From the January 1967 issue of the Socialist Standard
We are often asked why we continue to make use of the writings of Karl Marx, who died over eighty years ago and whose theories have been so generally rejected by economists.
So many things have happened, they say, that Marx could not know about; capitalism has undergone such unforeseen changes; and was not Marx responsible for the rise of Russian State Capitalism? Unaccountably the questioners forget to put it to themselves. If Marxian theories have long been disproved and discredited why do the opponents of Socialism go on, year after year, making new attempts to disprove and discredit them? Why don’t they just forget?
Still it is a fair question. The answer is that capitalism has not changed in its essentials: it is still a system of society in which the means of production and distribution are class owned, in which commodities are produced for sale and profit by a non-owning working class which lives by selling mental and physical energies to employers, including the state-capitalist, so-called nationalised industries. As for Russia, the course of events there completely vindicates Marx’s view that Socialism could not precede the development of capitalism; Marxian theories no more determine the actions and policies of the Russian government than does theology determine those of the governments in nominally Christian countries.
And when we come to economic theory, Marx’s analysis of capitalism in operation, value, prices, unemployment, banking, crises and so on is more valuable in depth and scope than anything done by his detractors.
And is Marx out of date? What is the present incomes policy of the Labour Government but yet another attempt to deal with the trade cycle which Marx described and explained—and in particular the fact to which Marx drew attention, that in a certain phase of the boom prices rise and wages rise faster than the production of consumer goods?
And one sphere in which Marxian theories hold their own is in the explanation of price changes, including the prices of individual commodities, the price of labour-power (wages), the general upward movement in booms and the downward movement in slumps, the general movements related to changes in the value of gold and finally the general movements related to the volume of currency.
Leaving aside the day to day fluctuations of price caused by market fluctuations of supply and demand and the fact that some commodities normally exchange above or below their value, Marx postulated that the basic element in the exchange of all commodities in capitalist society is value, measured by the amount of socially necessary labour in all the operations required in the production of a given commodity. From which it follows, firstly, that if one commodity requires twice as much socially necessary labour as another, its value will be twice as great, and secondly, that in gold all other commodities find their “universal equivalent”, again related to value. This explains what is behind the value of gold coinage; the coin is a weight of gold representing the value of gold. In concrete terms the Pound or sovereign which circulated in Britain in the nineteenth and into the present century was, by law, a fixed weight (about one quarter of an ounce) of gold.
The next proposition is that in order to carry on the sales and purchases of commodities and other payments a certain amount of gold coin (and subsidiary silver, copper etc., coinage) would be needed. A number of factors enter into the determination of what volume of currency will actually be needed; the volume of transactions, the prices of commodities and the rapidity of circulation etc., for a description of which the reader is referred to Marx’s Capital Vol. 1. Chapter 3. “Money, or the Circulation of Commodities”.
The next stage in Marx’s explanation is that a circulating gold coinage can, without any alteration of the proposition, be replaced by a convertible paper currency, that is freely convertible into a legally fixed and unchanging weight of gold. In 19th century Britain, Bank of England notes, which circulated alongside the gold coins, were by law convertible on demand into gold.
Then comes a completely different situation, the replacement of gold coin and convertible bank notes by an inconvertible paper currency—the situation in Britain today. The Marxian proposition, still based firmly on the concept of value, is that if the inconvertible paper currency exceeds in amount the amount of gold coinage that would be needed, the general price level will correspondingly rise.
If the quantity of paper money issued is, for example, double what it ought to be, then, in actual fact, the pound, has become the money name of one-eighth of an ounce of gold instead of about one-quarter of an ounce. The effect is the same as if an alteration had taken place in the function of gold as a standard of price. The values previously expressed by the price of £1 will then be expressed by the price £2. (Capital Vol. 1 page 144 Kerr edition).
But what have the other economists to say about this? Most of them reject the old theory outright. The late Lord Keynes wrote in his Treatise on Monetary Reform forty years ago:
Thus the tendency of today—rightly I think—is to watch and control the creation of credit and to let the creation of currency follow suit, rather than, as formerly, to watch and control the creation of currency and to let the creation of credit follow suit.
In the meantime in keeping with this changed attitude (and in keeping with mystical ideas on “credit creation” referred to in the Socialist Standard (December 1966) the meaning given to the word “money” changed. Some writers wanted to regard as money, not only the note issue and coinage but also those bank deposits which are withdrawable on demand, and others have extended it to cover all bank deposits.
And the 1959 Committee on the Working of the Monetary System capped it by declaring that they regarded the note issue as in effect no more than “the small change of the monetary system” (page 118).
But the proof of the pudding is in the eating. The economists who reject Marx have to explain why events—that the price level is more than three times what it was before the war—are explicable on the lines of Marx’s proposition about the effects of an excess issue of currency, but quite inexplicable on their theory that the amount of currency can be disregarded.