In fact the chronology of events surrounding the 1970s oil crisis contradict your version of what went on. What lead to the oil shock of 1970 was Nixon's devaluation of the dollar and breaking the link with the gold quarantee which prompted OPEC to compensate by sharply raising the price of oil (since oil was traded in dollars). Recession followed in 1974-5 with a slowdown in the rate at which the general price level increased and this rate picked up again when economic growth returned . in total contraidction to what one would expect of your theory was correct

That's the tin-ear interpretation. I happen to be fluent in German and intellectual German texts from that time are more flowery than what you would find in the writings of native English speakers.. I read Kritik des Gothaer Programms and it's quite obvious when you look at the context that Marx was taking a bit of poetic license here (as he often did) and to each according to their needs is not so much a prediction, and certainly not a proposal, but something that is only insofar made reality as the progress of technology and society allows. A concrete example given there of how people shouldn't be entirely paid based on their productivity is assistance if they have children. That's very different from the hippie shit you propose.
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Pull another one! You said and I quote "Unlike you, Marx did not pretend that work doesn't need to be renumerated in the future, but proposed labour vouchers.. " When I pointed out to you that Marx's labour voucher scheme only related to the lower phase of communism which is quite clear if you read the Critique of the Gotha Programme , you come up with the above as a response. Bit pathetic isnt it? So let me ask a question - if the labour voucher scheme no longer exists in the higher phase of communism on what grounds do you suppose that people then would still be "remunerated". or paid What form would this remuneration take? In fact, anyone who is familiar with Marx would know that the expression applied to the higher phase of communiusm - "from each according to ability to each according to need" - will know that this is a reference to freely associated labour in which there is no longer any remuneration or payment at all. The fact that you dismiss this as hippie shit shows how far removed you are from a revolutionary communist perspective. QED

Kotze

10th December 2010, 04:08

If I recall correctly, he was paraphrasing a statement made in French.By Louis Blanc.
If calling the articles I posted, "crap", is the best you can muster then that speaks volumes for your "intellectual strength". You say you read the articles but I frankly doubt it.Take a look at the quotes and responses in post #14 (http://www.revleft.com/vb/u-s-government-t146107/index.html?p=1950596#post1950596). In post #16 (http://www.revleft.com/vb/u-s-government-t146107/index.html?p=1950979#post1950979) I point out the contradictory nature of Hardcastle's account, first money is claimed to be valuable because of the production cost, then it's the quantity.

And now to the 70s: Look up the 1973 oil crisis, there was an embargo due to the US support for Israel in the Yom Kippur War. In the late 70s, there was another oil supply prob due to the situation in Iran.
So let me ask a question - if the labour voucher scheme no longer exists in the higher phase of communism on what grounds do you suppose that people then would still be "remunerated".People will continue to be remunerated for their work because the higher phase, taken literally, won't happen. What will happen is a bit of a movement in that direction based on what the economic and cultural development allows, not some point where someone snaps their fingers and says we have the higher phase now. "Das Recht kann nie höher sein als die ökonomische Gestaltung und dadurch bedingte Kulturentwicklung der Gesellschaft." Reading your hippie beliefs into Marx (higher phase indeed) is like reading Deng Xiaoping into Marx: "Accumulate, accumulate!"

No, I have to correct myself, it's actually worse, instant abolishment of remuneration is more like a suicide cult.

Die Neue Zeit

10th December 2010, 04:21

Would you care to discuss my critique of Chartalism in my Theory thread?

robbo203

10th December 2010, 09:34

.Take a look at the quotes and responses in post #14 (http://www.revleft.com/vb/u-s-government-t146107/index.html?p=1950596#post1950596). In post #16 (http://www.revleft.com/vb/u-s-government-t146107/index.html?p=1950979#post1950979) I point out the contradictory nature of Hardcastle's account, first money is claimed to be valuable because of the production cost, then it's the quantity..

The "contradiction" you refer to was actually dealt with in the link I gave where a distinction is made between the quantity theory of money and Marx's own theory

http://www.worldsocialism.org/spgb/education/EdDoc%28Inflation%29.rtf (http://www.worldsocialism.org/spgb/education/EdDoc%28Inflation%29.rtf)

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And now to the 70s: Look up the 1973 oil crisis, there was an embargo due to the US support for Israel in the Yom Kippur War. In the late 70s, there was another oil supply prob due to the situation in Iran...

Yes I am aware of all this but what has this got with the specific points I raised in response to your claim that the contraction in oil supplies which hit the global economy sparked off inflation? In fact the opposite happened. The rate of increase in the general price level caused by the excess issue of incontrovertible currency declined in the recession of 74/5 and only picked up when economic growth improved. You might want to argue that the oil crisis cauused a recession but you cannot argue that a recession causes the general price level to rise because on the contrary, recessions have quite the oppiosite effect. They reduce the general price level

At all times governments have control over the issue of currency. They can cap it at any time they wish and stop inflation in its tracks but decline to do so for various reasons explained in the article I posted. Governments and governments alone cause inflation by allowing it to happen. They can if they so wish. In fact the UK government did so in the 1920s bringing inflation swiftly to an end. What governments cannot do, however, is prevent crises because the trade cycle is built into capitalism. Keynesian pump priming policies which capitalist parties of all hues went in for in the post war era were predicated on the argument that recessions could be overcome by "injecting demand" into the economy, a naive claim that encouraged governments to abandon any cap on the note issue. Keynes called Marx's ideas irrelevant but in fact Marx's ideas have stood the test of time and Keynes' theories have been more or less discredited.

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People will continue to be remunerated for their work because the higher phase, taken literally, won't happen. What will happen is a bit of a movement in that direction based on what the economic and cultural development allows, not some point where someone snaps their fingers and says we have the higher phase now. "Das Recht kann nie höher sein als die ökonomische Gestaltung und dadurch bedingte Kulturentwicklung der Gesellschaft." Reading your hippie beliefs into Marx (higher phase indeed) is like reading Deng Xiaoping into Marx: "Accumulate, accumulate!".

Well now there are two separate issues here aren't there? One is your claim that "Unlike you, Marx did not pretend that work doesn't need to be renumerated in the future, but proposed labour vouchers.. " You have clearly have not been able to substantiate this claim in the least and you are still fumbling for some feeble pretext to back it up without any joy whatsoever. So I ask you again - if labour vouchers were clearly confined to the lower phase of communism in Marx's view what kind of arrangement would prevail in the higher phase is not the complete abandonment of remuneration altogether and the institutionalisation of the principle "from each according to ability to each according to need". Though Marx did not use the expression "free access to goods and services" in communism this is clearly what it means and what is meant by his assertion that products of industry are not "exchanged". Remuneration implies exchange. Ergo there can be no remuneration in a communist society.

The second issue concerns the viability of higher communism. I am quite happy to systematically demolish your arguments about this one by one although I think this really is straying from the subject matter of this thread and a new thread ought to be opened up for that purpose. I will only say here that you havent got a clue about what is entailed if you think it is a matter of someone snapping their fingers and annoucing the arrival of higher communism. On the contrary it has to be willed and understood by the great majority

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No, I have to correct myself, it's actually worse, instant abolishment of remuneration is more like a suicide cult.

Ho hum. We will wait and see if , after youve finished scraping the barrel scouring through your bourgeois economic textbooks, you will be able to come up some evidence to disprove the viability of a system of generalised recipocrity - a communist gift economy. In the meanwhile I will keep my powder dry in expectation of this most unlikely event;)

By the way do the Kotze family members remunerate each for services rendered? Does mummy Kotze request payment up front every time she places a meal on the table? Does daddy Kotze demand remuneration when you ask for a lift to the train station? Just curious. Presumably this is the only reason why you have averted a potential tragedy in the form of the Kotze family committing collective suicide:rolleyes:

Kotze

10th December 2010, 15:57

Blahblah in fact Marx's ideas have stood the test of time and Keynes' theories have been more or less discredited.That's not a powerful statement when you don't know either.
Well now there are two separate issues here aren't there? One is your claim that "Unlike you, Marx did not pretend that work doesn't need to be renumerated in the future, but proposed labour vouchers.. " You have clearly have not been able to substantiate this claim in the leastI came to that stunning conclusion by reading a certain Karl Marx, in German, a language I am fluent in, not some hippie's "interpretation".
Though Marx did not use the expression "free access to goods and services" in communism this is clearly what it means and what is meant by his assertion that products of industry are not "exchanged".You should pay more attention to the context sentences appear in. The statement that producers don't exchange their products is followed by the statement that the individual producer receives vouchers that enable consumption based on how much you work:
Innerhalb der genossenschaftlichen, auf Gemeingut an den Produktionsmitteln gegründeten Gesellschaft tauschen die Produzenten ihre Produkte nicht aus (...) Die individuelle Arbeitszeit des einzelnen Produzenten ist der von ihm gelieferte Teil des gesellschaftlichen Arbeitstags, sein Anteil daran. Er erhält von der Gesellschaft einen Schein, daß er soundso viel Arbeit geliefert (nach Abzug seiner Arbeit für die gemeinschaftlichen Fonds), und zieht mit diesem Schein aus dem gesellschaftlichen Vorrat von Konsumtionsmitteln soviel heraus, als gleich viel Arbeit kostet. Dasselbe Quantum Arbeit, das er der Gesellschaft in einer Form gegeben hat, erhält er in der andern zurück.Right after that he explains how that looks very similar to what we have had before, but how it actually is different:
Es herrscht hier offenbar dasselbe Prinzip, das den Warenaustausch regelt, soweit er Austausch Gleichwertiger ist. Inhalt und Form sind verändert, weil unter den veränderten Umständen niemand etwas geben kann außer seiner Arbeit und weil andrerseits nichts in das Eigentum der einzelnen übergehn kann außer individuellen Konsumtionsmitteln."Content and form are changed, because under the changed circumstances no one can give anything else than his labour, and because nothing can pass to the ownership of individuals except individual means of consumption." He then says how such a scheme doesn't respect difference in need, eg. if you have children, and claims these problems are unavoidable in the beginnning. You have to keep in mind that certain amenities workers have today, at least in the more developed countries, didn't exist back then.
By the way do the Kotze family members remunerate each for services rendered?That's a great example of how some things don't scale. I don't know how things work in the robbo family, but I happen to share more genes with my dad than with a random person on the street, which helps with things because personalities are partially determined by genes. More important is that in small groups we actually do reward doing stuff, even when we don't use contracts. There's always a bit of tit-for-tat going on. This informal reciprocity doesn't scale, because keeping track in your head even roughly of how much work everybody does becomes impossible as the number of people and tasks goes up.

So your hippie dream will never become reality. :(

VNHCM

10th December 2010, 20:43

Actually, Keynes's demand management (or pump priming money) aims to overcome crisis by increasing the rate of exploitation. If it was implement correctly, it would lead to lower the working class's living standard. Keynes was never shy about it. In The General Theory, he wrote:

“Thus it is fortunate that the workers, though unconsciously, are instinctively more reasonable economists than the classical school, inasmuch as they resist reductions of money-wages, which are seldom or never of an all-round character, even though the existing real equivalent of these wages exceeds the marginal disutility of the existing employment; whereas they do not resist reductions of real wages, which are associated with increases in aggregate employment and leave relative money-wages unchanged, unless the reduction proceeds so far as to threaten a reduction of the real wage below the marginal disutility of the existing volume of employment. Every trade union will put up some resistance to a cut in money-wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.”Unlike neoclassical economist who prefer to cut nominal wage (or using deflation). Keynes preferred to cut the worker's living standard by cutting real wage using inflation so there would be fewer obstacles posed by Unions to capitalist's profit restoration project.

Keynes's theory is by far discredited. In the reign of finance capital, it naturally hostile to Keynes's pump priming money since such policy will lower value of its holding. Meanwhile, all Unions are in moribund state. There is no reason to not impose "austerity".

robbo203

11th December 2010, 01:21

That's not a powerful statement when you don't know either.

I dont think you are in any position to pass comment on other people's comprehension of the subject matter when your own has been exposed as woefully lacking. Still think the oil crisis is what caused inflation during the 1970s, do you?

I came to that stunning conclusion by reading a certain Karl Marx, in German, a language I am fluent in, not some hippie's "interpretation".

Well perhaps then you might use those language skills your are continually showing off about to answer the simple question I have repeatedly asked you and which you have not deigned so far to answer: if labour vouchers were strictly confined to the lower phase of communism on what basis did Marx see wealth being appropriated in the higher phase of communism is not on a free access basis

You should pay more attention to the context sentences appear in. The statement that producers don't exchange their products is followed by the statement that the individual producer receives vouchers that enable consumption based on how much you work:Right after that he explains how that looks very similar to what we have had before, but how it actually is different:"Content and form are changed, because under the changed circumstances no one can give anything else than his labour, and because nothing can pass to the ownership of individuals except individual means of consumption." He then says how such a scheme doesn't respect difference in need, eg. if you have children, and claims these problems are unavoidable in the beginnning. You have to keep in mind that certain amenities workers have today, at least in the more developed countries, didn't exist back then.

The "context" in which labour vouchers are discussed by Marx is clear:

What we have to deal with here is a communist society, not as it has developed on its own foundations, but, on the contrary, just as it emerges from capitalist society; which is thus in every respect, economically, morally, and intellectually, still stamped with the birthmarks of the old society from whose womb it emerges. Accordingly, the individual producer receives back from society -- after the deductions have been made -- exactly what he gives to it. What he has given to it is his individual quantum of labor (my emphasis)

Labour vouchers, Marx is saying, and contrary to what you are saying, are resticted to the time when communist society is just emerging from capitalism and has not yet developed on its own foundations.

Having said that "Within the co-operative society based on common ownership of the means of production, the producers do not exchange their products" Marx then goes on to point out that with the labour voucher scheme products are indeed subject to exchange. As far as individual means of consumption are concerned distribution of these among the individual producers means that "the same principle prevails as in the exchange of commodity equivalents: a given amount of labor in one form is exchanged for an equal amount of labor in another form. The clear inference to be drawn from this is the labour vouchers are in a sense a departure from communism proper, justified only becuase the first phase of communism is still stamped with the birthmarks of capitalism.

In communism proper - the higher phase of communiusm - there is no exchange. The producers do not exchange their products. Marx it seems to me is wanting to say that while there is exchange in the case of labour vouchers it is, at least, not capitalist exchange. Labour vouchers are not money - they do not circulate. But this whole apology for labour vouchers as a necessary but temporary expedient only underscores the fact that Marx's real objective is to do with all forms of exchange altogether in higher communism

That's a great example of how some things don't scale. I don't know how things work in the robbo family, but I happen to share more genes with my dad than with a random person on the street, which helps with things because personalities are partially determined by genes. More important is that in small groups we actually do reward doing stuff, even when we don't use contracts. There's always a bit of tit-for-tat going on. This informal reciprocity doesn't scale, because keeping track in your head even roughly of how much work everybody does becomes impossible as the number of people and tasks goes up.

This reminds me of Mrs Thatcher comments "there is no such thing as society only individuals and their families". The tongue-in-cheek example of Kotse family household was not intended as an extended proof of the viability of generalised recipocrity on a society wide scale but only as an opening salvo in debate on that subject if you wish to take up the challenge. There are plenty of other reasons for asserting the viability of communist gift economy based on generalised recipcity than this and incidentally in case you were not aware altruism is not limited to kin altruism even within the hallowed circle of evolutionary biologists

The Kotse family household is "not a great example of how things dont scale". Thats a silly comment when youthink about it. Its just an example of generalised reciprocity on a small scale - thats all. There is nothing about the fact that it appears in this case on a small scale that prevents it from operating also on a large scale. You make a totally unwarranted inference.

So your hippie dream will never become reality. :(

Another daft comments of yours that eerily echoes Mrs Thatcher: "There Is No Alternative" (TINA).