Was Marx a Monetarist? (1983)

From the January 1983 issue of the Socialist Standard

Margaret Thatcher, and other supporters of the Monetarist doctrine of Professor Milton Friedman, must have been surprised and even alarmed to hear that Marx was a fellow Monetarist. In a recent interview, Friedman said: “Let me inform you that among my fellow Monetarists were Karl Marx and leaders of Communist China” (Observer, 26 September). Thatcher need have no fear. There is not a word of truth in the Professor’s statement as it affects Marx.

Friedman’s reason for his belief about Marx was given in his definition of Monetarism:

“Monetarism, he explained, was a new name for the Quantity Theory of Money which dealt with the relationships between the quantity of money and economic variables such as price level, interest rates and unemployment.”

Friedman is saying that Marx’s money theory was the same as the quantity theory of money, and that Monetarism is merely a new name for it. Friedman is wrong on all counts. Marx’s money theory was an application of his labour theory of value, which the quantity theorists and the Monetarists both reject. Marx did not share the belief of the Monetarists that unemployment and its rise to peak levels in depressions arises out of an inflationary monetary policy and could be avoided by a different policy.

And Friedman’s Monetarism is not a new name for Marx’s money theory, or for the quantity theory, but a new name for a quite different theory, the “Bank-deposit Theory of Prices”, which holds that the price level is determined by the rise and fall of bank deposits. Both Marx and the quantity theorists were completely opposed to it. The principal thing that Marx and the quantity theorists had in common, and which differentiates them from the Monetarists, is that by “money” they meant only the notes and coins in circulation, the currency.

For Friedman and other Monetarists, as for the bank-deposit theorists, “money” includes, along with the relatively small amount of currency, the much larger amount of bank deposits. Professor Edwin Cannan, in his book Modern Currency and the Regulation of its Value, published in 1931, had a chapter entitled “The Bank-deposit Theory of Prices”. Cannan’s description of that theory showed it to be exactly the same as the theory now advanced by Friedman under the name Monetarism. Cannan was of course opposed to it.

Marx and the quantity theorists made it quite clear that by “money”, in connection with prices, they meant only the currency. In Capital vol. 1 (Kerr edition, p.143), Marx dealt with inflation in terms of the “‘bits of paper”, put into circulation by the state, “on which their various denominations, say £1, £2, £5 etc. are printed”. Nothing about bank deposits being the factor determining the price level.

The economist, Professor Alfred Marshall, in his Money, Credit & Commerce (Macmillan, 1904) stated the quantity theory as “the relation between the volume of currency and the level of prices”. Professor Cannan did the same. Cannan is of special interest because not only did he show the fallacy of the bank-deposit theory now advocated by Friedman, but also put in a plea for the retention of the distinctive word “currency” and not allow it to be displaced by the word “money”. He warned of the confusion that would be created if his plea went unheeded. Friedman’s mistaken belief that Marx was a Monetarist illustrates Cannan’s point.

What the Monetarists mean by “money” or “money supply” they obtain from the figures published each month in the official journal Financial Statistics, which, however, adds to the confusion by compiling not one figure, but six different figures, ranging at present from £36,124m up to £143,154m. They all consist predominantly of bank deposits except that the top one also includes “shares and deposits with Building Societies”. The figures differ because they include different categories of bank deposits. Fifty years ago Cannan foretold what would happen. Once they had started by including bank “sight deposits”, withdrawable on demand, they would, he said, be unable to find good reason for excluding the “time deposits” (withdrawable only on giving notice, usually seven days), of the commercial banks and savings banks, and would probably end up by throwing in the Building Societies. too which is what they have done. 

The Monetarists disagreed among themselves about which of the six sets of “money” figures is the appropriate one. The only thing the Monetarists are agreed about is a rejection, as the relevant factor, of the currency figures used by Marx and the quantity theorists. (The present currency circulation is £10,741m.) Friedman is not the only one to get into a muddle by confusing “currency” with bank deposits.

The editor of the Times (23 September 1976) quoted the economist Jevons as having defined the quantity theory in terms of “an expansion of the currency”. Returning to the subject later on (7 April 1977) he again quoted Jevons, but this time he altered the word “currency” to “money supply”, by which he, the editor, meant predominantly bank deposits. It was not what Jevons said or intended.

The confusion of the Monetarists extends to giving a new meaning to the simple phrase “printing money”. To Marx, Marshall and Cannan it meant “printing notes”; as no doubt it still does to most people. But when Denis Healey, as Chancellor of the Exchequer in the Callaghan Labour Government, said that the government “are not printing money now”, and was asked to reconcile it with the fact that the Bank of England was busily engaged in printing and putting into circulation hundreds of millions of pounds of additional notes, the Treasury, on his behalf, explained that “printing money does not mean printing notes . . . but issuing Treasury Bills to the banks” (that is, government borrowing from the banks).

This had its farcical aspect. Two years after Healey made his speech, the Prime Minister, James Callaghan, talking on the same topic, said that the government were not going “to get more bank notes printed”. Apparently Callaghan could not believe that “printing money” meant something different from what most people thought it meant. Nobody had told him that his Monetarist advisers had given it a new meaning.

The question has to be considered whether the Monetarist bank-deposit theory is valid. Does the price level rise and fall with the total of bank deposits? Many examples could be given to show that it is not valid. Between 1878 (the first year for which figures of total bank deposits are available) and 1914, bank deposits increased by 119 per cent. Prices did not rise at all, but fell by seven per cent. And in 1931, Cannan in his book Modern Currency pointed out that at that time  “prices continued to wax and wane with currencies and to exhibit towards the variation of bank deposits complete indifference” (p.95).

Another question concerns the relationship between the total currency in circulation and the total of bank deposits. If the two kept in line, rising and falling together and by the same percentage, it might be argued that it does not matter whether guidance is looked for in changes in the volume of currency or in changes in the amount of bank deposits. But there is not such co-relationship. Between 1970 and 1975 Sterling deposits in the banks in- creased by 120 per cent but the currency in circulation increased by only 80 per cent. (If bank deposits in currencies other than Sterling are included the discrepancy was wider still).

Since the Callaghan government, six years ago, adopted the Monetarist policy continued by Thatcher they have operated in the belief that “by controlling the money supply”, that is bank deposits, they could control the rise of prices. But which of the several different sets of figures should they use? If all the six moved together, and by the same percentage, any one would be as good as any other. But they do not keep in line with each other. They change by different percentages and at times some are rising while others are falling. The one generally favoured by British governments has been Sterling M3 which consists predominantly of bank deposits in Sterling (excluding deposits in British banks in other currencies). But in practice the governments found that they could not control it. Repeatedly they would announce the limits within which they planned to keep the “money supply”, only to find their planned limits exceeded. The American government had the same experience.

The Chancellor of the Exchequer, Geoffrey Howe, admitted this at the Lord Mayor’s dinner. He spoke of the Government’s anxiety “when it focused on Sterling M3 which promptly nearly went out of control” (Financial Times, 22 October). So he said he had favoured not concentrating on only one of the six but looking at all of them. But he also admitted that “occasionally all the money measures together did not give a clear message of what was happening” (Times 22 October).

The truth is that the monetarists cannot make up their minds what exactly they mean by “money supply”, and they cannot control it. And even if they could, that would not give them control of the price level. Underlying Monetarist doctrine there is still another fundamental conflict between Monetarism and Marx’s money theory and Cannan’s quantity theory. For Marx and Cannan bank deposits are sums of money lent to banks by depositors. They held the same view as that of the banker Walter Leaf in his book Banking (1926,  p.102):

“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 lending operations by the amount which the depositor thinks fit to leave with them.”

Opposed to this is a theory described by Cannon as “the mystical school of banking theorists”, which holds that the bulk of bank deposits are “created” by the banks themselves. One of the believers in the “mystical” theory was Major Douglas, founder of the Social Credit Movement, with his statement that the banks can “create unfold wealth by the stroke of a pen”.

Another “mystic” is Professor Friedman. In the book Free to Choose, written jointly with his wife, dealing with inflation, they considered who are and who are not “the culprits”.

“None of the alleged culprits possess a printing press on which it can turn out those piece of paper we carry in our pockets; none can legally authorise a book-keeper to make entries in ledgers that are the equivalent of those pieces of paper.”

In view of the belief of the Keynesians and the Monetarists that they are in opposite camps it is relevant to recall that Keynes also was a “mystic”. Like the Monetarists he urged abandonment of the policy of directly controlling the amount of money, and was responsible for drafting the statement in the 1931 Report of the Committee on Finance and Industry that “the bulk of deposits arise out of the action of the banks themselves.”

The Monetarist policy of the governments in the past six years has been based on the idea that, through money market operations, the government can control the amount of bank deposits alleged to be “created” by making “entries in ledgers”. If this is a fallacy, as it is, how is it that the Thatcher government can claim some success in reducing the rate at which prices are rising?

In the first place comparison should be made with the performance of the Lloyd George government in the twenties. They not only halted inflation but, within months, there was an actual fall of prices. The government’s advisers at the time were not Monetarists, and the government halted inflation by curtailing the note issue. The present government, like the Callaghan government, has maintained an excess note issue, vainly hoping to reduce inflation by the impossible idea of “controlling” bank deposits.

That prices are now rising less rapidly is due to the depression. As Marx showed, prices rise in a boom and fall in a depression quite apart from the currency factor. The difference between the twenties and now is that, at that time, two factors (curtailment of the note issue, and the depression) were both affecting the price level in the same direction, downwards. This time they are working in opposite directions. Government policy is pushing prices up while the depression is operating to make the rise of prices less than it would otherwise be.

One last word. Marx, unlike the Monetarists and unlike at least some of the quantity theorists, never supposed that getting rid of inflation would solve workers’ problems.

Edgar Hardcastle

Letter From Europe: France: from failure to fiasco (1983)

The Letter From Europe Column from the June 1983 issue of the Socialist Standard

When Edmond Maire, Secretary of the CFDT trade union federation, emerged from a meeting with President Mitterand on 31 January he announced that a further round of austerity was inevitable. The government was horrified as this was not the sort of information it wanted publicising in the run-up to the local council elections in March. The Prime Minister, Pierre Mauroy, came on television to deny that any such austerity plan existed; the worst of the crisis was over, he assured viewers, and in any event he had no intention of going down in history as the Prime Minister who devalued the franc three times.

Subsequent events proved him to be either a fool or a liar, or both. On Monday 21 March, a week after the local elections (in which the government parties in the end did not do as badly as had been expected) the French franc was devalued for the third time since May 1981. Mauroy duly resigned . . . only to accept renomination as Prime Minister the next day. On the Wednesday Mitterand himself appeared on television, waving his arms about like General De Gaulle and amidst strains of the Marseillaise, to shout, "Buy French" and "Vive la Patrie!" On the Friday the supposedly non-existent austerity package was unveiled: an increase in taxes and public charges (telephone, gas, electricity, railways), a forced loan, tough exchange controls, with the declared aim of cutting internal consumption as a way of reducing France's balance of payments deficit.

The four-month wage freeze imposed after the second devaluation of the French franc in June last year already represented a failure of the PS/PCV government's policy of trying to spend its way out of the crisis. Marx once remarked that, although a government could not end a period of stagnation by the monetary policy it pursued, it could make matters worse. The question must now be posed as to whether the French government's obstinacy in not cutting its spending financed by the printing press has not in fact done this.

At the beginning of the year the government had been feeling satisfied with itself: the unemployment figures had been stable for a few months at "only" 2 million and the target of an "inflation rate" of "only" 10 per cent in 1982 had been achieved. The trouble was that although the "inflation rate" had fallen in France—reflecting the deepening of the world economic crisis rather than anything the government itself had done—it had fallen even further among France's economic competitors in Germany, Britain and other Common Market countries.

The lower fall in France reflected the fact that the government there had been having more recourse to the printing press to finance its spending than had the other countries. Part of this newly-printed money had gone to disguise the real level of unemployment by financing bogus training schemes, early retirement and above all by paying firms, especially the nationalised industries, not to sack workers whose continued employment was no longer justified in profit-making terms.

The economic forces of capitalism have now demanded an end to this policy and that the priorities of profit-making be respected. Unless it wishes to be confronted with a fourth devaluation the PS/PC government is going to have to obey this injunction. Unemployment, which had been kept down artificially by government subsidies, can now be expected to rise in the course of 1983 to its real level.

When this happens the inability of reformist policies to end, or even reduce or slow down, unemployment in a slump will be evident for all to see including, we would hope, those who might be tempted by the Labour Party's recent promise to reduce unemployment in Britain by over 2 million in five years. The French PS was making similar promises before it came to power.

The new government formed by the liar-fool Mauroy after the devaluation of 21 March contained a number of changes. Two ministers (one of them J. P. Chevènement, leader of "leftwing" of the PS) resigned, but those of the French Communist Party who also favour protectionism remained and the leader of the Parti Socialiste Unifié, Hugette Bouchardeau, came into the government as a junior Minister in charge of the environment.

The PSU—a sort of French ILP—was formed in 1960 with the aim of creating "a new socialist force different from communism and social-democracy". Claiming to be a "revolutionary party" it declared its aim to be "to liberate the working class from capitalist exploitation". After the events of May 1968 in France the PSU, under its then leader Michel Rocard (who jumped over to the PS bandwagon in 1974 and is now French Minister of Agriculture after having been Minister of Planning in the previous Mauroy government), earned a certain notoriety with its campaign for autogestion (translated into English as "workers control") and its criticism of the PCF as not being "revolutionary" enough or as being no longer "revolutionary" at all. Needless to say this provided an ideal hunting ground for Trotskyist and Maoist elements who regularly bored their way in and out of the PSU.

Rocard was the PSU's candidate in the 1969 Presidential elections and got 816,471 votes (3.61 per cent), the highest score that has ever been obtained by a candidate of the "extreme left" (as the PSU was then classified). The fame of the PSU and Rocard even spread to Britain where the trendy lefties of the "Bertrand Russell Peace Foundation" published a lengthy interview with him as a pamphlet Michel Rocard Speaks (Spokesman Offprints No. 13). In this interview, dating from 1971, Rocard kept on talking about being a "revolutionary" committed to "workers control:. But in fact he never understood the first thing about socialism.

In a book published in France in 1972 Questions à L'Etat Socialiste (whose title already betrayed his ignorance of socialism since a "socialist state" is a contradiction in terms) Rocard attacked as a "tenacious myth" the view that money would disappear in socialism. In this he was typical of the other members of the PSU who were committed not to socialism but to some impossible "workers control" of the wages-prices-profits system.

The PSU today is only a shadow of what it was in the immediate post-1968 period. The Trotskyists and Maoists have left. Rocard and the other careerists have joined the PS. All that remains is a confused bunch of feminists, regionalists, ecologists and ban-the-bombers. Now their leader too has joined the PS/PC government, with the approval of the party it must be added. The PSU too will now be playing, alongside the two other false "socialist" parties in France, a direct part in imposing austerity on the working class they once professed to free from capitalist exploitation.

Actually, the PSU itself summed up rather neatly what it will now be doing, in a leaflet issued to support Hugette Bouchardeau when she was a candidate (against Mitterand) in the 1981 presidential elections (where she finished last of the ten candidates, with 312,391 votes, a miserable 1.1 per cent:

For us socialism must involve real social changes and not be limited to a "more democratic" management of the crisis: with regard to the type of growth, energy, foreign policy, defence, institutions, the PS only proposes adjustments and small changes to the policies pursued by Giscard.

We have added the italics, not that we can see how the anti-working class policy pursued by the present PS/PC/PSU government is any more "democratic" than that pursued formerly by Giscard.

Adam Buick

Are You a Wage Slave? (2010)

From the May 2010 issue of the Socialist Standard

Surely having to work for a wage or a salary is a modern form of slavery?

We socialists like to refer to wage labour as “wage slavery” and call workers “wage-slaves”. Non-socialists may assume that we use these expressions as figures of speech, for rhetorical effect. No, we use them literally. They reflect our view of capitalist society.

Socialists use the word “slavery” in a broad sense, to encompass both chattel slavery and wage slavery as alternative ways of exploiting labour. We are aware of the differences between them, but we also want to draw attention to their common purpose. Capitalist language conceals this common purpose by equating chattel slavery with slavery as such and by conflating wage labour with free labour. Socialists regard labour as free only where the labourers themselves individually or collectively own and control the means by which they labour (land, tools, machinery, etc.).

Why chattel slavery was abandoned

The connection between chattel slavery and wage slavery as alternative modes of exploitation is visible in the debates within the British and American ruling class that led up to the abolition of chattel slavery. While religious abolitionists condemned slave-holding as a moral sin, the clinching argument against chattel slavery was that it was no longer the most effective way of exploiting the labouring population. It was abandoned because it was impeding economic and especially industrial development – that is, the accumulation of capital.

The legal, social and political status of wage-slaves is superior to that of chattel slaves. However, when we compare their position in the labour process itself, we see that here the difference between them is not a fundamental one. They are all compelled to obey the orders of the “boss” who owns the instruments of production with which they work or who represents those who own them. In a small enterprise the boss may convey his orders directly, while in a large enterprise orders are passed down through a managerial hierarchy. But in all cases it is ultimately the boss who decides what to produce and how to produce it. The products of the labour of the (chattel or wage) slaves do not belong to them. Nor, indeed, does their own activity.    

   

The secret abode

An obvious difference between chattel slavery and wage slavery is that as a chattel slave you are enslaved – totally subjected to another’s will – at every moment from birth to death, in every aspect of your life. As a wage-slave, you are enslaved only at those times when your labour power is at the disposal of your employer. At other times, in other aspects of your life – as a consumer, a voter, a family member, a gardener perhaps – you enjoy a certain measure of freedom, respect and social equality.  

Thus, the wage-slave has some scope for self-development and self-realisation that is denied the chattel slave. Limited scope, to be sure, for the wage-slave must regularly return to the cramped world of wage labour, which spread its influence over the rest of life like a pestilential mist.   

As a result of this split, capital confronts the worker in schizophrenic style, like Robert Louis Stevenson’s Dr. Jekyll and Mr. Hyde. The same person whom capital sedulously flatters and courts as a consumer and voter is helplessly exposed to harassment, bullying, yells and insults at the place of employment.

Capitalist ideologists focus on the “public” spheres of life in which people are relative social equals and do their best to ignore what happens inside the “private” sphere of wage slavery. Thus, economists analyse the exchange of resources among “market actors”, while political scientists talk about relations between the state and an imaginary classless community of citizens that they call “civil society”. Even children’s television programmes display the same bias. For instance, most of the human characters in Sesame Street earn their living through small individual and family businesses (a corner store, a fix-it shop, a dance studio, a veterinarian clinic, etc.).

So there is a wide gap between superficial appearances and deep reality. The servitude of the wage worker is not visible on the surface of capitalist society; to witness it the investigator must enter “the secret abode of production, on the threshold of which stands: ‘no admittance except on business’” (Marx, Capital).

Who is the master?

It may be objected that wage workers are not slaves because they have the legal right to leave a particular employer, even if in practice they may be reluctant to use that right out of fear of not finding another job.

All that this proves, however, is that the wage worker is not the slave of any particular employer. According to Marx, the owner of the wage-slave is not the individual capitalist but the capitalist class – “capital as a whole”. Yes, you can leave one employer, but only in order to look for a new one. What you cannot do, lacking as you do all other access to the means of life, is escape from the thrall of employers as a class – that is, cease to be a wage-slave.

Is wage slavery worse?

Some have argued that – at least in the absence of an effective social security “safety net” – wage slavery is even worse than chattel slavery. As the chattel slave is valuable property his master has an interest in preserving his life and strength, while the wage-slave is always at risk of being thrown out of employment and left to starve.

Actually, the severity with which the chattel slave is treated depends on just how valuable he is. Where chattel slaves were in abundant supply and therefore quite cheap – as in San Domingo, where a slave rebellion in 1791 led to the abolition of chattel slavery and the establishment of the state of Haiti (C.L.R. James, The Black Jacobins) – they were commonly worked, whipped, or otherwise tortured to death. How the wage-slave is treated similarly depends on the availability of replacements. For instance, capitalists in China see no reason why they should protect young peasant workers in shoe factories from exposure to toxic chemicals in the glue, because plenty of teenage girls are constantly arriving from the countryside to replace those who fall too sick to work (Anita Chan, China’s Workers Under Assault: The Exploitation of Labor in a Globalizing Economy, M.E. Sharpe 2001).

  

Intermediate forms

As alternative modes of exploitation, chattel slavery and wage slavery are not separated by a Chinese Wall. Under conditions unfavourable for the working class, wage slavery can easily degenerate into an intermediate form that more closely resembles chattel slavery.

It is common for desperately poor people in underdeveloped countries to be induced to sign a labour contract (which, being illiterate, they cannot read) by lies about the atrocious conditions that await them. By the time they discover the truth it is too late: they are forcibly prevented from running away. Such, for example, is the plight of the half million or more Haitian migrants who toil on plantations in the Dominican Republic (see http://www.batayouvriye.org/English/Positions1/dr.html).

Comparable but more formalized was the system of indentured labour that prevailed in colonial America in the 17th and 18th centuries and was gradually displaced by black chattel slavery. In exchange for passage across the Atlantic, poor Europeans undertook to serve a master for a set number of years (typically seven). Some survived their temporary servitude, others did not.

Slavery and violence

The word “slavery” conjures up the image of the cruel overseer on a plantation in the Caribbean or the old American South, wielding a whip over the heads of his helpless victims. The lash is rightly regarded as a symbol of chattel slavery.

Yet here again no Chinese Wall separates one mode of exploitation from another. The lash has also been widely used against indentured labourers and certain categories of wage-slaves. Only in 1915, for instance, was a law passed in the United States (the La Follette Act) to prohibit the whipping of seamen. Even after that a sailor could still be placed in irons or put on reduced rations for disobeying orders.

Children in the textile mills of 19th-century Britain were hit with leather straps for not working hard enough. In China, abolition of corporal punishment was one of the demands made by Anyuan coal miners in the strike of 1923. As Anita Chan shows in her book, it is in widespread use again today in factories owned by Taiwanese and Korean capitalists.

Even in the developed countries, many people are bullied and tormented at work, usually by a person standing above them in the hierarchy. Some are driven to suicide. Many suffer serious physical or sexual assault. On one of many websites devoted to this problem (www.worktrauma.org) we find the story of a bookkeeper at a power tool company whom a manager kicked in the buttocks with such force that she was lifted off her heels, causing severe back injury as well as shock. While I was at Brown University, a laboratory assistant was raped in the lab by her supervisor.

Such acts of violence against employees are no longer sanctioned by law, but they happen all the time. The victim is sometimes able to win some compensation, but criminal charges are rarely made against the perpetrator.

It doesn’t apply to me

If you are fortunately situated, you may feel that my argument doesn’t apply to you. Your boss or manager treats you well, you do not suffer insult or assault, you are satisfied with your working conditions, and the work itself may even give you satisfaction. You at least are not a wage-slave.

Or so you imagine. Some chattel slaves – in particular, the personal servants of kind masters and mistresses – also had the good fortune to be treated well. But they had no guarantee that their good fortune would continue. They might be sold to or inherited by a cruel new master following the old master’s death, departure or bankruptcy. You too may suddenly find yourself with a nasty new boss or manager. The matter is out of your hands, precisely because you are only a wage-slave.

If you are a technical specialist, a scientist or analyst of some kind, you may even say: “What sort of slave can I be? I am not ordered about all the time. On the contrary. I was hired for my expertise and I am expected to think for myself, solve problems and offer suggestions. True, I can’t make important decisions by myself, but my bosses are always willing to listen to me. And they are always polite to me.”

You are deluding yourself. I know because I have been in a similar situation and deluded myself. Your bosses listen to you before they come to a decision. Once they make a decision, they expect you to accept it. But suppose you once forget yourself (which means – forget your place) and continue to argue against a decision that has already been made. Then you are in for a rude shock!

What makes your delusion possible is that you have grown accustomed to analyse problems from your employer’s point of view. You are every bit as alienated from your own thinking as the assembly line worker is from his or her physical movements. And if a process that you think up is patented, do you imagine that the patent will belong to you?

Stefan