By Eleutério Prado*
Economic policy cannot ignore social classes, as well as the constant dispute over the distribution of value created in the production of goods.
Nouriel Roubini has been considered, on the left and on the right, as a magician: behold, unlike his most awarded colleagues, he predicted the 2007-08 crisis. But Michael Roberts, today's best-known Marxist blogger, also foresaw this great crisis, but he hasn't been taken for granted. Of course, the former has a large consulting firm and knows how to market well to convey the idea that he is capable of making crucial predictions, which obviously interests big investors. Thus, it is true, he earns more and more money, unlike the left-wing economist who loses it because he never stops criticizing.
Roubini recently wrote an article to predict that the current crisis will be equal to or worse than that of 1929. The latter was followed by a depressed state of the capitalist economy, especially in the United States, which lasted until the beginning of the Second World War. He is terrified and therefore recommends a large distribution of money to the unemployed and the poor in the United States and Europe. What is he afraid of?
A paragraph in his text calls attention: “These deficit-funded interventions must be fully monetized. If they are financed through standard government debt, interest rates will rise sharply and the recovery will be smothered in the nest. Given the circumstances, interventions long proposed by left-wing economists of the Modern Monetary Theory school, including money distribution, need to be part of the mainstream".
Now, it is possible to be in favor of supporting the precarious and precarious of all types, without adhering to Modern Monetary Theory. It should be done through the creation of a social wage – universal basic income – financed on the basis of higher taxation of the income and wealth of capitalists and their associates.
The rejection of this vulgar and now widely vulgarized theory must be theoretical. It has even been spread by a Brazilian magician who, to escape the poor and barbarism that thrives in the “beloved homeland Brazil”, went to live in Portugal.
It is evident that without work there is no creation of value. But this still does not validate the labor theory of value. It shows, however, that the generation of value is reduced when the amount of work used in the production of goods is reduced. What underlies the labor theory of value is the inescapable fact that work becomes a social relationship as soon as some start working for others. And that, in capitalism, where this mode of sociability is generalized, this relationship takes the form of a relationship of things, that is, of goods. Such things, like this, become very lively, dance wildly in the markets.
Hence, then, the fetishistic character of the commodity. It simply stems from the fact that in everyday life value comes to be attributed to things themselves; it comes, therefore, from a “natural” confusion of the form of value with the support of that form, that is, use value. Thus it is thought, for example, that gold is money, that the machine is capital, etc. Fetishism “is nothing more” – says Marx – “than a certain social relationship between men themselves, which for them assumes the phantasmagoric form of a relationship between things”.
Well, paraphrasing Ruy Fausto, now it must be said that there are two real symmetrical illusions involved in mercantile sociability: the fetishism of the commodity and the fiction of exchange value as a signifier in itself (for him, a convention). And dialectical criticism, as he points out, has to be critical of these two opposing illusions. As is known, Marx shows that the internal contradiction of the commodity, use value and value, unfolds into an external contradiction between the relative form of value and the equivalent form. You have to go from there.
As the equivalent form hides the social relationship, it is the proper place for fetishism. As the first, on the contrary, indicates that there is a social relationship, which figures as an exchange relationship, it is the proper place of fiction. It is believed, therefore, that the exchange value results from an agreement between individuals, which results from a transindividually regulated interaction. But not, evidently, for a value objectivity. It is, therefore, from this second real illusion that the theories of subjective value that prospered in Political Economy through neoclassical and Austrian theories were developed.
Now, when money is gold, it presents itself par excellence as the locus of commodity fetishism. However, as has long been known, gold as money can be replaced, especially (but not only) in the sphere of circulation, by paper money. Marx then says that paper money appears merely as a sign of gold.
Now, with the overcoming, first, of the gold standard in the 1930s and, later, of the gold dollar in the 1970s, paper money gained a life of its own and started to have the status of creation ex nihilo. As it acquired the character of a mere social convention, it also began to appear as a fiction. It became, in fact, play money. Even if it is not value in itself, it figures as a representation of value, a value, moreover, that has never ceased to be devalued since then (as the graph below proves).
Suppose now that all money is fiat and that, taken as a whole, it represents a certain amount of value. Based on the labor theory of value, in a simplified context, it can be said that the amount of money required to realize the value produced in a given period is equal to the amount of this value divided by the velocity of circulation of money. If, for whatever reason, more money is injected into the economic system, the excess will turn into inflation.
A problem arises when it is noted that the injection of money in the form of autonomous government spending or in the form of credit to the private sector can feed the realization of the value of goods already produced and, thus, stimulate production. Thus, the suppression of the gold standard and the gold dollar in the course of the XNUMXth century was ultimately aimed at confronting the stagnation tendencies of capitalist economies. This objective, however, was thwarted to a certain extent precisely by the inflationary bias that was introduced into the system. It should be noted that inflation creates indexation and the latter tends to feed back inflation, creating inflationary inertia.
Thus, monetary policy, combined with fiscal policy, began to act to put these economies into forced gear. But why did this new economic policy regime become necessary in the history of capitalism? Now, since Marx, it has been known theoretically that Say's Law, according to which supply creates its own demand, is not valid. And it doesn't hold in the real world simply because sales (M – D) may not be followed by purchases (D – M), but by hoarding money.
Keynes also opposed Say's Law, inventing a new term for this same phenomenon which, by the way, is intrinsic to the way capitalism works: liquidity preference. Now, when the rate of profit falls, when there is overproduction, capitalists stop investing in production, accumulating money as money and investing preferentially in the financial market, in the wheel of speculation. If, therefore, capitalism starts to tend towards stagnation at a certain moment in history, paper money can no longer continue to be a sign of gold, it cannot be linked to it, since now it has to appear as purely fiduciary money.
In the 1930s, as we know, stagnation prevailed. It was defeated, in part, by Keynesian policies and, in part, by the Second World War itself, which made possible the devaluation and massive destruction of capital. As stagnation imposed itself again – and this occurred at the end of the 1960s and throughout the 1970s, capital began to appreciate in increasing measure in the financial sphere, in the form of fictitious capital. Now, this already shows that it is no use merely declaring against financialization, dreaming of a “good capitalism”, with the return of social democracy. Therefore, financialization, which is not an entirely new phenomenon, becomes a privileged form of capital circulation when capitalism enters its sunset.
As John Keynes never ceased to be an heir, albeit a rebellious one, of the neoclassical theory he had learned from Alfred Marshall, he never accepted the labor theory of value and, therefore, never wanted to see the crucial importance of production in the creation of value and, therefore, thus, in creating the conditions of demand. If it is true that supply does not immediately create its own demand, it is also true that it – and only it – creates the possibility of demand. Now, contrary to good theory, Keynes reversed Say's Law and created Keynes' Law: demand creates its own supply.
For Keynes and all Keynesians, money is a convention created by the state to make a generalized exchange economy possible. In this way, they fall into the illusion provided by fictitious money, a form of money that does not express labor value in itself, but represents it socially. And if it represents it, it has to have a relationship, now hidden and mystified, with commodity money, with gold money – which now resides only in the vaults of the central banks of the economic powers, in the United States above all.
In this vein, they call capitalism, that is, the capital relation system, the monetary economy of production, stating that the inherent goal of the system is the production of use values – and not, therefore, the valorization of value. For them, capital is not a value that is valued through the exploitation of workers, but means of production. In this way, they fall into the fetish of the commodity form, as they confuse this form with its material support, that is, with use value.
It is from these two premises – Keynes' Law and the fiction that consists of taking fictitious money as real money – that modern monetary theory emerges. This theory maintains that the State can finance its budget deficits through the issuance of money since it does not have budget constraints like agents in the private sector. Because of this, he can perform the miracle of job multiplication; that is, the State can and must become the employer of last resort, aiming to bring the capitalist economy to full employment. Therefore, instead of theoretically deriving the money form from the commodity form, as in The capital, she makes use of a peculiar interpretation of the history of money.
Modern monetary theory downplays the limitations of the State to expand its spending without proper tax coverage or loans taken mainly from finance capitalists. As it turned out, it basically ignores the nature of capitalism. Now, economic policy cannot ignore social classes, as well as the constant dispute over the distribution of value created in the production of goods.
It does not see that the supply of commodities is limited by the magnitude of the rate of profit that can be obtained in the future, and not by full employment. Furthermore, it minimizes the uncertainty that will be introduced by accelerating inflation. Nor does she seem to see that production is now limited by the restrictions posed by the breakdown of production chains and that, therefore, the creation and expansion of the social wage without tax or loan coverage will generate inflation.
And inflation is not wanted by workers because they see nominal wages rise, but real wages stay the same or even fall. Furthermore, inflation has an enormous psychological cost – an economist's expression –; she doesn't let her economic head rest.
At this crucial moment, the left should not trust either modern monetary theory or the wizards who now want to create jobs and income. ex nihilo. It has at its disposal a consistent theory of capital and capitalism. She, in my opinion, should indeed defend the creation of a social wage, but based on a radical change in the distribution of income. If not, later on it will again be called irresponsible by neoliberal politicians and economists. And, in fact, then they will have some reason!
* Eleutério FS Prado is a full and senior professor at FEA-USP.
