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INTRODUCTION

Economics can be a difficult subject for many people. One of the great ironies about it is that someone can continually propound an idea that has literally no evidence to support it. Organizations like the Brookings Institute, Mises Institute, Cato, Macdonald-Laurier Institute, can continually put out information that is demonstrably false. One can publish an absolute absurdity and still win a Nobel Prize. Austrian economics and Keynesianism have both won Nobel Prizes at some point, despite them being absolutely antithetical to one another.

So how do you know what's true and what is not in economics? By investigating ideas for yourself and coming to your own conclusions. In this book I hope to put forward the ideas that I find to be correct. I didn't publish these subjects with the intent of giving a particular viewpoint. Most of the content here is a simple explanation with very little bias. Anything where I am expressing my own opinion is clearly labelled as such. For example: a section explaining compound interest, and after it, a Marxist view of compound interest.

I've included a section on Third Worldist political economy that has been generously donated by the Leading Light Communist Organization. Their work on the subject is second to none. I highly recommend it.

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I've also included a section that is made up of notes that I've made on Politics and Economics in the Transition to Socialism by Carlos Tablada. He has formulated many of Che Guevara's economic writings into a single work that I think is very valuable. The notes are intended to make the ideas easier to understand. I highly recommend his book as well.

Please enjoy all this book has to offer, I hope you find it useful.

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MARX'S OPTIMISTIC AND INCORRECT VIEW OF

INDUSTRIAL FINANCE CAPITALISM

Marx had an optimistic, yet incorrect prediction of what finance would do for industrial capitalism. He noted that in previous epochs usury was practiced independent of the mode of production. In his view, finance would become subservient to industry. This was the only logical path for him (and many others) during the beginnings of the industrial revolution.

At that time there were a great many economists who argued that loans should be made to serve industry. Most prominent among them was Saint Simon. There was great debate calling for finance to be used for tangible value creation. Marx was an admirer of Saint Simon, he supported his work of financing production. However, Marx was still critical of him. He criticized him as foolish for thinking he could reconcile capital and labour, instead of basing his system on class conflict. He even spoke sarcastically of him in Capital. He joked that such an attempts at reconciliation were "world-redeeming credit-phantasies."1

Marx was certain that the character of the capitalist mode of production would make finance subservient to industry. He said

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that the banking and credit system, "signifies no more and no less than the subordination of interest-bearing capital to the conditions and requirements of the capitalist mode of production."2

In his writings, Marx spoke of promoting thriving markets needed to expand industrial capital investments. He warned against anti-inflationary monetarists. They would demand legislative policies to protect the economic value of their loans by demanding deflationary austerity. The consequences would be squashing industrial capital's need for expanding markets. "The value of commodities is therefore sacrificed, for the purpose of safeguarding the phantastic and independent existence of this value in money."3 This same argument would later be used by Keynes in the 1930s, although Keynes is given credit for it.

What we see today is far different than what Marx predicted. Finance capital has taken on a life of its own. The relationship has evolved into finance being parasitic upon industry. Instead of it being used to promote value creation, it has instead leached value away from industry. To his credit, there were many who believed the same as he did.

Marx, however, was not without criticism of the emerging finance capitalist. He saw the lender of funds for industrial production as a "parasite" upon the productive sphere. They held no real necessity, other than what was necessary as a result of private appropriation. Such investment had historically been self-financed. But, now was a new age where the money lender wanted in on the industrial revolution. I helped it thrive, only on the promise that it could leach away value for itself. "They do not create it, but attack it from the outside."4 The whole process creates a legal claim upon the production of value in the industrial sphere. Money lenders became entitled to a portion of the profits via interest that is paid out for the loan. Marx saw finance capital as parasitic, something that takes value from others.

“Usury centralises money wealth,” Marx elaborated. “It does not alter the mode of production, but attaches itself to it as a parasite and makes it miserable. It sucks its blood, kills its nerve, and compels reproduction to proceed under even more disheartening conditions. … usurer’s capital does not confront

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the laborer as industrial capital,” but “impoverishes this mode of production, paralyzes the productive forces instead of developing them.”5

Due to the very nature of credit, Marx viewed it as "fictitious capital." When he looked at the economy around him he noticed something quite important. Debt in society grows independently of its ability to pay it. Credit is seen as fictitious because it eventually cannot be realized over time; it cannot all be paid back. Compound interest is particularly guilty of this. A debt can theoretically expand to astronomical proportions without any corresponding ability to pay it. “The greater portion of the banking capital is, therefore, purely fictitious and consists of certificates of indebtedness (bills of exchange), government securities (which represent spent capital), and stocks (claims on future yields of production).”6

Thus, if left unchecked, can cause a break in the chain of payments the economy uses to function. That break, will lead to crisis if it occurs on a large enough scale. Bankers are capable of seeing the expansion of credit growing beyond the ability of an economy to service it. When this happens, they call in loans to protect themselves. Often it ends in the forced sale of assets to cover these debts immediately. The mass selling lowers the prices of assets all around, reducing the ability of their sale to pay the debts. Economy wide this creates a recession, or a total crash of the economy.

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The infinitely expanding credit “assimilates all the surplus value with the exception of the share claimed by the state.”7 They will capitalize as much of the economy as they can. “Under the form of interest the whole of the surplus over the necessary means of subsistence (the amount of what becomes wages later on) of the producers may here be devoured by usury (this assumes later the form of profit and ground rent).”8

Still, Marx maintained his optimism. His ideas about how the struggle between finance and industry would proceed - would be proven dead wrong. Strangely, he saw this new symbiosis of the two aspects of capitalism as leading into socialism.

“There is no doubt that the credit system will serve as a powerful lever during the transition from the capitalist mode of production to the production by means of associated labor; but only as one element in connection with other great organic revolutions of the mode of production itself.”9

He saw governments as becoming socialist, not finance taking over the economic and political sphere.

In a terribly ironic moment, he mocked the idea of government bailing out the financial capitalists. “The entire artificial system of forced expansion of the reproduction process cannot, of course, be remedied by having some bank, like the Bank of England, give to all the swindlers the deficient capital by means of its paper and having it buy up all the depreciated commodities at their old nominal values.”10

As history shows, this was dead wrong. What Marx saw as an absolute absurdity foreshadowed the real life event. The U.S. government bailed out the largest, most powerful financial institutions of the country. All of it was done to save capitalism from itself.11

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Bailouts Received by Various Institutions

Fannie Mae Government-Sponsored Enterprise

D.C. $116,149,000,000

Freddie Mac Government-Sponsored Enterprise

Va. $71,336,000,000

AIG

Insurance Company N.Y. $67,835,000,000

General Motors Auto Company Mich. $50,744,648,329

Bank of America

Bank N.C. $45,000,000,000

Citigroup

Bank N.Y. $45,000,000,000

JPMorgan Chase Bank N.Y. $25,000,000,000

Wells Fargo Bank Calif. $25,000,000,000

GMAC (now Ally Financial)

Financial Services Company

Mich. $16,290,000,000

Chrysler Auto Company Mich. $10,748,284,222

Goldman Sachs Bank N.Y. $10,000,000,000

Morgan Stanley Bank N.Y. $10,000,000,000

Far from being subordinated by industry, finance became the dominant power.

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THE FINANCIAL CYCLE AND CREDIT

Credit Money as a Means of Payment

Next we should investigate credit in capitalism. In our modern evolution of the system it is an absolute necessity in order for it to function. The industrial capitalist is tremendously reliant on it for entering into new rounds of production. Even very large corporations like Ford and GM borrow the cost of production ahead of the creation of value. The settling of the account is paid for out of the surplus-value collected by the capitalist. From this we can see something very significant. In production and investment, all credit is reliant on, not just the production of, but the realization of surplus-value. Without it the credit cannot be paid back. If enough credit in a system is not paid back that system goes into crisis.

Essentially credit allows a person or company to make a purchase without using money. In doing so a debt is created that must eventually be paid back with wages or profits.

Credit evolved alongside the mode of production. It began in the feudal era and continued into capitalism adapted to serve its new

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master. Credit began in the feudal era as a privilege of the land-owning class. This should be obvious because they're the only ones who owned any wealth. The most common uses were personal consumption for wealthier people and as a part of production for smaller producers. Peasants frequently had to borrow money as well often perpetuating a vicious cycle of debt. This cycle often led to peasants becoming debt slaves to landlords who were in many cases lenders of money as well.

The interest charged on these loans was outrageous. This high cost of borrowing kept many peasants and small producers in an exploited situation of which they were unable to escape by the shear functioning of it. This is a prime reason why people who loaned money were despised so much and why in revolution, particularly China, landlords who engaged in this slavery were brutalized. Imagine someone who forced you into that situation and then asked you to sell off your daughter to pay off a debt, see how much sympathy you have for him after that.

When capitalism took hold of credit it made changes to facilitate the new mode of production. Credit became a part of the banking system as opposed to being something landlords did. In this change banks offered an incredibly lower rate of interest. It made banks the center of credit in the system as it now facilitated the needs of capitalist production which the landlords/money lenders could not. Capitalism also required that banks became the main hub for money as well.

The transformation of credit into capitalism gave rise to credit money. What makes credit money different from feudal credit debt is that it is a promise to pay that can be transferred from person to person, company to company. These IOUs are usually created by banks and are often used in place physical token money issued by the state. It can effectively replace money in daily transactions in day-to-day economic life. The uniqueness of this credit money is that it brings together credit relations and money relations.

The problem arises when we see that money as a universal equivalent which measures exchange-values in terms of their use-

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values can only be fulfilled by the money commodity. In this most fundamental function the money commodity cannot be replaced by credit money or token money. The reason for this is that credit money is paid for with another form of money.

Banking in the era of Marx's life was different from today. Banks often issued slips of paper to people which confirmed that they held a particular amount of money or gold in their account. This paper could be used not just for everyday transactions, but they could also be used to pay off debts because they represented a real held amount of precious metals. Marx called this “circulating credit”.

However today we don't have a gold backed currency, meaning the token money we have today doesn't have that value attached to it. Banks began making loans with bank notes instead of precious metals. Doing this had one important effect: it allowed the bank to create credit money in excess of the actual amount of money held by the bank. This was the beginning of fractional reserve banking. The reason this was possible was because banks noticed they didn't need an amount of money that equaled the value of the bank notes. They never came in to be redeemed in precious metals all at once. As long as withdraws didn't exceed the amount of precious metal on hand there was no problem. Until the day came that the holders of the banknotes did come all at once in what is called a "run" on a bank. This caused the banks to run out of precious metals and go bankrupt causing those banknotes to lose all value.

This led to many problems in the banking system and had its hand in various crises. It became a matter of policy that this issuing of banknotes be kept in the hands of the central or national) bank. Since the government itself keeps its account in this bank, eventually it was taken over by the government itself. This is what initiated the transformation of the central bank from a profit making enterprise to a government monetary authority. From here the goals of the bank also changed. It went from making money to stabilizing the monetary system as much as possible given the inherent instability of capitalism. Along with this they became the

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sole power capable of issuing banknotes which made it the "bank of issue".

At this moment a change in credit took place. Now the government could convert credit money into token money by eliminating obligation of the central bank to convert them into precious metals. What does all this tell us? It tells us that the "banknotes" of the central bank are not credit money because they are not payable/redeemable in precious metals. These "banknotes" are in fact token money issued by the government.

Despite this banks still continue to create their own "money". They can create credit money via the deposits that people make in those banks. This money is moved via electronic means and paper cheques. By doing this banks can make loans using their deposited money. This allows them to create credit money by issuing banknotes; instead this is frequently called "bank money".

Credit Money and Crisis

As before with issuing their own banknotes, the creation of "bank money", the bank creates deposits far greater than the money they hold onsite or with the central bank. This too allows the bank to create more and more money as it's loaned out time and time again. As should be obvious this money can never be backed by a precious metal, as there is literally not enough gold in the world to cover every singles US dollar let alone the whole world.

This functioning of the central bank and private banks in the creation of money provides capitalism with a very important ability. It allows the supply of money to expand beyond what is possible under a gold standard. As economies expand there is a need for a greater and greater supply of money in order for that economy to function. Without it commodities won't be able to move outside barter. There are many arguments why gold no longer works as money. They are too numerous to go into here so I have provided some in Appendix B. This credit money combined with the way capitalism functions allows for great overproduction.

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This is one reason why monetarists and Austrians complain about fiat money and advocate for alternatives like gold and whatnot. This suggested solution however doesn't work as it would dramatically reduce the supply of money causing the capitalist system to crash. In addition to this banks will simply find another way to create credit money.

The principal fact that causes such overproduction crisis is the fact that credit money can, and is, created far beyond the supply of metallic and token money. If credit money can only be paid back with metallic and token money, and there literally isn't enough of it to do so, then the debt that is credit money can never be paid back in full. These unpaid debts can cause crisis.

The issuers of credit sooner or later discover that the people they have given credit money to are having a greater and greater difficulty returning it to them in token and metallic money. They know a crisis from inability to pay back those loans is coming. This happens because the issuer will be unable to realize enough token and metallic money to pay for all the credit money they've created. From this the issuer begins to panic and try to convert as much of the credit money in token and metallic money as a fast as possible. This ends up destroying a quantity of the credit money created.

Credit and the Business Cycle

Marxism is made up of several cyclical theories not one over all cycle. There are not regular fluctuations of the business cycle, they are "events" that can take place in the course of the overall business cycle. These various events are things produced by the functioning of capitalism itself, manifestations of the different economic, political, and financial structures.

The financial cycle cannot be separated from the industrial cycle. The first grows out of the needs of the latter. As the industrial cycle falls into recession financial crisis plays a role in it. Mainly this takes the form of a break down in the credit system. As the industrial cycle comes to an end the credit also begins to flow once more. These two forms of crisis are bound up together and cannot be

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made separate despite the efforts of bourgeois economic thought. If this were the case we could simply make alterations to either one and solve the problem. This would also imply that monetary policy had no economic importance.

Marx's writings in Capital and its descriptions allow us to understand the part crisis plays and how it fits into the business cycle. The problem here is that Marx made several descriptions but they are unorganized and can be difficult to understand written in such a way. Credit in this description can seem lost to anyone who doesn't dig deep enough. Marx gives us an example in Capital that can relate to financial capital despite the fact it was written about mercantile capital. This can give us an introduction of sorts to cycles of credit:

"In spite of its independent status, the movement of merchant's capital is never more than the movement of industrial capital within the sphere of circulation. But by virtue of its independent status it moves, within certain limits, independently of the bounds of the reproduction process and thereby even drives the latter beyond its bounds. This internal dependence and external independence push merchant's capital to a point where the internal connection is violently restored through a crisis.

Hence the phenomenon that crises do not come to the surface, do not break out, in the retail business first, which deals with direct consumption, but in the spheres of wholesale trade, and of banking, which places the money-capital of society at the disposal of the former."12

The Financial Cycle

Commodities and capital make their movements and cause the circulation of money accordingly. The movements of the financial sector are made by the movements of money. The credit system has evolved to suit the needs of the monetary system. Thus you cannot have a credit system without money. This means that the financial cycle is primarily determined by industrial capitalists need for

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money. As production expands along with worker wages, the demand for money in the system also increases. When this takes place various capitalists economically interact with each other via commercial credit without increasing the demand for resources. When a recession takes place the opposite happens. Production and exchange is more and more often paid for via credit. As Marx said, "the demand for currency between consumers and dealers predominates in periods of prosperity, and the demand for currency between capitalists predominates in periods of depression."13

Of course Marx wasn't referring to the financial cycle in this quote. Money flows and ebbs according to the demand for it in the process of the production and distribution of commodities. There is a definite relationship between financial and the industrial cycle. In addition the financial cycle appears as the supply and demand for credit fluctuates. This demand for credit is dependent on the investment of industrial capitalists and to a lesser degree that of consumers.

Here we can see where Austrians get the idea that the business cycle is caused by credit which in turn according to them is controlled by the interest rate determined by the central bank (a.k.a. the government did it"). The mistake they make is that correlation does not equal causation. The idea is absurd because the industrial capitalist is the one who makes the demand for credit not the government.

What we do need to investigate is how the supply and demand for credit interacts and how that influences the interest rate. When the industrial cycle begins commercial credit is abundant, monetary resources are not big in demand relative to its supply. The industrial capitalist is doing well on his own while the financial capitalist awaits his moment.

"After the reproduction process has again reached that state of prosperity which precedes that of over-exertion, commercial credit becomes very much extended; this forms, indeed, the "sound" basis again for a ready flow of returns and extended production. In this state the rate of

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interest is still low, although it rises above its minimum. This is, in fact, the only time that it can be said a low rate of interest, and consequently a relative abundance of loanable capital, coincides with a real expansion of industrial capital. The ready flow and regularity of the returns, linked with extensive commercial credit, ensures the supply of loan capital in spite of the increased demand for it, and prevents the level of the rate of interest from rising."14

At the beginning of the business cycle when the boom is taking place any shifts in finance can easily be taken in by the boom as a whole.

At other moments in the business cycle the inverse effect on credit takes place. Before the recover begins there is a severe contraction in the supply of industrial capital accompanied by an abundance of loan capital. At the end of the cycle there is an oversupply of industrial capital accompanied by a maximum rate of interest which shows a shortage of money capital. It is a scarcity in connection to demand. We can see here that the financial cycle is influenced and follows the movements of the industrial cycle.

It initially appears as though the financial cycle is independent from the industrial cycle. However we can see from the movements in the interest rate and fluctuations in prices that it is indeed tied to the industrial cycle. In this case what determines the rate of interest? It depends almost entirely on the capital market itself where supply and demand do their "market dance". The industrial capitalist and the financial capitalist struggle over who is going to keep what amount of the surplus value the industrial capitalist generates. Marx says an increase in the rate of interest is not reliant upon a corresponding increase in the price of commodities. If a rise in interest is not factored into the net prices of those commodities then it does not affect the price. The price of said commodities is separate from the price of money as commodities from money.

Given that the financial cycle is determined by movements of money which are just responding to the industrial cycle, it means

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that the financial cycle has its own behaviour inside that general business cycle. What is important to note here is that it is credit that allows capitalist expansion to excess. This is how commodity speculation can impact the economy. The capital markets and commodity markets often meet because they both "speculate". This speculation is derived from the growth of industry and commerce. It builds through credit which ends up flowing into speculation in finance.

When Marx speaks about speculation he isn't as specific as the bourgeois use the world. To him it means all purchases and sales made in commerce and industry. Doesn't matter what they're buying and selling, or whether they're hoarding or immediately selling. In our modern capitalism speculation is heavily used for longer term investment which has the effect of freezing up capital with no value being produced.

"On the one hand pressure is brought to bear on the money-market, while on the other, an easy money-market calls such enterprises into being en masse, thus creating the very circumstances which later give rise to pressure on the money-market. Pressure is brought to bear on the money-market, since large advances of money-capital are constantly needed here for long periods of time. And this regardless of the fact that industrialists and merchants throw the money-capital necessary to carry on their business into speculative railway schemes; etc., and make it good by borrowing in the money-market.

"On the other hand pressure on society’s available productive capital. Since elements of productive capital are forever being withdrawn from the market and only an equivalent in money is thrown on the market in their place, the effective demand rises without itself furnishing any element of supply. Hence a rise in the prices of productive materials as well as means of subsistence. To this must be added that stock-jobbing is a regular practice and capital is transferred on a large scale. A band of speculators, contractors, engineers, lawyers, etc., enrich

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themselves. They create a strong demand for articles of consumption on the market, wages rising at the same time. So far as foodstuffs are involved, agriculture too is stimulated. But as these foodstuffs cannot be suddenly increased in the course of the year, their import grows, just as that of exotic foods in general (coffee, sugar, wine, etc.) and of articles of luxury. Hence excessive imports and speculation in this line of the import business."15

It is true that financial speculation begins in the industrial cycle. The effect of this speculation is the creation of credit. This rapid expansion of credit happens because of the speculation on commodities.

Financial speculation operates semi-autonomously within the industrial cycle by increasing the demand for money-capital while increasing the interest rate.

Financial speculation is controlled by the specific term of credit operations and expectations they've made in the future. The effect is a strong influence on capital markets in the division of funds. From this we see the difference in financial speculation and the "speculation" of an industrial capitalist in creating a commodity he thinks people will buy. The industrial capitalist uses money to expand his production and control over capital. The expansion of credit brought on by the industrial cycle allows the act of financial speculation to exist. Only if certain conditions exist within the industrial cycle can the semi-autonomous financial cycle have an economic effect.

The financial crisis is a shortage of money-capital, no one borrowing or no one lending, etc. This can only happen at certain moments in the industrial cycle. The financial cycle takes place inside the industrial cycle operating on its own but partly influenced by the industrial cycle. The reason this happens is because of the way the credit system is set up. The semi-autonomy of the financial cycle allows it to have its own flow, but it can only be profitable if industrial production is profitable. If industrial production goes into crisis it will be reflected in the financial system.

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This correct understanding of the financial cycle and its relationship to the industrial cycle explains why it can seem so confusing and convoluted to bourgeois economists who constantly look for an independent cause of financial crisis. It explains how it builds up to enormous proportions and then collapses only to begin again.

The Credit System and Crisis

In Marx's theory there are two types of monetary crisis. The first is one that takes place as a part of the industrial crisis. The second is one that occurs because of itself but also has an indirect effect on industry and commerce. The first crisis is characterized by the demand for money by industry and com-merce during times of difficulty. The second is internal to itself and its own contradictions which can take place before or after the industrial crisis, but is indirectly influenced by it. In both crises the credit system freezes which causes monetary and financial crises at the same time.

The credit crisis can be trigged by small events in the industrial cycle if pressure in the system is great enough. If there is a high rate of interest and a scarcity in money-capital, the credit system becomes prone to sudden events or movements which can cause a financial and general crisis. The likelihood of monetary crisis increases. Marx adds that expectations in speculation play an important part.

"...as soon as somewhat threatening conditions induce the bank to raise its discount rate... the general apprehension spreads that this will rise in crescendo. Everyone, and above all the credit swindler, will therefore strive to discount the future and have as many means of credit as possible at his command at the given time. These reasons, then, amount to this: it is not that the mere quantity of imported or exported precious metal as such which makes its influence felt, but that it exerts its effect, firstly, by virtue of the specific character of precious metal as capital in money-form, and secondly, by acting like a feather which, when added to the weight on the scales, suffices to tip the oscillating balance definitely to one side; it acts

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because it arises under conditions when any addition decides in favour of one or the other side. Without these grounds, it would be quite inexplicable why a drain of gold amounting to, say, £5,000,000 to £8,000,000 — and this is the limit of experience to date — should have any appreciable effect. This small decrease or increase of capital, which seems insignificant even compared to the £70 million in gold which circulate on an average in England, is really a negligibly small magnitude when compared to production of such volume as that of the English.

But it is precisely the development of the credit and banking system, which tends, on the one hand, to press all money-capital into the service of production (or what amounts to the same thing, to transform all money income into capital), and which, on the other hand, reduces the metal reserve to a minimum in a certain phase of the cycle, so that it can no longer perform the functions for which it is intended — it is the developed credit and banking system which creates this over-sensitiveness of the whole organism. At less developed stages of production, the decrease or increase of the hoard below or above its average level is a relatively insignificant matter. Similarly, on the other hand, even a very considerable drain of gold is relatively ineffective if it does not occur in the critical period of the industrial cycle."16

The fact capitalist economies can be affected so greatly by such events (that aren't necessarily capitalist) is a product of capitalism's ability to absorb these events and make them a part of its system and its evolution. This explains so much in how financial crisis takes place.

In Marxist theory a crisis in credit is a manifestation of the decline of the capitalist financial system, being that a negative credit event finds its way into the monetary system. We can see that monetary and credit crisis come together and disrupt the ability of money to act as a medium of circulation.

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"In a crisis, the antithesis between commodities and their value-form, money, becomes heightened into an absolute contradiction. Hence, in such events, the form under which money appears is of no importance. The money famine continues, whether payments have to be made in gold or in credit money such as bank-notes."17

"Under conditions of advanced bourgeois production, when the commodity-owner has long since become a capitalist, knows his Adam Smith and smiles superciliously at the superstition that only gold and silver constitute money or that money is after all the absolute commodity as distinct from other commodities – money then suddenly appears not as the medium of circulation but once more as the only adequate form of exchange-value, as a unique form of wealth just as it is regarded by the hoarder."18

When the credit crisis abruptly morphs into a monetary system there is a reduction of the functions of money down to an object of hoarding.

The benefits of using credit money collapses in crisis and once again fall to the need for metallic money and token money. Why does this happen? It happens Because of the way capitalism evolved. The credit system keeps its monetary base in metal held in the central bank. A time of crisis makes the system reliant upon the physical money once again as credit has stopped flowing. In a crisis, hoarding money doesn't correspond to a perceived fall in the value of commodities slowing production. It is a devalorization of all commodities, commodity capital and financial paper. The physical money remains static and thus cannot function as capital.

Because this hoarding is taking place in a crisis of credit inside of a capitalist system it has a particular effect specific to its context. It reduces the credit system that was excessively expanded by speculation to the level of the actual supply of money-capital.

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Seeing this crisis the banks begin hoarding when there is a significant reduction in liquidity even though the financial cycle continues. This means the banks are refusing to lend which can in turn cause a crisis or financial panic. The contradiction here is that the act of hoarding is a protective measure by the bank, an act of self preservation. By keeping credit small they are insuring that the credit they give out (or already have given out) doesn't abstract too far from the amount of loan capital in their vaults. Because the credit money is expanded beyond the actual amount held, the larger the gap in this ratio, the larger the damage if a crisis breaks out.

What we can see here is that there is an ongoing contradiction between the industrial/commercial capitalist and the financial capitalist. The latter always attempts to get as much money as possible from the former in interest which is a deduction from their surplus value. The former is always trying to get the best deal possible by getting as low an interest rate as possible to give up the least amount of surplus value. When the bank begins to protect itself from an over reach of credit creation it threatens to cause crisis for the industrial/commercial capitalist.

When the bank begins hoarding and reducing credit everyone else in the capitalist class begins hoarding due to a lack of credit. If they can't get credit they'll need as much money-capital as possible to continue to function as opposed to borrowing ahead of production or purchase. There can still be an increase of money in circulation if the following happens: there's an increase of money as payment if it is greater than the decrease of the use of money as a means of purchase. Thus we can see that the amount of money in circulation is reliant upon the credit of the banks which can increase or decrease the crisis. The bank's ability is restricted its need to preserve its own liquidity to avoid a crisis in itself. Thus another contradiction is revealed: credit is restricted slowing borrowing but also preserves the credit aspect of the banking system.

This demonstrates what Marx says:

"The absolute amount of circulation has a determining influence on the rate of interest only in times of

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stringency. The demand for full circulation can either reflect merely a demand for a hoarding medium... owing to lack of credit... or it may be that more means of circulation are actually required under the circumstances, as was the case in 1857."19

The interest rate is primarily determined by the capital market which is separate from monetary circulation. There are special circumstances where the interest rate can be influenced by the quantity of money in circulation from fluctuations in bank credit. As this crisis is going on the demand for liquid credit increases meaning that a financial crisis is also a monetary crisis that brings all the various circuits together.

Any analysis of financial crisis must acknowledge that it has a subservient role in the general industrial cycle. Marx made this clear: "Hence what appears as a crisis on the money-market is in reality an expression of abnormal conditions in the very process of production and reproduction."20 From this we can determine that that hoarding is the result of overproduction, a lack of ability to sell off exist commodities stalling investment which happens after a large growth in production and commerce. It demonstrates that the capitalist mode of production cannot force economic conditions for its own fluid function. This happens because credit by its very nature of being "fictitious money" allows it to develop on its own. We can see this very clearly when we see how the monetary system recovers in times of crisis because the demand for money is separate from the fluctuations of value generation in production.

The financial crisis also shrinks the massive expansion of credit by forcing it to meet the actual supply of money in the system. This is why Marx believed that debt is money only so long as it can take the place of money (as a means of payment/purchase) as long as it remains consistent to the amount of actual money. This phenomenon changes once it expands beyond the amount, it become a multiple of the money in existence.

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4

PROBLEMS OF CREDIT

Compounding Interest

Compound interest can seem utterly absurd when looked at by an outsider with no education on the subject. A man approaches you offering an investment. He tells you that if you invest $10,000, he'll give you a return of 6%. In a year's time you'll have gained $600 from interest. You can keep that $600, or you can reinvest it alongside the $10,000 and receive even more at 6% in another year's time. If you do so, you'll end up with $11,236.00. His offer is to take your $10,000 and increase it as long as you let him do so. This money is easy money, you didn't have to do a thing to earn it. You just sat back and lived your life as normal while compounding interest works its magic. Essentially, you got "money for nothing."

Your $10,000 is called initial principal. Once the interest is due, it takes the amount gained and throws it in with the original $10,000. That new amount is applied to the same interest rate as the previous amount was. This is often referred to as "interest upon interest". Compound interest can be viewed as:

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Initial principal +

Accumulated interest of previous periods of a deposit or loan

The idea is pretty simple to understand. You reinvest and your returns keeps growing. In Marxism we'd show this with the circuit of financial capital.

"The relations of capital assume their most externalised and most fetish-like form in interest-bearing capital. We have here M - M', money creating more money, self-expanding value, without the process that effectuates these two extremes. In merchant's capital, M - C - M', there is at least the general form of the capitalistic movement, although it confines itself solely to the sphere of circulation, so that profit appears merely as profit derived from alienation; but it is at least seen to be the product of a social relation, not the product of a mere thing. (...) This is obliterated in M - M', the form of interest-bearing capital. (...) The thing (money, commodity, value) is now capital even as a mere thing, and capital appears as a mere thing. The result of the entire process of reproduction appears as a property inherent in the thing itself. It depends on the owner of the money, i.e., of the commodity in its continually exchangeable form, whether he wants to spend it as money or loan it out as capital. In interest-bearing capital, therefore, this automatic fetish, self-expanding value, money generating money, are brought out in their pure state and in this form it no longer bears the birth-marks of its origin. The social relation is consummated in the relation of a thing, of money, to itself.—Instead of the actual transformation of money into capital, we see here only form without content."21

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It requires a more critical eye that seeks to understand compound interest in the context of an entire system - not individual isolated cases - to see the problem. Imagine such a phenomena on an economy-wide scale. In all recorded history of economics, there has always been a constant increase in credit debts to the point where those owing money have had to sell off everything they own, or debts were forgiven. In ancient times this took the form of land grabs; one of the earliest examples of the concentration of capital you could say.

This reality isn't seen, because banks only see individual customers, numbers on a computer that says who owes what, and when they can expect payment. They cannot, and do not, see the cumulative result. Wealthy people live off of payouts on dividends, while retirees live off the interest paid out on their 401ks. Banks also live the same way, collecting funds from dividends, life insurance plans, mutual funds, and trusts. The logic of finance is to keep such debt service productive by reinvesting them into new loans and investments. Banks pay little attention to how customers are going to keep paying these debts, and how society is going to be able to function with this massive debt overhead.

Our society is filled with a lot of false ideas about credit - consumer credit in particular. There is a general perception that most spending is voluntary. We're bombarded with images of people trampling over each other in order to get their picks when the Black Friday sale begins at numerous retail companies. While this first world consumer gorging is repugnant to anyone who disapproves of poverty, the numbers show what it's really spent on. In a paper published by the Federal Reserve Bank of St. Louis, it showed what people really thought was "generally a good idea to buy" on credit.22

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The data collected by Survey of Consumer Finances specifically speaks to consumer attitudes regarding credit. As we can see, the most acceptable reason to use credit has been to finance education. It's a logical choice after all. The investment of such money would yield a greater return via higher income employment possibilities. The idea in the minds of Americans is, that credit is best used for a necessity like education.

Debt in this manner simply multiplies continuously until it is acknowledged that it simply can't be paid. Our current economic models, and many in the past, absurdly refuse to acknowledge this. In all of history, we have been shown one inevitable result of credit: the tendency of debt to expand beyond the ability of a society to carry it.

In our mainstream economic discourse and education, debts are viewed from the perspective of the lender. They are not seen from the perspective of an economy's ability to pay such overhead. The consequence of this is an inability to see how the credit model is based on the premise infinite growth, even if they don't see it themselves. As with the prime example of the 2008 Great

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Recession, we see that economies become tremendously top heavy with debt.

Marx made such an observation on the matter:

The idea of capital as a self-reproducing and thereby self-expanding value, lasting and growing eternally by virtue of its inherent power—by virtue of the hidden faculties of the scholastics—has led to the fabulous fancies of Dr. Price, which far outdo the fantasies of the alchemists; fancies, in which Pitt seriously believed and which he used as pillars of his financial administration in his laws concerning the sinking fund.23

A Socialist View of Compound Interest

Mainstream economics is adamant against looking at debt as something that can grow exclusive from a society's ability to carry it. There have been few who have bothered to even conduct an investigation. Usually one has to look at socialists or lunatic fringe rightists to get any kind of questioning. Even then, the rightists tend to be very poor in their analysis. It was Karl Marx who put forth the best work on it. A critique of capitalism is needed to even begin looking at the flaws within it. Mainstream economics has no such desire to do so.

What we do have is a common refusal to accept that financial crisis tends to grow until insolvencies drain away saving that had been poorly invested. A major cause of bankruptcy today is the use of savings placed into real estate, stocks and bonds that end up losing their value. Since our present capitalist system is highly financial in nature, the greatest risks in bankruptcy lies within the hands of the financial sector. A majority of a bank's holdings are in real estate, stocks, and bonds; not customer deposits as it was in times past. When these investments fail, the consequences are devastating. Banks become unable to payout people who withdraw cash, and for insurance companies to payout to their policy holders. This poses a great danger to the economic system, one that we saw quite clearly

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with the Great Recession of 2008. The best defense they have is to hold on to debts long after they would have normally forgiven them - even if it has a negative effect on the economy itself by keeping it insolvent.

Marx foresaw this all the way back in his day. He described money lent out at interest as a "void form of capital."24 He saw it as "fictitious capital." The reason he called it fictitious, was because it wasn't based on the means of production. Instead, all these interest bearing activities are claims on the means of production. He saw it as fictitious because the demands for payment could not be met. Marx noted that when you try to services these rising debts, the result has been a deflation in the market of commodities. This caused an oversupply that led to crises where companies scrambled for money; but the banks were short on funds and failed to provide it. When it comes to production, interest is always a subtraction from the profits of an enterprise. As this happens, there is a reduction in reinvestment in production. Instead that money goes to the creditor, not spent on goods and services which would stimulate demand.

Thus we see the truth: financial capital is antagonistic towards the creation of real value via physical capital. As industry cannot function without credit, that same credit undermines its ability to produce profits. This antagonism is a manifestation of contradiction within capitalism. What it needs to function, is also poisonous to it.

Marx describes the circuit of capital for industrial production as: M - C - M'. M is the money that is put up for production costs, the input which sets the whole process in motion. C is the commodities that were produced that the capitalist then turns around and sells. M' is the money the capitalist receives from the sale of those commodities which is greater than the amount he began with. Finance capital is described differently: M - M'. Or, money that sells for more money. This refers to credit, all kinds of financial investments that have nothing to do with tangible value creation. These include mortgages, personal loans, credit card debt, trade finance, and government bond financing for war activities. Here we can see why past economists predicted that credit and interest

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would end up subservient to industrial production. Yet, in our modern society, it has not. It has taken on a life of its own and made industry subservient to it. When a crisis hits and industrial firms go under, financial capital is there to snatch up all the assets held by those companies. When this happened, property and wealth flowed into the hands of the financial capitalists. As we know, crisis is inevitable in capitalism. In hindsight, it is inevitable that financial capital would come to dominate.

When we see debt deflation, what are we witnessing? We're witnessing a reduction in the ability of businesses and labour to consume commodities. This is also known as a reduction of purchasing power. This takes place when these two groups are subjected to debt service, and when government taxes revenue to pay bond holders as opposed to using the money to invent in public infrastructure. This lack of purchasing power causes the domestic market to shrink which reduces the ability of debtors to pay their debts even further. When the economy starts failing in this way, people have a tendency to save money in the expectation of a possible income loss - which then makes the problem even worse.

Despite having recognized this, Marx failed to place this into his model of the capitalist economy. Most believe he had planned to do so, but he died before he was able to. The absurdity of compound interest, which leads to money-capital infinitely expanding to the point of crisis - Marx saw as being subordinated to the ebbs and flows of industrial capital.

"The commercial and interest-bearing forms of capital are older than industrial capital, but … [i]n the course of its evolution, industrial capital must therefore subjugate these forms and transform them into derived or special functions of itself. It encounters these older forms in the epoch of its formation and development. It encounters them as antecedents … not as forms of its own life-process. … Where capitalist production has developed all its manifold forms and has become the dominant mode of production, interest-bearing capital is dominated by industrial capital, and commercial

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capital becomes merely a form of industrial capital, derived from the circulation process."25

Marx's optimistic view was that industrial capitalism would mobilize people's savings in a productive direction. In a sense, the problem would solve itself.

Consumer Credit as Exploitative and Unproductive

Consumer credit, most commonly known as credit cards; is a key part of our consumer society. This credit can also take the form of bank loans, but credit cards are the most recognisable form. Our retail economy lives off of the availability of credit. These purchases make up a good portion of the revenue of retail sales. It's so important that many large retailers offer credit cards of their own.

In our modern society, credit card debt constitutes a good deal of household debt next to mortgages. It is essential for the continuance to our modern capitalism.

Modern consumer credit came into existence out of necessity. Sometime after the post-WW2, a great decline in the rate of profit took place. World manufacturing was recovering, now able to compete with the U.S. The perceived cure for a falling rate of profit was to "sell more." This was accomplished via consumer credit: buy now, pay later... with interest. Once unleashed upon the public, there was a boost in purchasing. Low and behold, demand was stimulated.

Over the decades credit cards have gone through some changes. The biggest change has been the reduction in the requirements to obtain one. At one time you needed 50,000 a year income in order to qualify. Today, it's shamefully easy. They practically give them away to college and university students.

So why should we consider credit cards unproductive credit? Because, they create no value. The credit is not part of a value producing process. In fact, they actually leach away value. Say a commodity is purchased for 100$ on a credit card. That's a 100$ of

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value in worker wages making a purchase. Now add 10$ in interest instead of 100$ - and the value being used to make the purchase becomes 110$.

All interest comes out of wages and earnings. In essence, it's really just siphoning off value that comprises worker's wages. The capitalist class is taking more of the value that the worker has generated.

For example:

Capitalist A Capitalist B C10 + V10 + S10 M5 -> M6

↓ 10$ in variable capital in wages ↑

↓ Worker makes a 5$ purchase + interest charge of 1$ = 6$

In the end, the worker has ended up giving an extra dollar in his earnings to the capitalist class. The debt service is really an extra charge, or taking another portion of the value generated by the worker. This siphoning off of value has actually decreased the purchasing power of the worker. The capitalist is really just finding a way to cut into worker's wages further.

There is more to this than meets the eye. The portion of the worker's wages spent on the commodity constitutes demand. That demand is consumption, which instigates a further demand for value creation. A capitalist will produce more in order to fill that demand - more workers producing more value - spending it on wages. But, the worker can only spend a total of 9$ of value now. 1$ was lost to the financial capitalist. The purchasing power of the worker has decreased. Less value is being spent in the commodity sector, which is supposed to stimulate value creation.

This consumer credit did nothing productive, it only reduced the amount of value able to be spent on consumer commodities. In the short run it stimulates demand, while in the long run, it undermines the ability of consumers to consume. Industrial credit on the other

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hand, is used in the creation of new value by allowing the industrial capitalist to carry out production. This places wages in the hands of workers, allowing them to be able to purchase commodities.

Consumer credit can only stimulate demand for commodities in the short term. In the long term, it decreases the ability of consumers to consume. It's not enough that the industrial capitalist takes a large portion of the value that workers generate in production, the financial capitalist has to take it in another form as well.

How Real Estate Credit Bubbles Lead to Crisis

How is finance killing the economy? Credit is a powerful tool of capitalism. It can be used to stimulate economic growth, or it can be used to deter capital investment by shifting money creation into the Finance, Insurance, Real Estate (FIRE) sector. The latter will inevitably cause the economic system to go into crisis.

In the past, state regulation had the power to steer loan creation towards the industrial sector. These loans would be used to invest in new labour using it productively. This places more people into employment. New value is created, and those people go out into the economy stimulating demand for tangible commodities. The credit has expanded the money supply - but, it has also expanded the need for money because the economy also expanded.

As an economy expands, more money is needed to facilitate exchange. Commodities move because there is a demand for them, not because there is money. Remember: commodities have moved long before money existed. If that money ceased to exist, commodities would still be produced. The means of subsistence were created long before there was a profit motive.

Since credit creation has been largely deregulated, it hasn't been used so wisely. Credit is now used to bid up real estate and stock market prices. Credit is being used for speculation, takeovers of companies, and management buyouts. Credit money flows into the FIRE sector with negative results. FIRE cannot create new value, it merely monetizes existing prices. The majority of this unregulated

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finance credit goes into existing real estate properties. Usually it's done in the hopes of buying them up and selling them for a profit. This is also not any creation of value.

Debt service merely leaches off of existing portions of value.

For example: A firm buys up a bunch of properties because they anticipate the market will increase their price. (Which traditionally it has done.) For simplicity, we'll assume a loan of 1 million was borrowed for these properties, with an interest of 100,000 expected. The properties are then sold for 1.2 million. The debt service is paid, and a profit of 100,000 was made by the firm.

1,000,000 Credit money creation 100,000 Interest on the loan 100,000 Profit from the sale of the properties

1,200,000 Selling price of the properties What's wrong here? A pre-existing value has had its price increased, and credit money has expanded without an increase in value. This is significant because it's part of a repeating process.

Once these properties are purchased, they are then sold again by the new owning firm. This happens all across the country constantly. Over time this has a cumulative effect, as we saw with the mortgage crisis of 2007-08. These prices were raised well beyond the ability of the public to purchase.

Mortgages are paid for out of the value collected by workers and industrial capitalists, but mostly workers. These workers have not received enough value because credit has been put towards non-value creating producing areas of the economy. This same phenomenon occurs with commodity speculation and stock market prices as well.

This all eventually leads to an economic crisis. Vast amounts of loans are not paid, and many defaults take place across the country. Theoretically, capitalists could just keep selling each other the same properties over and over again. But, this kind of nonsense could not

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be indefinitely maintained. These bubbles of credit will keep being created and expanded with the hopes that they'll be paid for in the future.

Capitalist A Capitalist B Capitalist C Purchase Price of property 1,000,000 1,200,000 1,420,000 Interest 100,000 120,000 142,000 Profit 100,000 100,000 100,000 Sale Price 1,200,000 1,420,000 1,662,000

This is an ever expanding credit bubble that eventually leads to crisis. These values continually expand until some capitalist or another decides they're not worth the cost, or the mortgages become insolvent because the people living in them cannot afford them. We're then left to ask; why does the capitalist do this? It makes no sense that the financial capitalists would sabotage their own economy.

There are two primary reasons:

1. It makes money, and fast. The rate of return on such investments is higher than what would receive from investment in industrial production. The capitalist, ever the short-sighted one, is concerned only with the greatest of returns. Competition alone prompts him to make such ill considered investments. If he doesn't, his competition will. The only result is him falling by the wayside.

2. As witnessed by Thomas Piketty and others; the rate of profit from industrial production has decreased significantly, and steadily. As it becomes less profitable, the need of capital to maintain that rate will force them to move investments into this dangerous activity. This is what drove much of the deregulation of the banking industry under Ronald Regan and George Bush Jr.

There is a reason why credit was so highly regulated alongside the financial industry. The shear profit motive and competition alone force capitalism into such a self-destructive drive. The problem with capitalism is that it doesn't differentiate between the two; thus the

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price consequences of increasing credit one way or another can't be measured.

Mergers and Acquisitions as Recessionary

If there is one thing I have noticed in studying the history of bourgeois economics, it is that capitalists never seem to learn certain lessons. The capitalist’s ability to critique their own system is limited in a way that doesn’t allow them to actually question the very heart of the system itself. No matter what has happened, they never seem to be able to truly criticize the profit motive. We shouldn’t be surprised at all by this; it’s the very foundation of the capitalist system.

Many times in the past a new economist has come along and questioned whether or not the profit motive was the best way to deal with a particular issue that was facing a difficulty. This kind of semi-criticism has taken the form of regulation, just making sure the situation doesn’t get too bad. The underlying problem of the profit motive remains to do the damage that it does. At no point is the profit motive actually challenged. Often some have advised taking an entire industry right out of the hands of the bourgeois in order to halt disastrous consequences that have harmed millions of people. For example the production of drinking water is a state function in the First World. Places where this is not the case there is a great deal water borne diseases. These conditions kill untold numbers of people around the world. The state must either take it out of the hands of private business, or merely take control because it is simply not being done.

When it comes to the topic of recession, it appears they make the same mistake. They don’t learn from the mistakes of the past to predict or solve the problems. Marx has clearly laid out the reasons for recession, yet they have gone ignored. If all these decades later it is still being asked why the Great Depression happened, don’t you think it’s time to start looking outside mainstream bourgeois economic thought? I would think that if all the orthodox methods failed, it would be time to look outside the orthodox methods.

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Yet here we are right now facing a second dip in the recession not all that different from what caused the first one. The recovery from 2008 has not taken place anywhere near what should have happened by this time. We still see stagnated wages, weak (if at all) job recovery, new investment is desperately lacking. Meanwhile the capitalist class is reporting greater and greater profits. The stock market and other such institutions are doing even greater than they were before the recession. There has been a return to profitability but to primarily non-reproducible investment. Secondary financial market transactions make up a good amount of the increased profits. They’re just the reselling of assets that have already been produced. No new production is being undertaken.

What is happening here is that the typical Keynesian recovery process is not actually taking place. New investment in production that requires hiring workers and selling goods in not happening. The end of previous recessions was signaled by a return to production and accumulation of new profits. This is what the Keynesian model tells us must be done to save the economy. While it has worked in the past it is not working now. In this situation we see that banks are not loaning out the money they could be. Large corporate firms are flushed with cash that their shareholders are begging them to invest. The reason why it’s not being carried out is because they don’t see it as being profitable.

This is a flaw in the thinking and theory of Keynesian economics: Keynes said that the state should create new money and have the state spend it on infrastructure projects putting people to work, putting money into their pockets thus stimulating demand. Despite the intention this doesn’t guarantee that it will make investment by capitalists in production profitable. They don’t go into business just because they have money they want to invest. The do it because they see profitability. If they don’t see the possibility of receiving profits from investment, they are not going to bother investing.

A disturbing trend has been developing since the end of last year. Mergers and acquisitions have dramatically increased, which should be a cause of concern for anyone interested in the economy. It is a continuation of the problem of the capitalist class refusing to begin

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new production. Instead of investing in new production, capitalists have begun buying out their competitors instead. Profits have been raised by cutting costs, not increasing sales. As the demand has dropped/stagnated across the board companies find themselves in a desperate situation to stay in solvency. Now they can’t sell, because the profitability is not there. All businesses are suffering, some worse than others. When two of them see the end as close, they may chose to merge into one saving as much of both companies as possible. They reduce the size of the two companies to one company making two failing enterprises into a single surviving one. In doing so they have concentrated their resources and obtained a larger share of the market through reduced competition. This can also happen when one company purchases another that is failing, producing the same result. Neither of these tactics will repair the economic situation we have.

To demonstrate the extent of the M&As (mergers and acquisitions) here is just a sample of what has taken place recently from the fiscal times.

“Anheuser-Busch InBev (NYSE: BUD), in hopes of getting those regulators to sign off on its own marriage to Grupo Modelo of Mexico, announced plans to sell to Constellation Brands (NYSE: STZ) the rights to Corona beer and other brands in the United States: a $4.75 billion transaction that may (the parties hope) make it possible to pull off the larger $20.1 billion deal.

Cardinal Health (NYSE: CAH) plans to acquire AssuraMed for $2.07 billion in hopes of making bigger inroads into the home care market expected to grow because of the country’s demographic changes.

Then there was the elephant: Warren Buffett’s announcement that his Berkshire Hathaway (NYSE: BRK.A) holding company (along with buyout firm 3G Holdings) will pay $23 billion to purchase H.J. Heinz (NYSE: HNZ) – yup, the ketchup guys.

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That $40 billion-plus worth of deals took place on just a single day on Wall Street. Add in the recent $24.4 billion buyout offer for Dell (NASDAQ: DELL) by founder Michael Dell and private equity firm Silver Lake (and leaving out the total value of the AB InBev/Grupo Modelo deal), and you’re looking at more than $65 billion of merger and acquisition activity in only a month. Plus, Liberty Global (NASDAQ: LBTYA) plans to snap up Virgin Media, the British cable business, for $16 billion. Comcast (NASDAQ: CMCSA) will spend $18.1 billion to buy General Electric’s (NYSE: GE)share of broadcaster NBCUniversal. Throw in the December announcement of a merger between NYSE Euronext (NYSE: NYX) and Intercontinental Exchange (NYSE: ICE), a deal valued at $8 billion. And those are just the transactions that grab headlines.”26

These are not small M&As, these are major financial transactions that are taking place. It is not a few isolated incidents. The article goes on to describe how around $1 trillion worth of these M&As took place in the 4th quarter of 2012, which went relatively unnoticed by the financial community and media. This is obviously a major trend that is taking place.

Since this is very real and such a big deal we have to ask why this is happening. Companies are profiting from these M&As as a substitute for increased profits from sales. The profits are coming from cost cutting in operation. Companies are choosing to eliminate certain aspects of their operations. Some have downsized entire departments in favour of a more efficient process; or simply because of reduced demand for products. Others have closed stores that are struggling to meet the monthly bills or are just not as profitable as the company would like them to be. Some are going for cheaper packaging or demanding various cuts to the manufacturing process. Often times there are outright reductions in pay for workers, even layoffs. This of course leads to further antagonism between the workers and capitalist.

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The bottom line is that this is not a recovery strategy for the economy. There is no new production beginning stimulating employment and worker spending. Profits are increasing by means that which go against the recovery process. The true irony is that this literally makes things worse. With these cuts in large companies there are even more unemployed workers that leads to an even greater reduction in demand for products and services, which in turn causes more unemployment. We’re looking at a self-perpetuating worsening economy. (Interestingly we can see a contradiction as well. What is saving the capitalist is also killing the economy and thus in turn killing himself.)

There is going on here than just this contradiction. The government is trying to stimulate spending through quantitative easing but it is clearly not working. Traditionally this Keynesianism has been quite successful. Getting cash out there for people to make purchases and for businesses to get off the ground or finance a new round of production. What is going wrong this time, which is unique from past recessions, is two phenomenon: First, the banks are not lending the money out for various reasons, including fear and greed. Second, many large firms don’t actually need to borrow the money. Mega corporations are flushed with cash right now and have no need to borrow.

Revenue growth by S&P 500 companies (as well as global economic growth) is still hard to come by. Earnings are growing at a faster pace than revenue. The cash they are flushed with is their earnings. This money is just sitting there on their balance sheets not being put to any use or being paid out in dividends. The average dividend yield hasn’t changed; it’s remaining at a solid 2.05%. Of course shareholders are asking questions, there is all this potential just lying around not being put to use. In fact the amount is now greater than it was just before the recession. Back in 2007 it was $564.8b now it’s an overwhelming $920b. This is a drastic increase from before 2008 when the times were much more profitable.

This cash is just laying around in company bank accounts because the capitalists see no profitable investment at this time. As I said previously they’re not going to enter into production if they see no

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chance for a profitable return. So what we have here is a perfect storm for M&A. Companies are downsizing, cutting costs to maintain profitability because sales have not increased. Meanwhile others are flushed with cash from doing the same and also see no new profitable investment. The money has to go somewhere in order to keep the flow of money going. So why not just buy up your competitor and absorb his operations?

It has definite benefits: your cash can start flowing into a new area gaining new means of production and particular skilled employees. It also reduces competition by reducing the number of competitors in the market leaving the customer with less choice and more likely going to your store. When (at least some of) these customers go to your store you increase your profits through increased sales.

When conditions like these develop it makes M&As pretty much inevitable. There is no possibility for new sales so they resort to instead getting a larger share of the market when possible. It’s one of those incidences of the concentration of capital that bourgeois economists like to pretend don’t happen.

So what is so bad about this you might ask? Well for one thing this creates no new value. Marx said that the only production that creates value is physical commodity production. Things like financial transactions and asset purchasing can generate profits, but they cannot create value. No new production is taking place, increased sales is from obtaining a larger share of the market. Profits have increased only from a decrease in competition. The company absorbing the other now has more sales, but not because there are more sales in the economy (just on its balance sheet). Which all means there is no new physical commodity production taking place.

This brings us to the question as to why not creating new value is a bad thing. To answer this question I’m going to use the Marxian circuit of capital.

M – C …P… C’ – M’

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This is the circuit through which money must travel in order to avoid crisis in an economy. It first begins with money (M) being invested into a commodity (C) which is usually a raw material, for our example we’ll use steel. P represents the application of labour to the commodity (the steel). When the worker’s job is finished, the end result is a commodity of a greater value than the lump of steel, represented as (C’). This finished commodity is then sold for a greater sum of money than the raw material was purchased for, represented by (M’).

In Marxist economic theory anytime there is a break down in the circuit of capital the economy goes into a recession, if the break is bad enough. To give an example I’ll use the housing crisis of the Global Collapse of Capitalism. A great deal of mortgages were given out to the public because credit was so cheap at the time and other reasons. (Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.) Many people who could never get one before were now faced with the prospect of owning a home through a sub-prime mortgage. Thus as a result all these people went out looking for homes to buy.

A sharp increase in demand took place stimulation new home construction and drove up the costs of existing homes. Housing prices increased exponentially; The total mortgage debt and home prices grew at almost exactly the same rates between 2000 and the end of 2005, 100% and 102% respectively. (As measured by the Case-Shiller Home Price Index.) This caused the prices of homes and the size of mortgages to go well beyond the earnings of workers which did not increase along with them. Meaning workers never actually had enough income to pay the mortgages, leaving many defaults that crash the housing market.

This is where the circuit of capital broke driving the recession. Obviously there was more to the recession than this, but this was the catalyst that set it off. The break down in the circuit of capital went like this:

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M – Money spent C – Raw materials collected P – Homes physically built C’ – Value of home greater than raw material

The homes were indeed constructed according to the demand for them. The problem was that people couldn’t afford the loans that got taken out in order to purchase them. The M’ was never realized, meaning the profit from the production of homes was never realized. In addition, the banks lost their M’ by not having those loans paid back. The circuit was broken kicking off the recession.

This is just an example of the break down in the circuit. We are facing a break down right now with this massive occurrence of M&As as opposed to renewed production. At the end of the circuit, the M’ is not being reinvested in new commodity creation. Instead its being used to purchase already existing assets, other businesses and whatever it is they hold. No new value is being created.

It is the renewed investment in commodity production that hires people into the factories that gives them wages that can be spent on other goods and services. This tactic of buying up competitors does not accomplish what is necessary to begin the recovery. This process actually makes it worse because it often puts more people out of work through layoffs causing more damage to the circuit.

With less people working there is less money being spent on goods and services. This decreases the demand for them leading to a less profitable environment for reinvestment. If this trend continues long enough we’re going to face a second dip in the recession. One that could potentially be worse than the first.

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5

INFLATION

What is Inflation?

Inflation is a subject that can cause much confusion given the misinformation that surrounds it. It is defined as a sustained increase in the price of goods and services in an economy. This means, as inflation increases, the money you hold purchases less of those goods and services. The value of that dollar does not remain unaltered. The real value of a dollar is measured in its purchasing power - what real commodities or services it can be traded for. An increase in inflation is a reduction in the amount a dollar can purchase. For example: a can of Coke is $1. With an inflation of 3%, that can of Coke in theory now cost $1.03. The change is not automatic, inflation and its effects are much more complicated.

There are different kinds of inflation that can be experienced in an economy.27

Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the real value of money over time; conversely, deflation increases the real value of money – the currency of a national or

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regional economy. This allows one to buy more goods and services than before with the same amount of money.

Hyperinflation is when a country experiences very high and usually accelerating rates of inflation, rapidly eroding the real value of the local currency, and causing the population to minimize their holdings of local money. The population normally switches to holding relatively stable foreign currencies. Under such conditions, the general price level within an economy increases rapidly as the official currency quickly loses real value. The value of economic items remains relatively stable in terms of foreign currencies.

Stagflation, a combination of stagnation and inflation, is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It raises a dilemma for economic policy, since actions designed to lower inflation may exacerbate unemployment, and vice versa.

Inflation is best measured by the Consumer Price Index (or CPI). The CPI uses what is called a "basket of commodities" to measure price changes. Certain commodities are selected which are common to all consumers, the ones they encounter daily. Many of them are very much a part of our daily life. The costs of staple foods are used in every country, such as cereal, milk, and coffee. The average cost of clothing, medical expenses, education, fuel, and housing costs. Some economists use "core inflation," a collection of commodities that exclude items which may be highly vulnerable to fluctuations and speculation. Usually it excludes food and fuel.

The prices are measured at different times throughout the life of an economy. Often this is yearly as the cycle of taxes and business investment usually run annually as well. The difference between the two measures indicates what the rate of inflation is. There's much debate on how accurate this method is, but it is the best known measure to date.

There are two primary theories as to what causes inflation.28

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Demand-pull inflation results from a strong consumer demand. Many individuals purchasing the same good will cause the price to increase, and when such an event happens to a whole economy for all types of goods.

Cost-push inflation is a phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials. Cost-push inflation develops because the higher costs of production factors decreases in aggregate supply (the amount of total production) in the economy. Because there are fewer goods being produced (supply weakens) and demand for these goods remains consistent, the prices of finished goods increase (inflation).

What Inflation is Not

Most common economic thought on inflation is derived from the economist Milton Friedman. His views are the ones most prevalent today. Interestingly his ideas spread into all walks of economic thought, accepted by many. Flip through an economics text book or read any of a billion blogs and you’ll find his ideas there no matter their leaning. Unfortunately his theory of inflation isn’t all that accurate and relies upon certain assumptions in order for it to work. This should by no means be limited to Friedman; all economists make certain assumptions about economics. The question here is to try and get the most accurate assumptions possible.

This is not always an easy task. Real life is constantly throwing endless new variables and circumstances at us. This can make it difficult to keep up to date on the latest information. This in itself is a large undertaking, unceasingly keeping up with massive amounts of data coming at us. The task of collecting data can easily turn into a full time job. More to the reason why we have a whole employment field of economists to analyze it for us. Even a great deal of knowledge in economics can lead to a poor understanding of how inflation works and the assumptions made behind it.

Friedman puts forth a basic concept of how inflation occurs in the economy. This concept has been almost universally taken as truth with little or no investigation by libertarians. The idea is this:

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printing more money causes inflation. It’s pretty simple and gets straight to the argument. It’s not surprising that it is taken so easily, it’s short and simple to understand. That’s not a criticism mind you; it’s just an explanation for the ease of its travel around opinion of non-economists. Superficially it makes a lot of sense and seems reasonable. We hear about this all the time, the talk of QE or Quantitative Easing has entered into our mainstream economic language.

The question as to whether or not to be nervous is very subjective depending on your opinion of what QE will actually do. (Investigating QE is not the purpose of this work.) Personally I think that the first two QE did not accomplish what they were intended to (repair the economy). So in my view the QE3 is pretty much useless and won’t accomplish what the previous two rounds failed to. Let us disregard this for a while as it is distracting us from what we are supposed to be discussing. We should therefore begin with the “equation of exchange”:

M V = P y

The variables in this equation are defined as follows. M is equal to the supply of money in the economy at any given time. V is the velocity of money, meaning how many times the average dollar is spent in a given time period. P is the average price of goods and services, while y is the total quantity of all goods and services sold during the time period in question. With this we can create a temporary fictional economy to explain the equation. “Thus, if there were 100 goods and services that sold for $10 each (on average), then that means a total of $1000-worth of transactions took place. Were there 200 one-dollar bills in this economy, then it must be that each was used 5 times (hence the “velocity” of money, or how fast they were spent again).”29 It would be expressed in this way:

M V = P y

200 x 5 = 10 x 100

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This is the standard equation that all economists use, there is nothing outrageous here. This is not some Marxist conception of what the equation should be or anything like that. What is before us is used by every economist in the world (or something similar). From this we can now get our equation that shows what inflation is according to the commonly accepted belief of it.

Money Growth ==> Inflation or M ==> P

The idea is that if you simply increase the money supply then the price of the goods and services will automatically rise with the drop in the value of the dollar. This devaluation of the dollar occurs because there is now more money in the system. This view is based off of certain assumptions that are made about the variables in the equation that are commonly accepted without question. The mistake is made when we assume certain things about the very nature of the variables. This can be very hard for some people because our opinion and views of them can vary according to things like life experience which can be very subjective. Friedman (and many others) for example sees them in an overly simplistic way that leaves out much of the context of society and the prevailing social forces within it. What do I mean by this? I’ll explain later on when it’s appropriate to get into it with more detail on it. For now we’ll take a look at exactly what assumptions are being made when someone holds the inflation view M ==> P. Meaning the assumptions that have to be made in order for this view point to work.30

M: That which is money is easily defined and identified and only the central bank can affect it’s supply, which it can do with autonomy and precision.

V: The velocity of money is related to people’s habits and the structure of the financial system. It is, therefore, relatively constant.

P: The economy is so competitive that neither firms nor workers are free to change what they charge for their goods and services without their having been a change in the underlying forces driving supply and demand in their market.

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y: The economy automatically tends towards full employment and thus y (the existing volume of goods and services) is as large as it can be at any given moment (although it grows over time).

Taking these assumptions of the variables we can now go back and look at our equation of exchange and see how it is that the “money growth ==> inflation” belief comes about.

It is theoretical here that P cannot change on its own and y is currently assumed to be as high as it can be given the current level of technological development and availability of resources. When we look at V we see that it is insisted that it is constant. So what remains? Obviously we see that P is the only variable that is assumed to have the power to change. By working on these assumptions it is only logical to immediately look at P when we see any fluctuation we observe. This is why P is automatically said to be the cause when inflation occurs.

This is what leads us to Friedman’s famous claim about the Federal Reserve just printing more money. In his book “The Optimum Quantity of Money” Friedman uses the example of a helicopter flying in and dropping new money into the money supply. From this we get the idea that the central bank has the power to simply double the money supply at will. This is what Friedman’s helicopter example is supposed to express. Alright, let us work under the supposition that this occurs.

M V = P y

400 x 5 > 10 x 100

If this is to be considered a problem we have three possible solutions that don’t involve simply reducing the money supply (lowering M back to 200). “1) y could rise to 200, but of course it can’t because it’s already at its maximum; 2) V could fall to 2.5, but it is constant (something Friedman takes pains to emphasize in the original article); or 3) P could rise to 20. It is of course the third that proponents of the “money growth==>inflation” view say will occur.”31

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M V = P y

400 x 5 = 20 x 100

We must go back and look at why this can be the only outcome. Because we are operating under certain assumptions that only allow us to have this one conclusion. “Friedman says that y is constant at the level associated with the natural rate of unemployment, while V is indirectly related to agents’ demand for cash. When people want to hold more cash, V, the rate at which they spend cash, naturally falls, and vice versa. But, Friedman further specifies that V is relatively constant and so, therefore, is the demand for cash.”32 The conclusion is that when the central bank created more money it means people are now holding more money than the care to have. It’s saying that the Federal Reserve has increased the supply of money beyond the demand. It assumes that the demand remained at the original level so the Fed printed money because it felt like it. The only possible outcome of an increase in the money supply by people who hold this view of inflation is that people go out and spend this money on goods and services. But they don’t purchase any more or any less because they are also assuming in aggregate, more does not exist. The only result is that the suppliers of goods and services bid up their prices up. Voilà, money growth led to inflation!

As we can see there has been no investigation as to why inflation occurs in an economy. There has only been a set of assumptions that can only lead to this one conclusion. These assumptions of the variables in the equation are in reality preconceived notions of modern capitalist society. The variables are supposed to reflect truths of the system in which we live, yet their function cannot produce a scientific result. These assumptions are made about the equation because bourgeois economic theory makes certain assumptions about the social relations between individuals that spring from the productive relations between them.

Inflation is merely an increase in the average price of commodities. It has nothing to do with money creation.

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Effects of Inflation

The effects of inflation can be felt in almost every aspect of economics. For workers and people on fixed incomes, it has a negative effect. This is because the cost of goods and services has increased, yet their incomes did not. Businesses are supposed to raise wages along with inflation, but their profit motive drives them to depress such measure in order to increase profits. Several U.S. states and countries peg their minimum wage to inflation to combat this very phenomenon. It also impacts savers as the money they've collected is now worth less than it previously was.

Countries plan for a certain level of inflation each year. But when it reaches levels they did not anticipate, problems occur. This kind of uncertainty causes business to scale back on long-term investment due to concerns over profitability. Businesses will tend towards investing in hard assets, leaving them without the capital necessary to expand.

Consumers may become skeptical of the long-term prospects for the economy and engage in large scale saving instead of consuming. This reduces demand and causes the price of goods and services to drop. Both of these have a ripple effect throughout the economy.

The overall economy is affected as well. Institutions that loan money will lose out to the people they gave credit to. It can end up reducing the amount they have to pay back for the loan. Businesses often endure extra costs having to relabel and reprice merchandise whose price has been altered by the inflation. Investment in Treasury bonds yields less of a return, unless an investor holds a Treasury inflation-protected security. Most importantly, if it becomes great enough, the increased price of commodities will cause the country to become less competitive in the international market.

The Central Bank's Role in Inflation

One of the main functions of the central bank is to regulate inflation the best it can. It is conventional wisdom that monetary

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policy is geared around this issue. Targets are set for each year of only a few percent. One of the mechanisms by which it influences inflation is by setting interest rates. If inflation needs to increase, there will be a decrease in the interest rate, which stimulates borrowing, purchases on credit, and relieves pressure on debtors. If inflation is too great, there will be an increase in the interest rate in an attempt to slow the economy.

This has been U.S. monetary policy for some time.

Central banks believe the key is to promote low unemployment while maintaining a slow increase in inflation.

The Federal Open Market Committee gives a good explanation of what government policy does.

"The inflation rate over the longer run is primarily determined by monetary policy, and hence, the Committee has the ability to specify a longer-run goal for inflation. The Committee judges that inflation at the rate of 2%, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. Communicating this inflation goal clearly to the public helps keep longer-term inflation expectations firmly anchored, thereby fostering price stability and moderate long-term interest rates, and enhancing the Committee's ability to

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promote maximum employment in the face of significant economic disturbances."33

Hyperinflation

Hyperinflation is an excessive inflation level that pushes prices up rapidly, causing people to abandon a domestic currency due to its swiftly eroding value. People ditch the currency because they know its value will continue to erode, leaving them with severely diminished purchasing power. This is intimately tied to living standards. The real value of goods and services does not increase as their nominal value. That takes slightly more time to carry out.

What exactly constitutes hyperinflation is not exactly defined. Generally it is considered "hyper" when the inflation rate meets or exceeds 50 percent in a single month. To put it another way, the prices of goods and services increases by half in a single month.

It's a dangerous phenomenon that can have severe impacts on a country, even the world under the right circumstances. Savings can be destroyed quickly. The value of the pools of savings drops, causing an extreme reduction in their ability to pay out in the end. Many people rely on these savings to live day-to-day, or as stores of wealth for retirement in the future.

If a currency drops low enough, there's no incentive for people to seek employment. The cost of living becomes so high that it's not feasible to the pay prices. In historical cases, people have abandoned employment and switched to subsistence farming to feed themselves and their families. During such times of crisis, political instability can threaten the whole of society, leading to revolts, even revolutions. In the past it has led to the rise of fascism, particularly in Germany.

The bottom line is that it causes a great deal of chaos in society leading to a great destabilization of every aspect of life.

Hyperinflation has occurred several times throughout history. Different incidents of it have different causes, but there seem to be

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some reoccurring themes among them. It should be noted that inflation and hyperinflation are an increase in the prices of goods and services, and a reduction in the purchasing power of a currency. It is not a single isolated phenomenon of merely expanding the money supply, as a few incorrect economic theories hold. The rise in prices is what defines inflation.

The most common cause is a sudden reduction in the output of an economy. As economic activity crashes, the amount of money in the system doesn't match the need for it. Think of this money as lubrication for the capitalist machine. If your gears turn slowly, or there are few of them - you don't need much in the way of oil. However, a large high performance engine will require more oil. If you place too much oil (money) into a machine (economy) that doesn't require it, you end up flooding the engine.

The trick to understanding and avoiding hyperinflation is to understand what can cause the economy to suddenly contract. In past circumstances the destruction of an economy through war (the destruction of capital), reduces output. A sudden astronomical price increase in a single vital commodity can also be a cause. The oil shortage of 1973 is a good example (also known as the energy crisis). The use of oil is tied to everything, particularly the transportation of goods. The increased cost of oil caused prices to go up causing consumers and businesses to require more money to make ends meet, i.e. to adjust budgets. Banks created more money from these loans in order for productive and consumer activity to continue.

As we can see from the data (next page), there was an increase in 1973 which continued into 1974. The increased cost of goods due to the shortage of oil caused inflation. This is not the result of an increase in the money supply. The increase in the money supply is a result of a higher demand for money. This is also known as cost-push inflation.

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Signs of Impending Hyperinflation

While nothing in economics can be perfectly predicted, there are general phenomena that take place which can indicate a risk of hyperinflation.

Supply shock is when there is a sudden increase or decrease in the supply of a commodity or service, or both in general. The events disturb the equilibrium price of the particular good or service, which affects other areas of the economy. See the previous example of the energy crisis of 1973. Stagflation can also occur if there is a combination of rising prices and reduced output. Interestingly, this can also happen as a result of a technological innovation in a branch of production which creates a sudden glut for a commodity.

Economic Contraction is when there is a sudden decrease in economic activity in an economy. This can happen for all sorts of reasons. A crisis could form causing economic activity to slow to a crawl. Capital can be destroyed in a war. An embargo or sanctions against a country can collapse foreign trade devastating an economy.

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Historic Examples of Hyperinflation

Location Hungary

Date August 1945 to July 1946 Highest monthly inflation rate 4.19 x 10

16%

Equivalent daily inflation rate 207% Time required for prices to double 15 hours Currency Pengő

Post World War Two the economy of Hungary was left in tatters. Nearly all of its industrial capacity was destroyed. The lack of productive activity produced a supply shock, which was combined with an inelastic money supply. To try and alleviate the situation, the Soviets engineered an economic policy that used the inflation. According to reports, the government "accommodated it and steered it in ways to make it an instrument of capacity enhancement."34 The Soviets demanded $300 million in reparation payments for having sided with the Nazis during the war.

It was found to have been the correct policy to repair the war torn country. It showed that, "rapid stabilization would not have occurred so quickly without the inflation. Because of coordination and organizational problems inherently faced by any nation emerging from catastrophic destruction (acutely so in the case of Hungary), this policy choice of the Hungarian government probably had the greatest likelihood of achieving success."35

Inflation was used to stimulate aggregate demand to recover economic productive powers.

Location Zimbabwe

Date March 2007 to Mid-November 2008 Highest monthly inflation rate 7.96 x 10

10%

Equivalent daily inflation rate 24.7 hours Time required for prices to double 15 hours Currency Dollar

Zimbabwe has had an inflation problem for a quite some time. As far back 1998 it suffered an annual inflation rate is 47%. In the year 2000 there was a slight decrease. At the end of the hyperinflationary

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period, the government ended up abandoning its own currency for a collection of foreign ones.36

A good deal of the problems came from its independence movement which sought to rejuvenate African ownership in the country - and thus economic power. A policy was implemented to confiscate land owned by Whites, many of whom were essentially colonists, and hand it over to Black farmers. While the act was just, it was poorly implemented. The act was carried out neglecting an adequate compensation. The move caused great disturbances in the market, leading to some instability and hostility towards the government. Because of uncertainty, bank runs were made that caused the currency to lose stability. This brought about a depreciation of the currency impacting the exchange rate. Imports became much more expensive, kicking off the price increases.37

Zimbabwe has also faced sabotage at the hands of imperialist countries. The goal has been to collapse the country so that it could be made into a colony once again. The primary perpetrator has been the United Kingdom.

Location Yugoslavia

Date April 1992 to January 1994 Highest monthly inflation rate 313,000,000% Equivalent daily inflation rate 64.6% Time required for prices to double 1.41 days Currency Dinar

The economic policies of the so-called socialist government constantly ran a high inflation rate, around 76% from 1971 to 1991.38 The reactionary policies of Josip Broz Tito caused numerous problems in the country once it was no longer able to keep its economy stable. In the period of April 1992 to January 1994, the level of inflation would eclipse anything in its past.

War in Croatia and Bosnia-Herzegovina drove the monthly inflation rate to 50%, which is generally considered the benchmark for hyperinflation.39 Regional trade was abolished, causing most production to severely decrease. Once the country changed, it failed to adjust the size of their bureaucracy and police/military

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accordingly. As hostilities increased with Croatia and Bosnia-Herzegovina, such state coercive arms were necessary.40

Once the United Nations became involved, international trade embargoes were placed on them, causing production to decline even further. This situation was very similar to what happened in Hungary post World War Two. As the situation worsened, the government's debt increased to 28% of the GDP in 1993, from 3% in 1990. A decision was made to print more money in order to service this debt. The money supply was massively inflated.

The situation spiralled out of control, leading to the destruction of the currency. At its worst point, 900,000 bank notes were being produced each month.41 After the collapse on January 6, 1994, the German mark became the new legal tender for financial transactions and tax payments.

Location Germany

Date June 1921 and January 1924 Highest monthly inflation rate 3.25 × 10

6%

Equivalent daily inflation rate 20.9% Time required for prices to double 3.7 days Currency Mark

During the Weimar Republic there was a three year period of hyperinflation between June 1921 and January 1924. The problem grew so severe there was tremendous internal political instability.

The cause of the hyperinflation was primarily caused by war spending. Going into World War One, the German government decided against raising taxes to pay for the war effort. Instead, they chose to carry out the entire endeavour on borrowed money.42 In order to do this, it was necessary to dismantle the gold standard, which is commonly (and falsely) claimed to be the cause.

German Emperor Wilhelm II and the German parliament believed that this debt could be repaid by taking resource-rich land and placing large reparations on the defeated countries.43 Germany proceeded to lose the war, meaning they were completely incapable of paying the debt. Money was being printed without the value

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creation to match it.44 Hyperinflation was exacerbated by the Treaty of Versailles, which demanded war reparations. By this time, to pay back a single U.S. dollar, it required 48 paper marks.45

The first payment of the reparations was due in June 1921.46 A rapid devaluation of the currency followed to less than a third of one cent by November 21 (or approximately 330 Marks per US Dollar).47 In order to pay this debt, it was necessary to purchase foreign currency due to their currency's declining value. More money was printed. Each time a payment came up; they printed more money, which devalued their currency, making it more expensive to purchase foreign currency. This cycle continued until Germany was no longer able to pay.

Eventually it became necessary for both French and Belgian troops to occupy the Ruhr to force payment via coal instead of money. This hyperinflation led to a general strike by German workers. The government made the decision to print more money in order to pay off workers to maintain "passive resistance."48 In November 1923, the U.S. dollar was worth 4,210,500,000,000 German marks.49

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6

QUANTITATIVE EASING

What is Quantitative Easing?

The term Quantitative Easing (QE) came into popular use after the 2008 Great Recession when the U.S. government was looking into options to save the economy. It was decided that an expansion of the money supply was the best route to take. This was met with a great deal of negative reaction by conservatives, and a fair amount of skepticism from liberals. It did find a decent amount of support from Keynesian economists who agreed that it was the correct policy given the already very low interest rates. Its biggest supporter was Paul Krugman, who hailed the Obama administration for its bold choice.

"I get especially annoyed when economists who have been wrongly predicting inflation… …say that it’s not their fault–who could have known that banks would just sit on all those reserves? The answer is, anyone who had paid attention…. Let me quote myself, from… 1998…. Data from the 1930s… seemed to confirm…. Japan gave us another experiment, when it tried quantitative easing…. Theory and experience both predicted exactly the sterility of monetary base

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expansion that we saw in practice. And, you know, that’s the kind of successful prediction that is supposed to change peoples’ minds: if you’re that wrong about how an experiment turned out, and someone else made a prediction you considered foolish but turned out completely right, you’re supposed to concede that just maybe, possibly, they were on to something. The fact that essentially nobody on that side of the debate has budged in the slightest tells us that whatever it is they’ve been doing, it’s not scientific research."50

Money is the lubrication that allows exchange to function. Without it, we'd be reduced to bartering which is horribly inefficient at facilitating exchange. Money is more than just lubrication; it has a life of its own and has effects which cannot take place in barter. Because of this reality the central bank of a country is responsible for watching over the monetary health and policy. Economies are subject to negative trends such as the mass saving of money by consumers. Money has to keep flowing through the system, from consumers, to businesses, to banks. If at any point this circulation encounters a blockage, there is the possibility of economic crisis.

It is the job of the central bank to regulate this flow of money to keep it stable and to avoid crises. There are two primary tools that the central bank can use to carry out this function.

The first and most common are interest rates. When the government needs more to flow through the economy, they lower it. A policy is sent out to the banks to lend money with a lower rate of return. This makes it easier for people to borrow money to engage in consumer spending, or entering/expanding production. As this money flows employment is created and wages are paid out to workers who then turn around and spend it stimulating demand.

The second is the route that was taken after the Great Recession. Already going into the recession the interest rate was near zero. It was not feasible to lower it further. Even in doing so, there would've been no appreciable difference. The central bank chose to engage in quantitative easing. To make it simple: think of it as the

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government purchasing assets. The money used to purchase them is created by the central bank. This only carried out in very large amounts. For example51:

"A third round of quantitative easing, "QE3", was announced on 13 September 2012. In an 11–1 vote, the Federal Reserve decided to launch a new $40 billion per month, open-ended bond purchasing program of agency mortgage-backed securities. Additionally, the Federal Open Market Committee (FOMC) announced that it would likely maintain the federal funds rate near zero "at least through 2015."52 53 According to NASDAQ.com, this is effectively a stimulus program that allows the Federal Reserve to relieve $40 billion per month of commercial housing market debt risk.54 Because of its open-ended nature, QE3 has earned the popular nickname of "QE-Infinity."55 On 12 December 2012, the FOMC announced an increase in the amount of open-ended purchases from $40 billion to $85 billion per month."56

A common perception of QE is that the government just prints money. This is false; it's more complicated than that. What the central bank does expand the money supply, but it's done digitally. Theoretically, this could cause a problem with inflation later on, but thus far, it has not proven to be the case. The market (people's subjective choices) also responds negatively. Because they inherently see any engineering of the monetary system as some kind of economic crime, they tend to react as though one has been committed. Such monetarist minded people often run out and purchase gold in large volumes in anticipation of a catastrophe that doesn't take place. This mass purchasing causes the price of gold to rise artificially.

Does Quantitative Easing Work?

The question is: Does QE work? Thus far it has been proven to be successful. It has greatly assisted the recovery from the 2008 recession. This is generally regarded as the most successful

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application of QE in history. The money supply was massively expanded $700 billion in 2008 to $4.4 trillion in 2014. This effort was carried out in three applications with particular goals in mind.

First QE 2008 - 2010: The first effort was aimed at eliminating mortgage back securities from bank holdings. These were the investments that primarily caused the financial crisis. As of 2009 the government had purchased $200 billion government assisted business debts and $1.25 trillion in mortgage back securities were bought up.57 58

Second QE 2010 - 2011: $600 billion in long-term Treasury notes were purchased.59 By the end of 2011 the central bank had $2 trillion in securities.

Third QE 2012 - 2014: The Federal Reserve began a program of open-ended bond purchasing of agency mortgage-backed securities, at monthly intervals of $40 billion. A section of the Federal Reserve called the, Federal Open Market Committee, said it would keep the federal funds rate at near zero; at least until 2015.60 In December 2012 it was announced that the purchasing of mortgage-backed securities would be increased to $85 billion per month.61 The Federal Reserve ended its bond-buying program on 29 October 2014,62 once it had reached $4.5 trillion in assets.63

In a recession, government intervention is needed to solve the problems caused by a free market. These measures can differ depending on the nature of the recession itself. There is no cookie-cutter pattern solution to every crisis. Each of them has their own unique characteristics. The proper course of action is to analyze the cause in order to work out the solution. As it turns out, the Federal Reserve chose the right actions to take. None of the doomsday scenarios touted in the conservative media manifested. Neither was there any supposed "self-correcting" phenomenon.

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Why Quantitative Easing Did Not Cause Hyperinflation

It has long beheld as a part of monetarism that printing more money, or increasing the money supply will lead to hyperinflation. We'll be bombarded with the horrific images of Zimbabwe and Post-World War One Germany. Except, expanding the money supply has never led to hyperinflation. An expansion of the money supply is not what inflation is. It is a general rise in the average price of commodities. Usually, specific commodities are placed in a basket used to measure it. These typically exclude items that are highly influenced by speculation, or whose prices fluctuate frequently.

Coming out of the Great Recession of 2008, the government engaged in three rounds of quantitative easing (QE). It means at three different times the government expanded the money supply of the economy. This was part of a series of measures that eventually pulled the U.S. economy out of the recession; along with a series of state investments, Troubled Asset Relief Program, Cash for Clunkers, and state investment in infrastructure. As we can see the efforts were successful in reviving the economy.

All through the right wing media there were claims that the U.S. was going to face hyperinflation that was going to destroy the dollar. Every media outlet from FOX News, to countless financial publications parroted the same line:

PAYNE: So, where are you then, Peter, with respect to inflation? Do you think this is going to be the big story of 2010?

SCHIFF: You know, look, I know inflation is going to get worse in 2010. Whether it’s going to run out of control or it’s going to take until 2011 or 2012, but I know we’re going to have a major currency crisis coming soon. It’s going to dwarf the financial crisis and it’s going to send consumer prices absolutely ballistic, as well as interest rates and unemployment.64

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As we can see, they were wrong. Why?

When a country goes into recession the usual tactic is to lower the interest rate in order to incentivize people to borrow money to engage in entrepreneurship. Meaning, it is made cheaper for people and businesses, to borrow money to start/expand production. This in turn creates jobs by hiring employees. The problem was that interest rates were already very low going into the recession. Thus, it required something less orthodox to get things moving again. It was decided that it was necessary to switch to a monetary policy of quantitative easing, along with other measures. It was an emergency measure aimed at preventing deflation which would have spiraled out of control.

In situations like these the very irrational nature of the market worsens conditions. As financial institutions begin to fail, logic tells many people to begin saving money in preparation for hard times ahead. People and businesses chose to hoard money rather than invest because the market is doing poorly. As a result, producers begin losing sales as money spent on commodities contracts. This forces them to lower their prices in order to make their inventories move. When this happens many people know that prices are going to drop so they refuse to buy. It's in their interest to do so. As prices drop, their money purchases more than it did previously. This combination of hoarding and price lowering all cumulates into a stalled economy. Generation of value has slowed to a crawl.

Hyperinflation did not occur because the U.S. economy was already deflationary when it began producing more money. Using QE, the central bank (Federal Reserve) purchased assets from the banks in exchange for the newly created dollars. Purchases inject money into the banking system and stimulate growth.

Another reason why hyperinflation didn't occur is because the U.S. has a fractional reserve banking system. This means that the money supply is more than merely physical representations of money (coins, paper money, and bank deposits).

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"The monetary base, or M0, is what most people think about when it comes to the amount of money in circulation, but banks are in the business of making loans with the deposits on hand. The money from those loans are then deposited back into the banking system and re-loaned, over and over again. This is the so-called money multiplier effect. If the multiplier is 10x, for every $100 deposited into a bank up to $1,000 of new credit money is created through this mechanism. The M2 measure of the money supply, which includes the effects of fractional reserve banking and credit, was actually quite stable during this period. Below are graphs of the M0 and M2 money supply measures."65

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Since the prevailing monetarist theory claims that the expansion of the money supply will cause hyperinflation, where has that money gone? The funds given to the banks for their assists remained on their balance sheets in order to boost their own financial situation. Many of the unmovable properties they owned were still on their balance sheets, offset by the new influx of cash from the government. A fair amount of this money went to shareholders of the banks, and to the bonuses of the bankers who drove the recession to begin with. This boost in the money supply shored up the stability of the banking and financial sector.

Shoring up the banks is done so that they'll be confident and strong enough in order to begin lending out money for production. As we saw, very little of the money actually got loaned. Instead the banks hoarded much of it, and spent the rest on properties again. In other words, they perpetuated the same problem all over again.

It is definite that the QE policy prevented the economy from tumbling into deflation. However, it didn't entirely do what it was supposed to do. The banks chose to keep that money on hand rather than loan it out as productive capital, which would have created value - which would have created jobs and incomes to spend on properties and commodities.

The class nature of capitalism itself reared its head: the capitalist class got a hold of the money to save themselves. But, very little of it went down into production that would help working people. The bailouts and QE helped out those at the very top of the economic order greatly, while it could have also helped those lower.

How Quantitative Easing has Changed Policy

The policy measures necessary to reverse the damage caused by the Great Recession has caused some controversy among monetary specialists. Some have predicted that this act of three rounds of QE has significantly affected how policy will work in the future. Some are even claiming that QE is now a permanent policy to keep the economy running. Their claim is not without a great deal of merit.

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The problem is one of a "liquidity trap," most highly theorized by economist John Maynard Keynes in the 1920s. It can happen that interest rates are so low; people stop investing and instead engage in mass hoarding (saving). It would have the effect of keeping interest rates low due to a lack of demand for them. In addition, prices of commodities continue to decline further. All of this has a self perpetuating effect that can easily lead into a deflationary spiral, causing a depression.

At the World Economic Forum in Davos, Switzerland this year - the question was raised about the long term effects of QE on the global economy. While the efforts have allowed the economy to escape the effects of the recession, they have not managed to stimulate a massive global resurgence of the economy.

When QE began, the economy stabilized because investors and others had confidence in the policy being carried out. Or, "everything was going to be okay," because they believed it was going to be okay. As the economy has recovers, the Federal Reserve began tapering off quantitative easing and raising interest rates. As the recovery measures are being rolled back, the market is reacting negatively to it. As the government rolls back the necessary measures, the problems they were supposed to solve begin to return. Investor confidence in the market is declining as the government stops helping it. This decline, if it continues, is threatening to cause a new recession. The monetary policy enacted was only meant to prop-up the economy until it could get back on its feet. It appears that the economy can't stand up. Thus, world leaders and economists are beginning to ask what the long term implications will be.

For example: In Japan, the QE efforts have not been quite so successful. Their effects are beginning to fail. In response the government has resorted to a negative interest rate policy as a last ditch effort to combat deflation. Made simple, the central bank coffers might be just about empty.

QE has managed to pull the world out of recession, but it has not lead to real economic growth or inflation. Any time there is an

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effort to withdraw QE, the market reacts depressingly and puts the economy at risk. The idea is that QE now cannot be undone; it may be a permanent part of the economy.

The Bank of Japan (BOJ) has been the real testing ground for QE as a far back as the early 2000s. They were in the same liquidity trap scenario. Their response was to buy up excess government securities, what amounts to paying a negative interest rate on Japanese government bonds. When this failed to increase inflation, they began purchasing asset-backed securities, commercial papers, and strangely, shares of stock in Japanese corporations. Despite all their efforts it did not go too well. Right now Japan is in its fifth recessionary event since 2008. Not even the lauded “Abenomics” have had any real success.

QE in the United States went along a similar line. The Federal Reserve purchased $2.1 trillion worth of mortgage backed securities, but it failed to keep asset prices up. By the time it hit August 2015, the Federal Reserve held $2.5 trillion in Treasury securities, and over $1.7 trillion of mortgage securities.

It is acknowledged that state intervention in the economy is absolutely necessary to stave off a depression. It is widely acknowledged that if the state hadn't stepped in the crisis of 2008 – 2009 it would have led to a possible total depression. It was the Troubled Asset Relief Program, or TARP, that allowed the U.S. Treasury to purchase securitized assets as well as publicly traded equity. A report by the International Monetary Fund confirms the correctness of the U.S. government's decision. A report from 2009 states that systemic risk to the economy was curbed, and investor confidence was restored.66 Researchers say that the QE2 was responsible for the growth of the stock market in 2010.67 Even the Federal Reserve's internal analysis shows that large-scale asset purchasing had a “significant role in supporting economic activity.”68

Many have been skeptical of the efforts by the Federal Reserve. They say that little has been done to shore up the real economy, meaning the process of production and consumption. Many are

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beginning to ask if the government should still be supporting asset prices after all this time. They claim - the knowledge that the government will step in to save asset prices incentives investors and financial institutions to take excessive risk taking because they know they'll be saved. The logic is sound from a profit making point of view: if there was a slow recovery, low inflation, etc., an economic actor would purchase a large number of assets before the central bank begins bidding up prices progressively higher. The risk of taking too much is fine, because the central bank will step in to stave off any kind of crisis.

"The irony is that markets will begin to respond positively to negative economic data, because if the economy remains subdued the central bank will keep the QE turned on. Traditional market analysis is suddenly flipped on its head as poor unemployment figures encourage asset purchases ahead of the central bank, and at the same time positive economic surprises cause markets to fall as investors fear an end to the QE, or worse, an increase in interest rates above its near-zero percent floor. This last issue has been of increasing importance through the second half of 2015 as the Janet Yellen-led Fed contemplated its first interest rate increase in more than nine years. While investors initially celebrated the rate hike decision, the S&P 500 has since fallen nearly 15%."69

In these times after the efforts of the Federal Reserve with QE, there are some serious effects to note. Actual physical commodity production (the creation of value) seems to lag far behind the efforts of the Fed. Not much in the way of job openings has been created by the stabilization and increase in asset prices. There seems to be no correlation between economic output quantitative easing.

In the Marxist view, we see a recovery in already created value, not a recovery in the production of value. The financial aristocracy, those who thrive on the M - M', have recovered significantly. Industrial capitalists whose expenditures of wages go into the hands of workers have not had such good luck. While all of this was

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necessary to stop a total destruction of the economy, we can see the clear class divide in recovery. Capitalism is designed to favor the capitalists. In this case, since finance capital has gone beyond what Marx had analyzed, it is the finance capitalists who are standing on top.

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7

CRISIS THEORY

Underconsumption

It was Engels who put forward one of the most popular crisis theories, the underconsumption argument. The theory is complicated and can be broken down into subcategories given the variety of theory and arguments on it. The variations are underconsumption, disproportionality and profit squeezing. The general idea proposes that crisis is caused by worker's lack of ability to purchase all of the commodities they produce in the economy. This might be recognizable to Keynesians as 'effective demand'.

The sub-theories of the profit squeezing are broken into two. One suggests that there is a reduction in value perpetuated by the reduction of unemployment which takes place during the boom phase of the industrial cycle. The other claims that the increase in the organic composition of capital is what lowers the rate of profit. This fall in profit is drives the system towards crisis.

Disproportionality is also broken down into two versions as well. The first proposes the anarchy of production, as an example the inefficiency of capitalism under producing something and unplanned expanding industry requires. The other proposes

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problems in the relationship between the departments of production. They are Department I which produces the means of production and Department II which produces consumer goods. The theory holds that there is a great imbalance between them when producing too much in relation to the other spurring crisis.

Underconsumption points to a very real damaging contradiction in capitalism. In competition the industrial capitalist must expand production indefinitely while simultaneously lowering those costs of production as much as possible. This is primarily accomplished (as it is the easiest way) by lowering wages as much as possible. This is something that we will see very clearly happened with data in this book.

Many people refer to this as the 'race to the bottom'. Frederic Engels described it like this in Anti-Duhring:

“Thus it comes about that the overwork of some becomes the preliminary condition for the idleness of others, and that modern industry, which hunts after new consumers over the whole world, forces the consumption of the masses at home down to a starvation minimum, and in doing this destroys its own home market.”70

How does this happen? It happens because of the very nature of capitalist production. Despite protestations to the contrary production is geared toward the production of exchange-value for the purposes of collecting profit. It is not produced for with the goal of meeting the needs of society as use-values. We see that when capitalism is overproducting, it is overproducing exchange-values not use-values. This crisis happens when there is an underproduction of the required use-values, particularly ones that are needed as opposed to ones wanted. If production was geared towards the needs of workers there would be no overproduction.

An example of this took place in the 1700s as capitalism was developing there was a definite increase in the poverty of the working class. It was the increase in the productivity of labour that allowed them to out compete and put out of business small artisans

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and peasants. These people driven out of business made up the increasing numbers of the unemployed. This increase in the reserve army of labour (unemployed) made it possible for capitalists to drive down wages. This caused the incomes of workers to lower to the bare minimum subsistence level. What happened was perfectly predictable, the increasingly impoverished working class failed to have the necessary wages to purchase all the commodities produced... A crisis took place.

Simplified we can see this in the following formula:

C + V + S = Cost of Production (constant capital, variable capital, surplus value)

Constant capital is the cost of raw materials, utilities to the firm, means of production used etc. These thing remain 'constant' as in they do not vary in the creation of wealth. You produce only so many widgets per pound of steel for example.

Variable capital is the cost of purchasing the labour power of workers. This normally refers specifically to wages which they use to purchase everything they need and want in life. We call it variable because the labour of workers varies. Some work faster than others, some work harder, there is no define standard ability of each person as each person is different.

Surplus value is the profit kept by the capitalist after all expenditures have been paid for. This is what the capitalist goes into production for, his own personal enrichment.

Now let us add in some arbitrary general numbers to this production formula.

C6 + V10 + S6 = 22

What can we see with this $22 commodity? We see that the wages of the workers would never be able to purchase all of the commodities produced. Their ability to purchase is smaller than we think it is as much of their wages goes to rents on housing and

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other things. I am not suggesting however that the capitalist himself doesn't take part in consumption. However we do know that he cannot spend all of it. Much of it will be saved and some spent on future investment and some of it will go into paying back credit that was most likely borrowed to engage in the production. When you have this formula taking place all over an economy (or world) you can see how overproduction can take place. If crisis looks like it is beginning to form, many capitalists will start stockpiling cash reserves in anticipation of a further drop in profits. Effectively this could in a small way contribute to the overall problem.

There are others who engage in consumption as well, such as 'unproductive workers'. As capitalism has developed it has increased in productivity causing more and more workers to be moved into the unproductive labour category. With this, surplus value when measured in labour hours now contains a greater number of use-values produced.

In larger firms there are many unproductive workers like managers who don't have a productive purpose, they don't generate any value. Sales people in the company are also counted as unproductive. Many state employees are also unproductive such as teachers who work in public schools, law enforcement, military etc. When referring to these people we are not claiming they are unnecessary. We are merely differentiating between those who generate value as a part of the production process and those that do not. What is important is that they too are consumers of commodities and constitute part of the demand for them.

The state itself is also a consumer of products, military hardware most notably. There are countless commodities needed for carrying out all the bureaucratic functions of the state, like computers and office supplies. It is highly believed that this function also contributes to attempts at resisting overproduction. Keeping in mind of course that the money for these purchases comes from taxes on the capitalist's surplus value and worker's wages.

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Profit Squeeze

As we continue with crisis we'll use more formulas laid out by Marx he used to make certain demonstrations. Here we'll show the formula of capitalist production.

M - C ... [P] ... C’ - M’

The industrial capitalist obtains an amount of money for production represented by M. With this money they go out and purchase all components necessary for that production, including raw materials, space to work, utilities, machinery and labour power. There presents the raw materials and other constant capital in the formula as a commodity, which they are.

P represents the variable capital being applies to that constant capital commodity in production. Labour power is the only thing that generates value, without it the raw materials and constant capital amount to no new value being created. The labour process is what expands the capital held by the capitalist; this is achieved by collecting surplus value. Sometimes it is called the “valorization” of capital.

When the production process is complete that capitalist has a stock of commodities with a greater value then what he started with represented by C'. This amount is greater than the M and the C combined. This means commodities of greater value were produced which must in turn be sold. This prime sign (') represents the increase in value which produces surplus value. This new value has to be sold in order for the surplus value to be realized. If sales were successful the capitalist will end up with an amount of money greater than the beginning M and C. This amount above them is called profit in money form. This is how capital in money form is accumulated.

If capitalism is to function this formula must flow without interruption. Each of these stages in production can be stalled causing crisis. The capitalist may not be able to find the correct or affordable C. In the labour market there may be a shortage of a

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particular skill required for production. The commodities may go to the market and be undersold or unsold causing a severe reduction or elimination of M'. The production process may have been so cost intensive that profitability cannot be found.

What we need to explain here is the difference between profit squeeze and underconsumption. Underconsumption is a crisis at the point between C' - M' in the industrial production formula. Profit squeeze in contrast is a theory of crisis in the M - C section or the P (physically producing) section. I just described the C' - M' problems that can arise i.e. raw materials and machinery may not be cost effective enough to allow production to be valuable, or the cost of a specialized labour may be too high. So now we should look at the P area of the formula.

In P the social antagonism of capitalist production appears. This is the moment in the production process when workers are being exploited; their labour is being used to create the surplus-value that the capitalist uses to enrich himself at the expense of the working class. The most common manifestation of this is worker strikes, moments when workers refuse to be productive in rejection of that capitalist exploitation. Production may be reduced or even outright halted. This is the principal behind a general strike.

To continue our investigation let us look at this way. The situation has arisen in the past where a capitalist could not find enough of the labour they wanted to produce a commodity. What will take place is the failure to transform M - C into M' - C'. This capitalist can store the M for now and wait for better conditions to arise. In fact they could even earn some revenue by loaning out their M to other capitalists who are not in this situation via credit. This can only work so long as there isn't a general problem across the entire economy with labour. If there is the capitalist class will stockpile the money.

This mass hoarding of money can also have a serious effect. It will look as though there is lack of money in the economy and it will also appear as though there is an overproduction of commodities. In truth there is no overproduction but a shortage of commodity

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labour power. This is further proof that labour is what generates value. The crisis is not, as a capitalist would interpret it, a lack of surplus value, but a lack of producing surplus vale. Once labour returns to its normal state the industrial capital formula will function fruitfully once again. Marx described this kind of crisis in volume 3 of Capital calling it the "absolute overproduction of capital".

"Over-production of capital, not of individual commodities — although over-production of capital always includes over-production of commodities — is therefore simply over-accumulation of capital. To appreciate what this over-accumulation is (its closer analysis follows later), one need only assume it to be absolute. When would over-production of capital be absolute? Overproduction which would affect not just one or another, or a few important spheres of production, but would be absolute in its full scope, hence would extend to all fields of production?

There would be absolute over-production of capital as soon as additional capital for purposes of capitalist production = 0. The purpose of capitalist production, however, is self-expansion of capital, i.e., appropriation of surplus-labour, production of surplus-value, of profit. As soon as capital would, therefore, have grown in such a ratio to the labouring population that neither the absolute working-time supplied by this population, nor the relative surplus working-time, could be expanded any further (this last would not be feasible at any rate in the case when the demand for labour were so strong that there were a tendency for wages to rise); at a point, therefore, when the increased capital produced just as much, or even less, surplus-value than it did before its increase, there would be absolute over-production of capital; i.e., the increased capital C + ΔC would produce no more, or even less, profit than capital C before its expansion by ΔC. In both cases there would be a steep and sudden fall in the general rate of profit, but this time due to a change in the

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composition of capital not caused by the development of the productive forces, but rather by a rise in the money-value of the variable capital (because of increased wages) and the corresponding reduction in the proportion of surplus-labour to necessary labour."71

In different times during society, particular to the industrial cycle there can be another cause of this crisis. When unemployment is low workers have an advantage in that they can relatively choose where to go for employment. Workers can threaten to quit and go work somewhere else. During the slump they have a reduced capacity to struggle for better wages and conditions due to large unemployment. When the advantage is to the workers they can strike refusing to produce surplus value. As this value decreases there becomes an increasing risk of crisis. As this takes place the industrial capitalist will begin hoarding M making it appear again as a crisis of overproduction juxtaposed a shortage of money. This phenomenon is called class-struggle theory. I have encountered some debate over this as to whether it is real or not. I tend to believe that it can happen. What this does demonstrate is a connection between economic crisis and the antagonism between worker can capitalist.

Today we face a situation where there is no lack of a supply of labour. The global economy is always (but not forever) providing the capitalist class with cheaper and cheap sources of labour, even skilled labour. Even domestically capitalists turn to migrant labour in order to keep labour costs to as great a minimum as possible. If production cannot be moved overseas workers can be brought in via work visas. Even the domestic service industry is not immune to this phenomenon. Iconic Canadian coffee chain Tim Horton's was exposed as using slave labour from foreign countries on domestic soil to the point of filing a human rights complaint against them.72 A Chinese mining firm HD Mining is headed into a legal battle over its use of Chinese labour brought in to resist First World wages.73 One of the truly great dynamics of capitalism is its seemingly endless ability to wage class war against us and use any measure possible to prevent us from taking the surplus value that we generate.

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Falling Rate of Profit

Under the reduction of surplus value crisis there is another theory along with the profit squeeze, the falling rate of profit.

Profit squeeze gives theory to the reduction of surplus value that is primarily dictated by demand for labour during an economic boom. Essentially it is the struggle between workers and capitalists when unemployment is low allowing an advantage for workers. As workers struggle against their exploitation they decrease the rate of profit collected by the capitalist to the degree that it causes crisis.

The other version of this crisis in this category is the falling rate of profit which claims that it is brought on by an increase in the organic composition of capital. This is the most well known crisis theories of Marx, the one attacked most by his opponents.

These two crisis theories have a tendency to run together or at the very least run side by side. As the boom phase of the industrial cycle takes place, the increase in production not only has the 'class struggle' effect of profit squeeze, but it also promotes the increase in the organic composition of capital. As the rate of profit begins to fall the capitalist will seek out more money saving processes of manufacturing. This primarily takes the form of replacing workers with machines.

In this theory is one of the great contradictions of capitalism: the drive to increase profits inevitably causes them to decrease. The greater the development of capitalism the more self-destructive it becomes. This demonstrates that capitalism is driving towards its own destruction.74

While Marx was not the only one to acknowledge the tendency to have a reducing rate of profit, his of course differed from bourgeois economic theorists. What separates Marx from the rest (especially Adam Smith) was his differentiation between constant and variable capital. Constant capital merely protects the existing value while variable capital (human labour power) doesn't just reproduce itself, but also creates more which becomes the surplus value. Surplus

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value flows into all kinds of things like payments on credit. Other economists were never able to understand fully the falling rate of profit because they believed as Adam Smith did; that constant capital was always reducible to variable capital.

Now let us give an example that makes this simple:

We'll assume the production process is one year to make it easy to understand. As we recall C represents constant capital, all the physical needs of the production process, raw materials, utilities, machinery etc. V is variable capital representing the costs of labour. S the rate of surplus value is 100 percent. This would mean that workers work half the day to produce their wages and the other half for the surplus value of the capitalist.

The greater the value of C the lower the rate of profit will be. The lower the value of C the higher the rate profit will be.

As the productive powers of capitalism develop, meaning greater and more efficient machinery, it will rise relative to V causing the rate of profit to fall. This increase in C represents an increase in the productivity of labour. It's possible to increase the rate of surplus value as the productivity of labour increases without lowering the wages of workers. This also shows that the ratio of surplus value to employee wages can rise even as the productivity of labour rises, if it is fast enough. This shows that the rate of profit and the rate of surplus value can move in opposite directions.

It is the natural path of capitalism to increase in rates of and quantities of surplus value. Capitalism is a system that must continually expand producing profits greater and greater year after year. This is what has happened outside of crisis, capitalism has expanded across the globe presenting us with companies that exist in multiple nations. If capitalism permanently ceased to expand the system would collapse and die off.

Let us take another look again assuming full profitability in one year for productive capital:

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R = S/(C + (V / T))

R represents the annual rate of profit on productive capital. S represents the total of surplus value generated C represents total constant capital V represents total variable capital T represents the number of turnovers of variable capital

Marx points out that there is a tendency in the rate of profit to fall. He calls it this because there are movements that can have the opposite effect. Overall it tends towards a falling rate of profit, but it is not an iron law.

These movements that push back against the falling rate of profit happen over long periods of time. They do not simply pop-up one day and cause a crisis. Different periods of the industrial cycle will have different effects on the rate of profit. Because of this we measure the falling rate of profit over a series of industrial cycles not just one.

As the productivity of labour rises, there is a rise in the rate of surplus value which runs counter to the fall in the rate of profit. As productivity rises, the value of the constant capital also falls decreasing the C which counter acts the increase of the organic composition of capital.

In a crisis the cost of constant capital falls which corresponds to a fall in its value that took place owing to a rise in the productivity of labour. It is this decrease in the elements of constant capital combined with the increase in the rate of surplus value via mass unemployment that stimulates the rise in the rate of profit.

One tendency running counter to the falling rate of profit is an increase in the turnover of variable capital. If this is increased through any number of means there will be a resistance to the tendency of the rate of profit to fall.

Another trend against the falling rate of profit takes us into imperialism: The expansion of markets and the opening up of new

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ones. The move into new markets particularly has the effect of increasing sales which increases the turnover of capital because new customers are exposed to the commodities. The value of T in the formula will increase pushing back against the increase in the value of C to the lower rate of profit.

Now we will go deeper into constant capital and its role in the falling rate of profit. There are two kinds of constant capital:

(1) Fixed capital - This includes machinery, tools, the production facility itself etc. All these things transfer their value into the commodities over time until they run out or are used up and must be replaced, i.e. their use-value runs out.

For fixed capital Marx pointed out a phenomenon called "moral depreciation". This occurs when a better labour saving machine is produced for an industry or that same machine is being produced for a lower cost due to an increase in the productivity of labour in the industry that produces it.

Not using the new machines constitutes a loss in value. The decrease in value of fixed capital before it transfers its value into commodities is a beginning point of crisis. However the moral depreciation of existing fixed capital when you reduce the value of existing constant capital works against the falling rate of profit. Thus the devaluation of existing constant capital contradicts the overall decline in the rate of profit over several industrial cycles forms a crisis in each one.

(2) Constant circulating capital - In this category there are two groups: raw materials and auxiliary materials. Raw materials are transferred right into the commodities themselves with the use of auxiliary materials like electricity. What differentiates them is the fact that auxiliary materials do not enter the commodity but it does transfer its value.

We will look at the role of variable capital in the falling rate of profit. As previously stated variable capital is the labour power purchased by the capitalist for production. It too is circulating

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capital. It is different in that it replaces its value (produces its own wages) and then creates more value beyond that which is surplus value. Human labour is the only capital in the formula that can produce more value than itself.

When social capital is collected together, we see that it changes in the turnover period of variable capital affecting the rate of profit. This is obscured from bourgeois economists by the equalization of the rate of profit and values being converted into prices. This makes it appear as though the rate of turnover of all the capital is affecting the rate of profit. It is only when we view the values, not prices, that there is no rate of profit on constant capital. From this we can determine that there is no increase in the turnover of constant capital that does not cause an increase in the turnover of the variable capital that can increase the rate of profit on the total social capital.

In this we can see a very clear difference between the worker and the capitalist. As I said the worker produces more value than his wages which is where profit comes from. A worker's wages go into the consumption of commodities that fuels his ability to continue to work. That value is transformed into labour power making it possible for the worker to produce more value. When the capitalist consumes value it is not transferred into the commodities being produced because he is not performing labour. It behaves more like constant capital.

What we call the organic composition of capital is the proportion of variable capital to constant capital. Successful worker struggles will reduce the rate of surplus value which will cause the value of variable capital to increase. This means that the ratio of constant to variable capital will decrease. If capitalists drive down wages in class struggle the value of constant capital will rise and variable capital will lower. This is an increase in the in the organic composition of capital.

From this we can determine that there are two opposite effects on the rate of profit: A change in the rate of surplus value caused by alterations in the composition of capital and changes in the

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composition of capital via alterations in the value of constant capital. Changes in the organic composition of capital are changes of the composition of capital caused by changes in the value of constant capital. In the final analysis we see that it is the alterations in the organic composition of capital that cause the falling rate of profit.

A key point to remember here when dealing with the falling rate of profit is not just the drive to produce surplus value. It is also a matter of realizing it in money form. If that surplus value cannot be transformed into money, then no amount of surplus value generated is going to matter. The capitalist isn't interested in the rate by which he produces surplus value, but the rate at which these values can be transformed into money, as profits. It is the process in which prices are formed by value that provides opportunities for crisis to form.

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8

THE GREAT RECESSION

A Serious Time in History

It has been almost six and half years since the world took a plunge in the great Recession. A crisis is a disruption in the network of economic relationships that allow the capitalist economy to function normally.

Possibly the main aspect to the 2008 crisis was the lack of faith that loans will be repaid. This in turn causes lenders to stop lending or severely restrict lending because of this fear. (Also known as a freezing of liquidity). The business sector requires this flow of credit in order operate, so they can meet their short-term, day-to-day needs. Most firms have to produce before they can sell, and in the mean time they regularly borrow in order to pay its workers and its suppliers.

This is how a large part the capitalist system functions, if workers don't get paid and supplies don't get bought, nothing gets produced. Or worse, the debts they owe can't be paid off. If this continues for a lengthy period the whole system will collapse.

A lot of Leftists and many far-rightists think that the bailouts were unnecessary. It's commonly repeated that it's the proof of the greed of the capitalist class or that of big government somehow being socialist by supplying the rich with free money. (While at the same

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time these Rightists claim socialism is taking from the rich and giving to the poor. This shows they have no idea what they're talking about.) Another argument that is made is that the money could have been spent differently, on protecting mortgages from being foreclosed on people's homes or investment in infrastructure. However this is only focusing on one aspect of the disaster, the slump, which is not worst of it.

In truth, not having the bailouts of the financial sector would have completely destroyed the capitalist system in the US, possibly the entire world given how interconnected the international financial institutions are.

The real immediate problem was the liquidity lock, capital was not flowing to those who needed it because of a break in confidence that it would be paid back. This lack of lending had to be dealt with somehow; this is why the Federal Reserve became the lender of last resort and put through what is known as "quantitative easing". Which is just putting more money into the system and demanding that it be loaned out to end the credit freeze. Unfortunately for capitalism, credit institutions didn't really give out that much of the money once they got it. They just entered it into their books as profit. Essentially because there is no mechanism to actually force them to give it out. Insanely enough, they proceeded to do this twice more afterwards with the same result.

There literally is nothing else that could be done to end the crisis within the context of maintaining capitalism. There are socialist alternatives in ending the crisis, through many measures including nationalizing the banks. No matter how hard a market fundamentalist may cry "that's not real capitalism" when referring to the bailouts, it is, and it was the only capitalist solution to the crisis.

Karl Marx spoke of capitalism being a system of contradiction. This could not be anymore a perfect example of it. The economy recovers when the money becomes liquid. But the financial institutions won't allow it because they don't have confidence that it will be paid back. They don't have confidence because the economy

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is not moving, but the only way it moves is by loaning out that money. This is one of the reasons why capitalism is hopeless in its contradictions.

Roots of the Crisis

One of the views of the roots of the 2008 crisis is that its roots lie in the crisis of the 1970s. A crisis from which the world never fully recovered from, a destruction of capital that has not been repaired like it was after the post-World War 2 boom. Anyone in any serious economic circles has been afraid of a repeat of the Great Depression, and as such has put forth policies to slow down and prevent the destruction of capital. (A crashing of the value of capital assets as well as physical destruction of capital).

The destruction of capital is not only an effect caused by a slump; it is also a mechanism leading to the next boom. If a company can generate say $3 million annually, but the value of the capital invested into the business is $100 million, the rate of profit is only 3%. But if a destruction of capital value takes place and a new owner buys it up the business for $10 million instead of $100 million, the new owners rate of profit is 30%. That is a catalyst for a new boom.

This massive destruction of capital hasn't taken place in the likes of the Depression, so as a result there's only been a partial recovery. Largely through these factors:

(1) Declining real wages for most workers and other austerity measures, as well as exporting the crisis into the 3rd world, and

(2) A mountain of debt-mortgage, consumer, government, cor-porate-to-paper over the sluggishness and mitigate the effects of the declining real wages.

Because of all this debt being run up, there has been a constant debt problem and it will continue until it has been dealt with:

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(a) Sufficient capital is destroyed to once again make investment truly profitable. (The present crisis may well end up being this moment.). Or

(b) There’s such a panic that lending stops and the economy crashes, ushering in chaos. Or

(c) Capitalism is replaced by a new human, socialist society.

As we can see, credit bubbles are the result of trying to grow the economy through debt faster than the creation of value in production. The more complicated and widespread credit markets are, the greater degree in which the there is a forced expansion that can take place. In doing so there is a greater degree to which there is a credit bubble than there is real value created in production. Thus you get a greater crisis.

“Imagine that demand for assets such as homes or stock shares increases, without a corresponding increase in new value being produced. This causes the prices of these assets to rise; and on paper, people’s and businesses’ wealth increases, so they now have the means to borrow more, and they may become "irrationally exuberant"; and all of this leads to a further increase in demand, and so forth and so on.”

What caused the credit bubble in the 2008 crisis was housing. This bubble was actually created by a weak US economy. First the “.com” stock market bubble burst. This caused the economy to go into a recession that was exacerbated by 9/11 attacks later that year. To deal with the fear that there would be a financial collapse after 9/11, the Federal Reserve lowered short-term interest rates. Once the recession ended about mid 2003, employment continued to fall, thus the Federal Reserve continued the low short-term interest rates and reduced them even more. For three full years beginning in October 2002 the federal funds rate (inflation-adjusted) was actually negative. As a result, banks borrowed money from each other and then lent that money out paying back less than they borrowed once inflation was taken into account.

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This economic strategy that was dubbed “cheap money, easy credit”, created a new bubble. Now because the stock market recently shrank from the “dot.com” bubble, this new “cheap money, easy credit” flowed into it, primarily into the housing market at first. Because it was so easy to get credit, those who normally wouldn't be able to get approved for it, now could. Working class people who couldn't get a mortgage now could, because credit it was so cheap.

Many, many people who now for the first time could get a mortgage went out into the market looking for homes to buy. Of course when many people are out to buy something the price goes up because of demand, thus the prices of homes inflated. In fact those prices grew astronomically. The total mortgage debt and home prices grew at almost exactly the same rate between 2000 and the end of 2005, 100% and 102% respectively.75

Production-Value-Production

Followers of Marxist economic theory understand that crisis in capitalism stems from the system of production-value-production, a fact that the market and production are not linked in a simple cause and effect way. Generally it is understood that there is not a single disturbance in the sphere of production that causes a crisis. Rightly, what happens in the sphere of production sets limitations to what occurs in the market. So it is undeniable in this sense that the root of the US housing crisis is in the system of production. The increase in the price of homes was far greater than the creation of new value in production to repay the mortgages in the long run. This new value from production is the source of all income for homeowners to be able to pay their mortgages.

To demonstrate this, from 2005 to 2008 the increase in income for regular home owners was only 1/3 of the rise in home prices. This means that the people who purchased the homes never received enough income to pay the mortgages. This is the reason why there was a real-estate bubble. A rise in asset prices or the expansion of credit themselves are not excessive. They are excessive only in relation to the underlying flow of value. Bourgeois economists use

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different language to describe the relationships between economic actors. In fact, it's common place to assess whether homes are over or under priced by looking at the underlying flow of income.

Of course some economists are not blind and did see this crisis coming. That did not however cause them to stop doing what was causing the coming crisis. Instead they just continued to reap in the big profits from the cheap easy credit and then try to protect themselves when the day came that it all fell down. Here we can see that the mindless drive towards profit not only causes the crisis, it actually prevented those who were aware from trying to stop it, stop contributing to it, or at least properly protect themselves.

A reason why a lot of people in the industry didn't foresee the problem is largely attributable to the fact that home prices in the US have never fallen at a national level since the Great Depression. So it was seen as “natural” that home prices would keep rising. This is what caused a lot of people to ignore the fact that people who were a less worthy of credit risk were getting that credit through risky sub-prime mortgages. If the home prices continued to climb, the homeowners who had difficulty paying the mortgage would have been able to get the additional funds needed by borrowing against the increased value of their homes, and crisis would have been averted.

Theoretically if home prices had just stopped growing or even receded a little bit there could have been no crisis. Bond-rating agencies can see that historically, the worst case scenario would be that home prices would have dipped by a few percent. Because of this they gave a high rating to a large amount of pooled and repackaged mortgage debt (mortgage backed securities) that included subprime mortgages and the like. Basically they said these mortgage-based investments are good investments because historically housing prices have not collapsed since the Great Depression, the worst case being a small percentage decrease. Had the bond-rating agencies been correct in their assertion then those investments would have paid off greatly. Instead according to Case-Shiller Index figures US home prices fell 19.5. They became known as “toxic” assets.

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The reason this is so important is because these mortgage-backed securities became investments that moved through the financial system. So when these investments went bad, they went bad in the financial sector as well. This is how the mortgage crisis spread into the financial system and became a general financial crisis.

Zombie Capitalism

Now begs the question, who is to blame for all of this? Well the primary factor is capitalism itself. The term “Zombie Capitalism” was coined by Chris Harman to describes the mindless drive towards profits. That is the very nature of capitalism itself, profits or death. That's why capitalists have the saying, “you're either growing or you're slowly dying”. If the drive towards maximum profits is not being met, than any enterprise doing so will be crushed by its more profitable competitors. Capitalism is not going to do anything but make greater and greater profits with no regard to the consequences, even at the risk of its own destruction.

At this point many (intellectually honest) people would be arguing that this is the very reason why we have regulation. To prevent crisis like this from happening, to restrain the mindless drive towards profits and its inevitable consequences. That is true; however it is important to note that these money manipulators, investors, have no limit to the creativity and resourcefulness they can draw upon to get around any regulation written. No matter how many new regulations or laws are written, they ALWAYS find a way around them creating the same (and newer) risky investments that put everyone at risk. It doesn’t matter how many times you regulate them or in what way, they always invent new ones.

The fact is capitalism is always praised for, and is, based on the idea of risk. Except this is not some notion of a Mom and Pop convenience store going out of business, this is the global economy crashing that impoverishes hundreds a millions of people. It is vastly affecting the cost of food and causing hunger as a result. This is one of the reasons why market funda-mentalists (Libertarians) always use the example of two isolated producers in exchange, leaving out the social context, or even acknowledging that these

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exchanges take place on a much large scale in real life. This deliberate ignoring of how economics functions outside two small producers is what leads to the inevitable non-sequitors and straw man arguments the ideology makes.

This is the reason why radical leftists use the term: “Capitalism can't be reformed”, because it literally cannot be reformed.

This is not to say the capitalist class cannot recognize inherent weaknesses in its own system. They can be blind to them at times, and completely ignore them another. At no point will they learn a lesson in some way. They do after all, have a vested interest in keeping the capitalist system, it's their source of wealth and privilege. They are already aware that a “truly free market” does not, cannot and will not ever work. That is why the capitalists who really hold power in society do advocate regulation. Basically because they're greedy, not stupid.

Bourgeois State, Bourgeois Rescue

Here enters the idea of state intervention in the economy, more so the regulation of the financial sector in this case. The real capitalists, the people driving the world economy know this is necessary. (As opposed to pretend capitalists, the Libertarians who don't own means of production and employ others in their use.) Every time a crisis happens they think (or willing delude themselves into thinking) that this will be the last one. As a result they keep on needing new interventions in order to save the capitalist system. This is why the banks really got a bailout. Because it would have meant the death of the capitalist system globally if they didn't. If you support and believe in capitalism then you simply must support the bailouts. If not, you'd be condemning it to die.

During the aftermath of the crisis the US government dismantled Bear Sterns and nationalized Freddie Mac, Fannie Mae, and AIG. Combined with the bailouts it seemed to send a mixed message to the public on exactly what was happening. Some people decried it as making the rich richer, not allowing the rich to pay for their mistakes. To soak up the risk of their own failed investments.

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Others saw it as a progressive move, a move away from the “free market”. Both these views are incorrect.

The government works for the capitalist class and as such is dedicated to defending its interests. These takeovers by the government are not ideological shifts; they are pragmatic ones, because they know they need to be done in order to save the class as a whole. Capitalists are willing sacrifice the lives of tens of millions every year in order to sustain their wealth; it's just that this time some of their own along with those tens of millions had to be sacrificed to keep the system going. This is in keeping with the reality of capitalism, a mad run towards profits no matter the cost, even if they have to trip a few of their own along the way.

This semi-nationalization is in keeping with Marx's writings. It was a necessity that the capitalist class recognized. It was not an ideological shift, it was a pragmatic one.

As Marx noted,

“The capitalist functions only as personified capital …. [T]he rule of the capitalist over the worker is [actually] the rule of things [capital] over man, … of the product [capital] over the producer”76

The capitalist class profits from the existence of capitalism, but the force of capitalism itself is inherently beyond their control. Capitalism will always drive toward the accumulation of value for the sake of value, regardless of how destructive (even self-destructive) it is. This is one of the major points missed by those who advocate reforming capitalism, like social democrats. Or as it was put by Cuban economists who are attempting to justify a turn towards capitalism: “markets with social justice”.

Note

This was heavily sourced by thecommune.co.uk. I've added sections of it including quantitative easing which happened after it was written, as well as several other sections.

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9

CURRENCY WAR

What is a Currency War?

A currency war is when several nations attempt to recover their economies by devaluing their currencies against each other. It is not uncommon for a country to devalue or depreciate its currency on the foreign exchange market. The difference is when several countries do it simultaneously in an attempt to undercut each other in prices.

In less dramatic words, it can also be called a "competitive devaluation." We live in a period of floating exchange rates which are determined by the market. A deliberate devaluation is carried out by the central bank by producing policies that reduce the value of the currency. Some of these policies can include reducing interest rates, or carrying out quantitative easing. In the past, there was a fixed exchange rate. When a country wanted to devalue its currency, it lowered the value according to what other currency it was.

It may seem strange that a country would deliberately lower the value of their currency. However, it does have a very real benefit to it. Countries that are heavily reliant upon export can see their market share of the goods they export increase. When their

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products become cheaper on the global market, supply and demand brings more customers their way. Some countries' economies function this way, and have for decades. Many developing nations do this deliberately in order to stimulate exports to wealthier countries where manufacturing costs are higher. Often an imperialist country will keep a neo-colony in this state specifically for the purpose of extracting raw materials and labour at lower costs.

Currency Value and imperialism

This lower cost of production is a big part of imperialism and the drive to stave off the falling rate of profit. As competition intensifies among the advanced capitalist nations, the rate of profit decreases. The only solution is to lower the cost of production. Eventually this reaches a point where jobs must be sent overseas to poor countries at lower labour costs. The same applies to raw materials as well. The company which does this will be able to undersell his competitor who still uses more expensive labour. Their rate of profit increases staving off a crisis in production. The rest of the capitalists in the same industry are forced to follow suit or they'll be put out of business.

Since this has been carried out, there has been a concentration of capital into fewer and fewer hands. Fewer companies are able to compete, leading to less competition in the market for these commodities. Eventually, an equilibrium emerges that keeps a handful of producers buoyant. New competition at this point becomes nearly impossible. Those that manage it are an investment from an already large multi-national corporation which has the capital necessary to start up in a foreign market.

As time wears on, the cost of labour in the new poorer labour pool begins to rise. As this happens, the rate of profit begins to decline again. It's now necessary to find an even cheaper supply of labour to undercut the competition. This falling rate of profit is largely the modern day drive of imperialism, and why it needs to seek out cheaper and cheaper labour and raw material costs.

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This reality of capitalist production explains why we've seen the various recent events in economic history. First, there was a great attack upon unions during the 1980s in the western world. Regan and Thatcher-style deregulations and union busting were done for the purpose of lowering production costs. Unfortunately for those capitalists, that cost can only go so low until people are unable to afford the commodities. The solution was found in the North American Free Trade Agreement (NAFTA). Essentially, Mexico was opened up as a cheap supply of labour that significantly reduced the cost of production. Immediately, U.S. and Canadian companies began exporting jobs to Mexico. Workers were laid off, companies downsized. This lower cost of production made it possible to continue producing at a lower price, and allowed the commodities to be affordable to workers in the U.S. and Canada who had their incomes reduced due to the exporting of jobs. The rate of profit was restored to a point of profitability.

After a while, as the cost of labour in Mexico increased, it became necessary to seek cheaper labour elsewhere. It was this that spurred the exporting of jobs to China. China had tens of millions of labourers waiting to be taken out of the countryside and into industrial production. It was the largest pool of untapped labour waiting to be exploited. This same principal was eventually applied to India. As it stands now, the only large pool of such cheap labour that remains untapped is Africa.

As we can see, there is a very real limit to where this imperialist-capitalism can go. Imperialism needs this to happen or the global capitalist system will collapse into a crisis of competition and a global crash in profitability.

Beggar Thy Neighbor

If a country is in need of boosting exports, currency devaluation is one measure they can take. We must not forget, however, that this devaluation takes place in a global arena of competition. Other countries which might end up losing some of their exports will choose to do the same thing. A situation arises where several countries are trying to bid a lower price for goods than another.

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This can turn into several rounds of devaluation as acts of competition. The danger is that a currency can be devalued to a point where the economy becomes unstable, or the imports they need become too expensive. The term "beggar-thy-neighbour" is a phrase used for this very phenomenon.

The Power of the U.S. Dollar

The United States has almost always had a strong dollar policy. It has been in their interest to have the most valuable currency. In fact, it is so powerful, that it has become the world's reserve currency. This means that everyone judges the value of their currency by that of the U.S. In the market place, a currency is almost exclusively compared to that of the U.S. when determining its value.

Because of the U.S. dollar's global hegemonic position, most trades are carried out with it. When countries want to purchase goods, they often have to convert their currency into U.S. dollars in order to make the transaction. The reason for this lies in the existence of multiple currencies. When you have several currencies in circulation, the most valuable one ends up being the measure of value. (Or the dominant one). All other less valuable currencies end up being considered only a fraction of the dominant currency. In the case of the U.S. dollar, this was done deliberately to give it a hegemonic position. Thus any U.S. monetary policy affects the entirety of global trade.

By holding this position, the U.S. can make policy for the rest of the world to a degree. Other countries are forced to abide by this policy or suffer negative consequences. Only recently have there been moves by Russia and China to exchange with each other in a combination of their own currencies; a move done to lower their dependence on the U.S. dollar for trade. Less economically powerful countries don't have this option. They must remain beholden to the U.S. dollar for survival. It helps facilitate U.S. imperialism over many countries.

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The Weakness of the U.S. Dollar

Right now the U.S. is dealing with a currency devaluation of its own. The dollar seems to be reducing in value everywhere. There are several theories as to why this is happening.77

Economic growth in most regions has been below historical norms in recent years; many experts attribute this sub-par growth to the fallout of the Great Recession.

Most nations have exhausted all options to stimulate growth, given that interest rates in numerous countries are already either near zero or at historic lows. With no further rate cuts possible and fiscal stimulus not an option (as fiscal deficits have come under intense scrutiny in recent years), currency depreciation is the only tool remaining to boost economic growth.

Sovereign bond yields for short-term to medium-term maturities have turned negative for a number of nations. In this extremely low-yield environment, US Treasuries – which yielded 1.86% for 10-year maturities and 2.52% for 30 years as of April 17, 2015 – are attracting a great deal of interest, leading to more dollar demand.

Many countries are engaging in devaluation as the global economy is still trying to claw its way out of the recession. The recession may be over, but the growth after one has yet to begin.

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10

ECONOMIC WAR IN VENEZUELA

Imperialism

Venezuela has been in the crosshairs of U.S. imperialism since the day Hugo Chavez was elected the president of the country. Since that very day there has been a non-stop effort to destabilize the country in an effort to bring it under U.S. control once again. Venezuela has historically been a colony of the U.S. who served the purpose of supplying oil to the country. It's also an OPEC member which grants it a certain power in the world via oil prices.

Immediately following his election, the U.S. began a campaign to paint Chavez as a dictator who is the most dangerous man in Latin America. In terms of a threat to U.S. imperialism in the region, he certainly was. His democratic "Bolivarian Revolution" set an example for other countries to resist U.S. hegemony. As history records, he was one big pain in the backside for the U.S. and its believe that it should control what happens in "its own backyard."78

Chavez came into power with the goal of transforming the country along the lines of human need, not human greed. Almost

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immediately he nationalized more of the oil industry into the state company, Petróleos de Venezuela, S.A. (PDVSA). With the new oil revenue, he and his party, United Socialist Party of Venezuela, began producing alternatives to U.S. owned corporations, and domestic oligarchies. Radical efforts were undertaken to mobilize the poor. Entire barrios (shanty towns) were made into mini-enclaves and given loans to begin infrastructure development. These semi-communes gave a new autonomy to the poor. Slumlords that brutalized their tenants had their buildings confiscated and handed over to a council of tenants, with the option of taking a loan to improve their collective home.

This example of self-determination and empowerment of the masses was too much for the U.S. to bear. It had to be put to a stop. Their example of what could be achieved if the people united against U.S. imperialism is dangerous. Money began flowing from the CIA to Non-governmental Organizations in Venezuela. The National Endowment for Democracy began operations to destabilize the country via disinformation campaigns.79 As the success of the Bolivarian Revolution continued, the U.S. resorted to using terrorist attacks against the oil industry in an effort to destroy the economy.80 81 82

This effort to bring the country to ruin continues to this day with the economic sabotage by Citibank. Just recently the bank announced that it was closing the Venezuelan government's foreign currency accounts within a month.83 President Nicholas Maduro denounced the move as part of an economic blockade. '"With no warning, Citibank says that in 30 days it will close the Central Bank and the Bank of Venezuela's accounts," Maduro said in a speech, adding that the government used the U.S. bank for transactions in the United States and globally."'84

This chapter of Venezuelan history is long and complicated, and covered in blood. But, it's just another day for the global capitalist system and its desire to keep profits.

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Food Shortages

During late 2015 to mid 2016 there was a crisis of food shortages in Venezuela. The pro-imperialist media hailed this as proof of the failure of "socialism." Important to note is that Venezuela isn't socialist, it's social democratic. Images of long lines are posted in the media by U.S. outlets claiming that people are starving in the country and that there is soon going to be mass starvation.85 U.S. think tanks are on a war path producing disinformation aimed manipulating public opinion.86 The goal is to collapse the Bolivarian Revolution and allow U.S. imperialism to gain a firm footing in the country (and the oil reserves) once again.

No doubt there is a food crisis in the country. But, it is not, however, being reported honestly. The causes are far from what is being claimed. Simple mindedly, socialism as a system in general is being blamed. Low brow explanations given are basically “they always run out of other people’s money.”87 Those that bother to look for an actual explanation are met with claims such as: "a significant portion of the oil revenues was simply stolen." Of course, Cato Institute's Juan Carlos Hidalgo gives no actual explanation of how this caused food shortages.

Other sources claim that the government just let the production of food fall. Interestingly, they don't provide anything to demonstrate this.88 The reason is because they can't. The majority of food is actually imported from other countries. There's a very good reason why this is the case. Venezuela has been held as a "single commodity economy." Their whole thing is dependent upon oil, not much else is actually produced in the country - instead it's imported. This is the way the country was set up by U.S. imperialism. If at any point the country tries to get out from under U.S. control, they can simply embargo them, or ruin the price of their single commodity export. This allows the U.S. to discipline the country, forcing it to serve the interests of imperialism. This is not uncommon for many developing countries placed under imperialist pressure. This is particularly the case for Caribbean and Latin American countries.89

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These falsehoods are produced deliberately to slander the Bolivarian Revolution. It should be noted that these shortages only affect the poorer areas. Wealthier areas of Venezuela are fully stocked and customers are happy. This has come to light from a man, Agustin Otxotorena, a Basque executive living in Caracas. He showed pictures of his wealthy area with plenty of food.90 His photos which were published on various social media were instantly denounced as "fake" by the anti-Venezuela online community. The pictures were outright ignored in the imperialist media.

Since the history of imperialism in Venezuela has forced a neglect of other industry, it's exacerbating the problems it faces now. The current president Nicholas Maduro has already called for changes in the economy to include necessary goods. "The Bolivarian Economic Agenda has several branches, the first is urgently address the crisis, another one is lay the foundations for the new economy, our country must find the accurate road to national development, looking for exits in complicated times and searching ways out of the pit where we fell due to the neoliberal model,"91 he said. The new policy involves a "special centralized plan, which favors domestic production and stimulate[sic] both national small and medium industry, and the social economy."92 This move could take quite a while to bring into full swing.

So what's causing the shortage itself? The culprits are the large grocery chains and importers which remain in the hands of the capitalist class. The weapon they are using is the multiple exchange rates. Essentially, this conversion of Bolívars into USD facilitates the great import scam by the bourgeoisie. Currency manipulation is being used side-by-side with falsehoods about the importation of food.

The scam works like this:

There are multiple exchange rates in Venezuela that convert the Bolívar to U.S. dollars. The idea was to give a preferential exchange rate to importers so that they could purchase imports more easily. This preferential exchange rate, and the growing gap in exchange rates, is what is allowing large retail businesses and importers to cause the shortage.

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When a company wants to import essential goods, i.e. food, in this case, they're required to go to the central bank to purchase U.S. dollars at the "preferential rate for necessary imports." The rate is about 6.3 Bolívars to the U.S. dollar. (Current figures put it around 10 Bolívars.) The company then gives those USDs to whomever they wish to import from. Alongside this exchange rate is the "illegal parallel market rate." This rate is set at 500 Bolívars to the U.S. dollar. This difference is where the scam takes place.

A private importer goes to the central bank and requests to exchange Bolivars for USD.

To do this, he claims he purchased 100 cases of groceries for 1000$ USD.

In actuality, he purchased only 50 of them.

The 50 he did import, he sells to businesses at the "illegal parallel market rate." Each case cost him 10$ USD or 63 Bolivars, but he can sell each one at 5000 Bolivars due to the parallel rate. This massively inflates the price of necessary goods, while allowing the importer to pocket a gigantic profit. So what about the other 500 USD? Usually the importer will exchange those U.S. dollars at the "illegal parallel market rate" for 250,000.

In many cases the importer doesn't exchange the left over Bolívars into USD. Instead, they take the money overseas for investment, or they place it in a hidden account. In other cases, they take the whole $1,000 USD and move it to an offshore account.93 Doing this on a large scale has caused a currency flight from the country. The amount estimated for this loss is around 300 billion Bolívars between 2003 and 2016. Pro-imperialist media claim that this money has been stolen by corrupt officials.94 However, it is far more plausible that this money has been taken out of the country by the economic elite of the country who have been allowed to remain. How much is $300 billion? It's greater than the GDP of many countries around the world.

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Country GDP (Millions of US$)95

Finland 272,217 Pakistan 243,632 Ireland 238,020 Greece 235,574 Portugal 230,117 Iraq 223,500 New Zealand 199,970

This is the kind of economic sabotage that Venezuela is facing from the actions of the capitalist class. Not only are the economic elite siphoning vast amounts money out of the economy, but they're inflating the prices of essential goods well beyond what they should be.96 Next time this subject comes up, ask an opponent of the Bolívarian government to explain why prices are so high, and supply is so low. Almost always they won't give you an answer, other than to say that it's the fault of socialism.

It is only possible to carry out this scam because there are multiple exchange rates. The policy is absolutely wrong. I'm not even sure what they were trying to accomplish with it. In this case, I blame the Venezuelan government for not having nationalized the import industry and grocery stores; and I blame them for having an ineffective exchange rate policy.

In response to this problem the government opened up the boarder. Citizens were free to cross into Colombia to purchase the essentials that were being hindered by economic sabotage.97 Unfortunately, they were met with exorbitant prices.98 Colombia is facing its own price problems which are going relatively unreported in the media. “Goods like flour and sugar are scarce now, so the supply is limited,” said Pedro, a Colombian grocery store owner.99 Many of the stores placed a limit on how much a single customer could purchase.

It should be noted that Venezuela was listed as having almost abolished hunger by the UN Food and Agriculture Organization (FAO) in 2015.100

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Opening the boarder is not the only measure they've taken. Since the shortages started the government has accelerated existing food programs that supply much needed groceries to the public. Along with the acceleration they've implemented a few modifications to their programs and approaching problems in new ways. More specifically, there is a program that creates a synergy between local grassroots organizations and the government. A new one that carries out such cooperation is the Local Provisioning and Production Committees, known as CLAPs. They organize an alternative food distribution network in all 24 states.101 It's really quite innovative.

"CLAPs have a twofold purpose. In the immediate term, they are working to combat lines, shortages, and speculation by delivering basic food products directly to people. The government purchases goods directly from both private and state enterprises, which the CLAPs distribute house to house based on community censuses. The project is seen as a temporary stop-gap solution to the current shortages, aimed at the most vulnerable fifth of the population. In the longer term, CLAPs are also intended to engage in local food production and processing. In tandem is a major push for urban agriculture, overseen by a newly formed Ministry of Urban Agriculture. A recent hundred-day planting campaign involving 29,000 urban productive spaces throughout the country aims to increase the amount of fresh produce, eggs, fish, and animal protein available locally.102 These efforts are complemented by a renewed push for production in the countryside."103

Citizen participation in agriculture has exploded. People are engaging in backyard farming, bartering vegetables, exchanging seeds, and carrying out their own cooperatives. Many are creating their own small food businesses. As it stands right now, agriculture represents 3% of GDP, 10% of the labor force.104 "A reduced supply of industrial agriculture inputs is also driving a transition toward organic practices and agroecology, in what some are likening to Cuba’s special period. The shortages are also causing a shift from processed foods and a renewed

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appreciation of local foods and traditional foodways. Many activists see these developments as elements of a new food system, a project they have been trying to advance for many years."105

In July the government seized a large U.S. producer of goods in the country, Kimberly Clark.106 About a month earlier the company fired 900 workers claiming that they lacked the raw materials necessary to continue production. The factory was seized by the government and handed over to the workers who were previously employed there. Once the factory had been handed over, President Nicholas Maduro authorized 22 million to be loaned to the enterprise to purchase the raw materials they needed to begin operations again. Its products are certainly essential: "The factory can produce, every month, 25 million diapers, 18 million sanitary napkins and 33 million rolls of toilet paper – products that have been in short supply throughout Venezuela."107

What is to be Done?

The big question remains: what do they do now? What measures would be necessary to repair the economy and allow Venezuela to exercise self-determination; while minimizing interference by the imperialists. For this answer I spoke with a friend who has a background in economics. A few good ideas came out of our discussion that we both feel would do the job. Here I'll go into a bit of detail about what he thinks needs to be done.

Immediate economic reform is vital. The multiple exchange rates should be abolished without delay. One moderate exchange rate should be established.

The price of Venezuelan oil should be raised and subsidies for domestic oil consumption should be eliminated. The subsidy generally only benefits the middle and upper classes due to the fact that the lower classes don't consume much in the way of oil. The reduced domestic rate mostly serves to help the upper classes who can afford the oil anyway. Government revenues would increase significantly, allowing funds to be transferred into much more important social programs. Revenue from petroleum exports

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accounts for more than 50% of the country's GDP and roughly 95% of total exports.108 Raising the price of oil for export a small percent would also help alleviate the drop in revenue from the global oil price decrease.

Manufacturing in the county should be increased as well. Already it produces heavy industry products such as steel, aluminium, and cement. The actual means of production need to be added to the manufacturing sector, not just the circulating constant capital. More specifically, they should invest in the production of Department 1 commodities. This category is made up of constant capital, machinery, software, basically the means of production that other capitalists purchase for carrying out production. The benefit of producing these is that Venezuela will insulate itself from the global price system for the oil industry constant capital. Embargoes and sanctions against them for oil industry technology won't work on them. They're vulnerable here due to their oil based economy. Plus, it will benefit from it when they export. This will free up the necessary capital for food imports.

One of the mistakes Venezuela has made is not reinvesting enough of the oil profits back into production. Some of their technology is falling behind as a result.109 A significant reinvestment of capital would increase the efficiency of the industry leading to a lower cost of production in the long run, leading to more oil based revenue. With oil as their primary national industry, it is nothing short of neglectful to do otherwise.

In Marxism we divide commodities into two departments:

Department 1: contains the means of production. Capital invested in producing materials, machinery, and anything else a capitalist would need for carrying out production, including inputs like steel.

Department 2: contains the means of living, the consumer goods of society for workers and capitalists. This also includes luxury items.

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We differentiate between these two groups for a reason. In traditional Keynesianism you spend state funds on public projects in order to stimulate demand for goods and services. But, since Marxists make a differentiation between these two types of commodities - we build up the productive forces first, which can produce the consumer goods that will enter into demand as a result of the wages. In this way, you build up the productive forces necessary to facilitate the production of the new consumer goods that will be in demand. This is the path the Soviets took which proved to be correct. It built up the necessary means of production to carry out the industrialization process.

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11

CHINESE PURCHASE OF U.S. TREASURY BONDS

Often it is seen as a conspiracy, or an impending doom that the Chinese purchase so many U.S. Treasury bonds. In the minds of many "internet economists" the purchase of them by a foreign power means that the U.S. is indebted to them. The logic that reigns is that China now literally owns most of the U.S. government and its economy. In actuality, the Chinese only own 8% of U.S. debt. The Chinese, they say, can call in these debts at any time and totally wipe out the entire country. Conspiracy theories claim that China uses these debts as leverage against the U.S. to make it do whatever it wants. Such a line of thinking is very short sighted and without adequate knowledge. The global economy doesn't work in such a way as to need to form conspiracies against the American people. Usually these ideas are driven by an ignorance of economics, and racist xenophobia.

The reality of the relationship between the U.S. and China is quite different from these circulating theories. In many ways China actually needs to purchase these bonds. That's right; there is an absolute necessity for China to hold U.S. debt. It's not a choice they make to gain leverage over the U.S., but a part of their very economic survival. The truth is that both countries need each other

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if they are both going to survive. One must purchase, while the other must produce. The same kind of "symbiotic" relationship exists between their currencies as well.

As a result of this relationship, there are two main reasons why China must purchase U.S. Treasury bonds:

1. Supply, Demand, and Price for Currency:

As we saw previously, the world has a floating exchange rate. This means that currencies are subject to the forces of supply and demand. The more people want the currency the greater its value. When the value of a currency increases, the exchange rate has a corresponding appreciation.

There are two currencies used in the transactions between the U.S. and China: the Dollar and Chinese Yuan (a.k.a. Renminbi). If you need Dollars, you will have to sell Renminbi to purchase them.

The Chinese Central Bank purchases Dollars and Dollar based securities. They make the purchases with a rate that is lower than the price of the Renminbi. That price is lower than what would be if the purchases we made according to the market. The central bank does this for a reason. As it overvalues the Dollar and undervalues the Renminbi, people are encouraged to sell dollars at a rate said to be "over the odds." This prompts the Chinese central bank to purchase large quantities of Dollars. By doing this, it increases the demand for dollars while lowering the demand for the Renminbi. As a result, there is a devaluation of the Renminbi.

Why? We saw previously that there is a definite benefit to undervaluing your own currency. A lower value in Renminbi means the prices of things in Renminbi will be lower. If a commodity sells for 10 Renminbi, but then the value of the currency falls from $2 to $1, the price is cut in half. The commodity previously cost $2 for the American consumer to purchase; now it costs only $1. This lowers the price of Chinese goods, allowing an increase in the demand for them.

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Instead of buying Dollars, the Chinese central bank buys 'dollar denominated securities', U.S. Treasury Bills. This has the same effect as buying dollars. The central bank is interfering in the market, creating an artificial scarcity of dollars, which pushes their value up. In turn, an excess of Renminbi is created lowering their value. The lower value means more exports. This stimulates production, more jobs, more taxable income.

China brings in a ton of Dollars from selling their goods and services to the U.S. The Dollars must be converted into Renminbi in order to pay their workers; which means selling those Dollars for Renminbi. Doing this leads to an increase in Dollars, and a decrease in Renminbi. The Chinese central bank purchases Dollars and 'dollar denominated securities' (U.S. Treasury Bills), in order to balance things out. This prevents the value of the Renminbi from rising against the Dollar making it more expensive to purchase Chinese commodities.

2. Balance of Accounts

The U.S. must keep a balance of the capital account and the Current Account. The Capital account is money used for investment, when people buy Treasury Bills, or equities. The Current account is the trade balance, when people buy goods or services.

In order to make Current Account transactions (i.e. buy things from other countries) you need foreign currency. You purchase that foreign currency in the Capital Markets. For the U.S. to import more goods from China than it exports to them, it has to obtain Renminbi in the Capital Markets and then spend it on trade. To purchase the Renminbi, the U.S. has to sell Dollars or dollar denominated securities, such as US Treasury Bills.

To make it simple: The US sells debt to China in order to pay for importing Chinese Goods.

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POLITICS AND ECONOMICS IN THE TRANSITION TO

SOCIALISM

The Economic Management System and its Categories

This section is a collection of notes on a book of the same title by Carlos Tablada who formulated Che Guevara's economic work into a single volume.

The transition to socialism and communism is a synthesis of two inseparable elements that make up the writings of Marx and Engels. The first is economic production, and the second is the social relations of production.

The social relations refers to how people relate to each other inside and outside the production process. In other words, how we interact with everyone in our lives.

These two elements were divorced after the Second International. This was one of the most damaging things that happened to Marxist theory. The damage this separation causes can be most

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clearly seen in practise. It was rescued from Social Democrats by Lenin.

Che used this aspect of Marxism-Leninism as a basis for building a new economic management system from a country that was backwards and had not yet full been through capitalist development similar to China.

Like Maoist China, Che also believed that moral incentives were the main lever for building socialism. However, unlike Mao, Che believed that material incentives of a social character could be use to facilitate this transformation.

Che’s writing lead to several questions that must be answered:

1. What exactly is political economy in the transition period? 2. Is there really a need to formulate such a political economy with its own characteristics? 3. What economic policies should be adopted? 4. What relations do these policies have to the political economy of the transition period?

In the writings of Marx there is no “political economy in the transition period”. However, Marx did make numerous observations of past transformations of societies into new ones. The “policies” that lead human civilization from tribal communism to feudalism are known. So we aware of the events of other transition periods.

The “policy” that lead us from tribal communism to feudalism was quite simply the invention of private property. First, we discovered that if we ceased being nomadic and simply repeatedly planted the same food we could accumulate more than we needed. This event was called the agricultural revolution. At this point people began to own land. This question of ownership lead to landlords and private property.

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It was the “policy” of ending the nomadic life and the creation of private property that gave rise to feudalism. This is Marx said that the present is needed to explain the past.

It is using this that we see where we socialists break the history of tradition. When socialism is the establishment of the dictatorship of the proletariat, it is the first time that people consciously take control of society. Previously, all other forms developed of their own accord through an evolutionary process. Although capitalism came about from an evolution guided by the manipulations of the ruling elite. A kind of intelligent design if you will.

Socialism, the dictatorship of the proletariat, is what breaks us from this pattern of “randomness” and manipulation. It is for the first time we are taking control of our societies and our world; we decide how things are going to be.

The act of the agrarian revolution gave birth to private property. Private property is an inadvertent “policy” that brought us to feudalism. The dictatorship of the proletariat is us consciously deciding what our “agrarian revolution” is going to be. We will decide the policy that will change and facilitate a new forward socialist society.

Now for us to take control of our destiny, we need two things, the revolution and the dictatorship of the proletariat. With revolution, we knock down the bourgeois rule. With the dictatorship of the proletariat, we destroy the bourgeois government and create our own government in its place. Control of the new government gives us control of the social forces.

This means the goals of revolution can be brought about by an economic plan. In addition to understanding reality, we now have the ability to affect reality.

From this we can determine that each attempt towards the new society has a similar premise (means of production socially owned) and similar objectives (building communism). Each society that

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transitioned to socialism had its own set of conditions, thus its political leaders had different responses.

This makes us realize two important things. First, we cannot simply import the economic plan from a past revolution because each revolution has its own concrete problems that require unique solutions. Second, it reminds us that since there was the same goal, we can learn from the experiences of the past revolutions. But only if we see them in their own unique contexts.

So what we need to do is build our own model for transition that corresponds to the general laws of transition (the same goal); and also take into account our own unique situation (socioeconomic and cultural).

What we need is a general conception of how the transition to communism will be carried out. It would have to be an integrated model that included all levels of society (economic, political, cultural) so that they work together.

An important thing to note is that any such general conception is only a tool, and would need to be altered if it was not reaching its intended objective. Meaning (in a Maoist way) we should not be dogmatic about our own writings and plans.

In creating such a model we need to know what roads can be taken. Politics will determine what our goals will be, while scientific analysis will determine the possibilities of reaching them and what roads to take.

The rationality of an economic model must be measured by its social rationality. What this means is a smooth, absolutely efficient economic functioning of the society does not mean it is socially rational. Hitler may have run Nazi Germany efficiently, but that does not mean it is right or that it is good.

What is at issue here is not the quantity or quality of material goods produced, but how they are produced, and the social relations that flow from the way of producing them.

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Che created the general conception by which such an economic model would be drawn up:

“A socialist economy without communist moral values does not interest me. We fight poverty but we also fight alienation. One of the fundamental aims of Marxism is to eliminate material self interest, the factor of ‘individual self-interest’ and profit from man’s psychological motivations.

“Marx was concerned with both economic facts and their reflection in the mind, which he called a ‘fact of consciousness.’ If communism neglects facts of consciousness, it can serve as a method of distribution but it will no longer express revolutionary moral values.”

What Che was saying is that the New Man will come about as a result of revolutionary effort and as a product of the conditions inherent to the structures created by the revolution.

The social forces become controlled by the masses through the dictatorship of the proletariat. It is the involvement of the masses which create the economic model and thus the masses elevate themselves to a higher being. Political power will not just be popular, it will be a political power of the people.

Marx and Engels made the same point in The German Ideology:

“Both for the production on a mass scale of this communist consciousness, and for the success of the cause itself, the alteration of men on a mass scale is necessary, an alteration which can only take place in a practical movement, a revolution; the revolution is necessary, therefore, not only because the ruling class cannot be overthrown in any other way, but also because the class overthrowing it can only in a revolution succeed in ridding itself of all the muck of ages and become fitted to found society anew.”

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We need to understand as Che did, that we need to put as much effort into the development of the new social consciousness as there is in developing the material existence, that being the economic plan and social policies. We cannot follow the old Soviet line of failing to do enough to build the new consciousness.

Now a lot of Marxist believe in the spontaneous emergence of working class consciousness in a revolutionary event. I believe that this is true to a certain degree, however this also requires a good deal of guidance to make sure it doesn’t slip into the old evils, like nationalism, racism, sexism and all the other nasty aspects of human nature.

The socialist society must be built by those who want out of the bourgeois way of thinking. these people must no give in to the old bourgeois motivations and ways of thinking. The old ways and the new ways must be combined in a dialectical way.

Che saw the difference between the following concepts:

1. Material base and economic wealth 2. Development of the productive forces and development of production 3. Social relations of production and economic relations 4. The production and reproduction of material life and The production and reproduction of consumer goods

It is the very nature of Marxism that does not allow our ideology and its goals to fit into the economic categories of capitalism. The dynamic nature of our social theory cannot fit into the history of bourgeois economic thought. It is the social relations of production that matter, not purely the economic relations.

Bourgeois economic thought is concentrated on what policy is the most efficient and profitable for an enterprise. The social relations in capitalist society spontaneously emerge from these policies. In Marxism, we strive for planning the economy with an economic plan that deliberately affects our social relations. Bourgeois economics do not have categories that take into account the effects

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it has on the social consciousness. As a result, we cannot use their categories and terms, we must invent our own, with their own unique context.

What we need to rethink is, or create a new definition for is, what constitutes economic rationality? We begin to answer this question by asking what are the objective is being reached for. If economic development is all that is being sought after, then it hardly matters what policies achieve it. However, if the objective is a new social consciousness, we then have to acknowledge a link between social goals and economic management.

The role of economic rationality becomes the plan for social rationality.

As put by Che:

“If material incentives are counterpoised to the development of consciousness, but are a great lever for increasing production, does that mean that giving priority to the development of consciousness retards production? In comparative terms, in a given period, that may be, although no one has made the relevant calculations. We maintain that in a relatively short time, however, the development of consciousness does more for the development of production than material incentives do. We state this based on the overall development of society towards communism, which presupposes that work will cease to be a tedious necessity and become a pleasant duty.”

We must therefore acknowledge that any policy we create doesn’t simply determine the efficiency of production, but the material and social relations that occur in that production. What this means is that state ownership of the means of production is not enough to make the mode of production socialist.

This is what needs to be examined to determine socialist production:

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1. How the management apparatus of the state is structured 2. The nature of incentives 3. The forms of property that may or may not coexist (and to what extent) 4. The existence and functioning of the market and/or the plan 5. The existence or not of generalized commodity production

It is these elements that give shape to a specific mode of production, the mode of activity and mode of living for individuals.

When Marx and Engels wrote The German Ideology, they laid out how the economic structure of a society determined and shaped the ideological relations. This gave rise to the social science: historical materialism.

As Che began looking for ways to change the society in the beginnings of Revolutionary Cuba, he looked at literature from all standpoints and ideologies concerning the transition period. What he found was that none of them clearly dealt with how new economic organizations and social relations would condition the forms of social consciousness.

Che found that in the literature he read, the question of the transition is approached from two main points:

– The establishment of the dictatorship of the proletariat per se is taken as a guarantee of the increasing emergence of communist consciousness;

– The economy is treated as something independent of the super structural forms that accompany it.

These approaches both fail to understand the Marxist-Leninist view of the social base and the superstructure. As a result, it leads to many serious errors in both the theoretical realm and the practical realm.

Classical Marxism says the dictatorship of the proletariat is a period during which power has been taken away from the bourgeois, and

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the capitalist social relations of production are replaced by socialist ones.

What this means is that the dictatorship of the proletariat implies the formation of communist consciousness. This is only the decoration of the desire to build a new consciousness, not the act of doing so. Whether or not the communist consciousness is attained is dependent on several factors.

The initial revolutionary victory only makes it possible for the social change to take place, it does not guarantee that it does take place. The vanguard must organize to create a government/economic policy that facilitates the creation of the communist consciousness in the newer generations. This is a very complex and delicate process that cannot happen spontaneously. You do not construct an office building by simply throwing all the materials into a pile on a construction site.

The second approach treats the economy of the transition period as something separate from the ideological relations between people. This leads to serious errors, and has lead to the downfall of the Soviet Union and other socialist states that never came to be.

This is where bourgeois economics fails to explain the social phenomenon that take place in society. Bourgeois economists see everything in a technical and academic way. Economics are treated completely separate from politics, ideology and philosophy. To them, mixing these with economic formulas somehow invalidates the “scientific nature” of economics. This is horribly flawed position for anyone to take.

Che pointed out that this flawed position makes possible “the danger that the forest will not be seen for the trees”. Creating an economic development using “the dull tools left to us by capitalism” will only damage and destroy the possibility of creating the new consciousness. This makes revisionism inevitable.

The way that economic policy and economic plans affect the social relations between ordinary people is the main subject of study when

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looking at the transition period. Che understood that what is economically rational cannot be used as a way of determining whether or not a revolutionary transformation is successful.

When investigating the causes of certain tensions that pop up, (natural or caused by enemy action), a narrow ideological stand point is adopted. Blame is placed on bad political methods, lack of connection between the masses and the leaders and other factors.

What is almost never included is an analysis is the economic structure. Usually it is not looked at because it is considered to be “above suspicion” because of its declared socialist character. We have to keep in mind is that the economic structure was created by people, people who are not perfect. The economic structure may have a defect that may cause distortions in social relations of production. These distortions of social relations open the door for revisionism and sending the social consciousness backwards instead of forwards.

This is the dialectical relationship that Che was referring to when he spoke of using market-economy in socialism. Just using the laws of markets, incentives and materialism will force the capitalist relations between people on society. This is why a proper application of market-economy can be used to create the new social relations.

Lenin also noticed this when he put forward the New Economic Policy. This is why he called for a return to fighting capitalism. Unfortunately, he died before he could work out a new strategy.

What is needed is a model for transforming the capitalist structures and advancing towards communist consciousness and forms of production.

All this becomes one large problem. How do we work out the theory for a transition that does not yet exist? How do you conduct a scientific analysis of something that does not exist? The solution can only come out of the transformation conditions, in the framework of a general conception of the goals being pursued.

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“In this way, the steps taken would be consistent with the overall conception they aim to advance. That would give them the status of a system, whose model would be established by the general conception. This conception in turn would function as a theoretical premise, readjusted as necessary on the basis of information fed back by the model.”

The general conception establishes the objective: new social relations that run against capitalism.

This is not some kind of utopian dream. It is obvious that the creation of a new consciousness must be the objective in the first social system constructed in a conscious way.

It is a matter of fact that the New Man (as Che called him) cannot be precisely defined. What we do know is what we do not want him to be. The New Man is the antithesis of the model of people in capitalism. This is a long road of struggle and suffering to give the world a new face that Marx was talking about.

It will replace selfishness and personal ambition with a new type of motivation: The desire to create a new consciousness and actively seek to shape future generations in a better way.

This is what makes socialism and communism different from all other political and economic ideologies. It consciously directs the evolution of social consciousness and human relations, not indirectly the way all other forms of society have.

The Marxist conception of politics as concentrated economics and its importance in economic management under socialism

When constructing a model of building socialism, it must take into considerations the general characteristics of the current transitory period. Simply put, you have to work with what you have and your model of building socialism should reflect that.

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Any system of economic management under consideration for a revolutionary society must work towards the revolution’s objective: the communist consciousness and the new social order.

The battle to build socialism goes hand-in-hand with the battle against poverty. To ensure the new society eliminates poverty as a goal, there must always be a link between the operation of the economy and the leadership of the society.

The capacity of an economic model to harmonize economic and social rationality would be measured by the degree to which it achieved the goals in the plan for the transition.

Any economic plan for a socialist society would have to demonstrate success on two important levels:

1. From a technical standpoint is would have to show an efficiency of administration and management. Meaning it would have to operate smoothly and without too many problems.

2. From a structural standpoint is would have to be able to work with the political and ideological goals in the transition period. In other words, how it facilitates and promotes the new communist consciousness.

Economic successes are determined by final results and how they were obtained. They’re “successful socialist character” will be judged by how well they developed communist social relations and aided the creation of the new consciousness.

This is the most important point to keep in mind when judging a socialist economic system. It is not based solely on how efficiently it uses resources and/or by the amount of revenues generated by the enterprises involved. Pure economic rationality will not create a new society, doing so will only perpetuate the old bourgeois one.

It is more important to judge it by how it improves economic management through communist education. It must be judged by its ability to harmonize social and economic rationality.

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Che never lost sight of the fact that under socialism you cannot use economic rationality as a measure of how socially rational a plan is. The formulation of the new communist consciousness is always the main objective of every plan and policy that is used. Those plans and policies can be judged as negative or positive to the degree in which they aided or retarded the the emergence of the new consciousness.

If we strive for purely economic gains we will end up using capitalist economic policies that will negatively affect the true goal of changing society. Sure it will increase profits and be more rational economically, but it will kill the emergence of the new consciousness. This is exactly what will open the door for revisionism and capitalist restoration.

This is how Che described it:

“A complete education for social labour has not yet taken place in these countries, and wealth is far from being within the reach of the masses through the simple process of appropriation. underdevelopment, on the one hand, and the usual flight of capital to the ‘civilized countries’, on the other, make a rapid transition without sacrifices impossible. There remains a long way to go in constructing the economic base, and the temptation is very great to follow the beaten track of material interest as the lever with which to accelerate development.

“There is the danger that the forest will not be seen for the trees. the pipe dream that socialism can be achieved with the help of the dull instruments left to us by capitalism (the commodity as the economic cell), profitability, individual material interest as a lever, etc.) can lead into a blind alley. And you wind up there after having travelled a long distance with many crossroads, and it is hard to figure out just where you took the wrong turn. Meanwhile, the economic foundation that has been laid has done its work of undermining the development of consciousness. To build communism it

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is necessary, simultaneous with the new material foundations, to build the new man.”

In another statement he put it more simply:

“It is not a matter of how many kilograms of meat one has to eat, or how many times a year someone can go to the beach, nor how many pretty things from abroad you might be able to buy with present-day wages. It is a matter of making the individual feel more complete, with much more internal richness and much more responsibility.”

What Che is saying is that economic rationality is how efficiently resources are used to develop the social consciousness and the communist education.

In building communism the measure of the success of economic achievements is on one hand, and raising consciousness is on the other.

“Socialism is not a welfare society, nor is it a utopian society based on the goodness of man as man. Socialism is a system that arises historically, and that has as its pillar the socialization of the basic means of production along with equitable distribution of all of society’s wealth, in a framework of social production.

“In our view communism is a phenomenon of consciousness and not solely a phenomenon of production. We cannot arrive at communism through the simple mechanical accumulation of quantities of goods made available to the people. by doing that we would get somewhere, to be sure, to some peculiar form of socialism.

“But what Marx defined as communism, what is aspired to in general as communism, cannot be attained

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if man is not conscious. that is, if he does not have a new consciousness towards society.”

This conception was summed up by Che at a ceremony honouring outstanding Cuban workers and some visiting workers from the German Democratic Republic:

“Productivity, more production, consciousness-these are the foundations upon which the new society can be built.”

It is very important to clarify here what Che was talking about when he said it. Revisionist theories about the transition period use technocratic formulas used by bourgeois social theorists to claim Marxism-Leninism is outdated.

The revisionist theories separate the economic from the political-ideological considerations of a transition economic model. Their aim is to maximize profits and completely disregard the purpose of revolution. that is how revisionism gets its foot in the door to destroy the revolution.

We need to know that there is no relationship between abundance and communist consciousness. All one has to do is simply look at US consumer society to see there is no consciousness available.

This is how Fidel Castro put it when speaking to the Forth Congress of the Union of Young Communists:

“Marxism-Leninism must continue evolving every day in actual practice in a revolutionary sense. We have yet to see a revolution that regresses while correctly applying the principles of Marxism-Leninism, creatively applying them and, above all, if the principal of applying the principals is applied. Because little problems start cropping up when principles are not correctly applied, a fact so widely exploited by the enemies of socialism, by the capitalists, in their bid to

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resuscitate their decrepit, inhuman, and prehistoric system.

This is the task we revolutionaries have to tackle. For it is easy to make a mistake and mistakes are often made. Often they are the result of a lack of serious, in depth analysis, the result of a lack of collective analysis, which is also one of the fundamental principles of Marxism-Leninism…

Nevertheless, we’ve had to adopt a number of specific measures imposed by necessity, by reality. these measures help in many ways, they develop the economy. And the development of the economy makes for greater resources which, in turn, makes for greater possibilities for the development of society and of society’s wealth. If there is not wealth there will be very few tings to distribute. That is reality, and in correcting its idealistic mistakes the revolution had the courage to adopt the pertinent measures.

But contradictions do arise. And we must guard against allowing socialist formulas to compromise communist consciousness. We must prevent socialist formulas from compromising our loftiest objectives, our aspirations, our communist dreams. We must not allow ourselves to be diverted from our goal of ideology or a lack of understanding of these truths…

No, no one can expect communist consciousness to be based solely on an abundance of wealth.

The way I see it, in the development of communist society, wealth and the material base must grow hand in hand with consciousness, because it can even happen that as wealth increases consciousness diminishes… I’m convinced that it’s not only wealth or the development of the material base that will develop consciousness-far from it. There are some countries

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much richer than ours-there are some. I don’t want to make any comparisons of any kind; that would not be correct. But we do know of revolutionary countries where wealth has advanced more than consciousness, leading to counterrevolutionary problems and things of that sort. But you can have a great deal of consciousness without much wealth…

We must search for socialist formulas rather than capitalist formulas to solve problems, because before we realize it capitalist formulas can begin to corrupt us and contaminate us…”

Che kept these problems in mind when he developed the Cuban economic system, the Budgetary Finance System. He also kept this in mind for the institutional forms, incentive mechanisms and implementing controls.

Ninety miles from the shores of imperialism, Cuban socialism could not allow itself the luxury of not seeing the forest and wandering down the wrong path.

Economic Planning: its function as principal generator of the socialist economy

Marx and Engels made it clear that economic planning is one of the central concepts of the transition period. They also gave us the the elements that make up what the planned economy in the transition period and communist society.

Economic planning is inseparably linked to anti capitalist revolution and the dictatorship of the proletariat, there is no Marxism without them.

The synthesis of these elements signifies the new way of making society that has never existed before. It is that man actively takes up the task of planning the economy. In all previous history man has been made subject to the forces of society. The planned economy is

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a tool that people use to acknowledge reality and make decisions about it, thereby making their present and future.

With economic planning people can bring the forces of production under their control. Before communism these productive forces and their effect were beyond people’s consciousness.

This era of not knowing how the productive forces affected our lives and making us subject to them, is what Marx referred to as prehistory. Entering the new stage where we affect the productive forces signifies the evolution of mankind where we control or destiny.

Economic planning is the fundamental element of building communism. This is how Che put it:

“We can therefore state that centralized planning is the mode of existence of socialist society, its defining characteristic, and the point at which man’s consciousness finally succeeds in synthesizing and directing the economy toward its goal: the full liberation of the human being within the framework of communist society.”

An important aspect of the economic plan is that it establishes the proportions of goods that are produced for society. Because of this, the economic plan has features similar to the law of value. The difference is that the law of value forces itself on society while the economic plan is a tool that we can deliberately use as we see fit.

It is only the economic plan that is the tool the allows us to create new productive forces, create the new man and finally reach the stage of communism.

Che said an economic plan embraces material relations as a whole. For that reason the plan should incorporate and unite two elements:

1. Creating the basis for economic development of the new society as well for the economic regulation and controls;

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2. Creating a new type of human relations, a new man.

For us to understand Che’s economic thought it is useful to go back to Marx’s theory of value in Capital. His view of value is completely different from all others. He saw value as a combination of quantitative relations between products and the historically conditioned relations between producers. All bourgeois economists and economic thought was to treat these two things as separate phenomenon.

In the first chapter of Capital Marx tells us that a commodity has a use-value and an exchange-value. That means it has a value in how it can be used, and its value in what it can be exchanged for. What Marx saw was that value as had in it an expression of social relations given the historical moment.

The continuation of social relations that happen as a result of commodity production are not universal. They do not have to happen, they are a result of social relations that developed, but in economic planning they can be altered.

For Marx, the categories used to describe the capitalist mode of production “are forms of thought which are socially valid, and therefore objective, for the relations of production belonging to this historically determined mode of social production, i.e., commodity production.”

What sets Marxist theory apart is that the social character of economic categories is what important to an analysis of value. In history these categories determined the relationship between people. Under capitalism these social relations takes on the appearance of relations between commodities. But really, it is still relations between people covered up by exchange.

This is revealed by Marx’s work “The Fetishism of the Commodity and its Secret”. It shows that the relations between commodities are really a cover for relations between people.

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“The mysterious character of the commodity-form consists therefore simply in the fact that the commodity reflects the social characteristics of men’s own labour as objective characteristics of the products of labour themselves, as the socio-natural properties of these things. Hence it also reflects the social relations of the producers to the sum total of labour as a social relation between objects, a relation which exists apart from and outside the producers. Through this substitution, the products of labour become commodities, sensuous things which are at the same time supra sensible or social… It is nothing but the definite social relation between men themselves which assumes here, for them, the fantastic form of a relation between things…I call this the fetishism which attaches itself t the products of labour as soon as they are produced as commodities, and is, therefore inseparable from the production of commodities.

“As the foregoing analysis has already demonstrated, this fetishism of the world of commodities arises from the peculiar social character of the labour which produces them.”

The law of value explains how an equilibrium of capitalism can exist. The equilibrium is achieved by the amount of commodities produced, the extent to which they are exchanged, how labour power is apportioned among different sectors of economy, and the distribution of resources among these sectors.

This is the structure of the capitalist system which is normally hidden from our eyes.

To sum up the idea that pulls together the questions that have been discussed and that is present throughout Marx’s theory, we quote the following passage from Capital:

“Political economy has indeed analyzed value and its magnitude, however incompletely, and has uncovered

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the content concealed within these forms. but it has never once asked the question why this content has assumed that particular form, that is to say, why labour is expressed in value, and why the measurement of labour by its duration is expressed in the magnitude of the value of the product. these formulas…bear the unmistakable stamp of belonging to a social formation in which the process of production has mastery over man, instead of the opposite…”

Che’s position on the law of value and the use of this law and other capitalist categories-both in economic management during the transition period and in the creation of a theory of the construction of communist society-can be summed up as follows:

– Rejection of the law of value as the guiding principal in the period of transition to communism;

– The distinction between acknowledging the existence of a series of capitalist relations that necessarily persist during the transition period (including the law of value, given its character as an economic law-that is, as an expression of certain economic tendencies); and affirming tje possibility of managing the economy by the conscious use of the law of value and the other categories that go along with it;

– Rejection of the view that the period of transition to communism, even in its first phases, has to unfold in accordance with the law of value and the other categories of commodity production implied by its use;

– rejection of the view that not only recommends use of the law of value and monetary-commodity relations in the transition period, but also asserts the need to develop these capitalist relations as a vehicle for reaching communist society;

– Rejection of the inevitable use of “the commodity category in relations among state enterprises,” and instead considering “all such

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establishments to be a part of the single large enterprise that is the state”;

– The need for economic policies that tend toward the gradual withering away of the old categories, including the market, money (so long as its functions are distorted), and thus the lever of direct material self-interest; or, more accurately, policies that tend toward the elimination of the conditions that give rise to these categories;

– Rejection of the practice of using capitalist categories. If capitalist categories such as “the commodity as the economic cell, profitability, individual material interest as a lever, etc.” are used in building the new society, they will rapidly take on an existence of their own, in the end imposing their own influence on relations among men;

– Acknowledgement that the free play of the law of value in the period of transition to communism implies the impossibility of fundamentally restructuring social relations, since it means perpetuating the “umbilical cord” that ties alienated man to society; and that it leads instead in the direction of a hybrid system in which a fundamental transformation of the social nature of man and society will not occur;

– The construction of socialism and communism is a question, simultaneously, of both production and consciousness. As Che put it:

“In our view, communism is a phenomenon of consciousness and not solely a phenomenon of production. We cannot arrive at communism through the simple mechanical accumulation of quantities of goods made available to the people. By doing that we would get somewhere, to be sure, to some peculiar form of socialism.

But what Marx defined as communism, what is aspired to in general as communism, cannot be attained if man

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is not conscious. That is, if he does not have a new consciousness toward society”

The very natures of the law of value and economic planning make it impossible for them to coexist in the period of transition to communism. Their coexistence can only exist in the first phase of the transition where the law of value still exists as left over from capitalism.

The law of value continues to exist from the destruction of the bourgeois state to the transfer of the means of production to the revolutionary state.

As the means of production are transferred to the revolutionary state, new relations of production begin to emerge. Because of this new change a new conception of inner workings and goals are needed. It also requires new management, organization and incentives.

However during this phase some means of production will remain in the hands of capitalists and small producers, both private and cooperative.

While commodity production still exists as a sector of production, the law of value will not govern in a “pure” form. As the revolutionary government tackles social problems, this will inevitably distort the way the law of value functions.

These social measures include lowering rents for housing, providing medical care and social assistance for free or below prices set by the market in order to combat counterrevolutionary ideology and policies.

At this time policy would also bring under control foreign currency, foreign trade and domestic wholesale trade, to bring people previously marginalized into economic life. Meaning, it is an effort to end the problem of unemployment

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The law of value no longer has the power to do these things. The law of value doesn’t have the power to determine how commodities are distributed. It can’t decide how labour power and resources are allotted, because they are used according to need, not profit. In doing this, prices are no longer set according to market fluctuations, they become part of the economic plan.

At this point the leadership of the revolution determines distribution according to the political program, the law of value. This is done according to the revolution’s goals and military strength, with central planning the objective.

When dealing with the productive forces of society, it is the overall profitability that is important. This means that when we look at the profitability of the entire economy, we can lower or raise the costs of commodities so long as the entire economy can be kept profitable. This gives socialism a unique ability to set prices above or below the market as needed, an ability capitalism does not have.

Economic equilibrium is non-unique to socialism, every society must consume less than it produces or it would cease to function. What is different about socialism is that this consumption is not determined by the law of value.

Economic equilibrium in capitalism (and other societies) is established spontaneously through the law of value. In socialism economic equilibrium is established consciously through economic planning. This is how socialism allows people to determine their fate, by planning it, not subjecting it to the market.

The great criticism of the planned economy is that it is tiresome unnecessary work. One of the major critics that made this argument was Czech economist Ots Sik. He argued that state planning commissions would have to make millions of mathematical calculations, which could all be made without effort using the law of value.

However what he and all the other critics of the planned economy fail to understand is that simply planning the economy is not the

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point. The point is to consciously build a new society, that is accomplished by the distribution of commodities and other resources.

Once the prices of products are no longer regulated by supply and demand, but consciously planned, we can say that the law of value no longer dominates.

Even if there is still private producers (and/or cooperatives) of commodities, the law of value still does not control their exchanges with state enterprises. The money that changes hands in these transactions is not a measure of value. The exchange is not of equal amounts of socially necessary labour, because the prices are not determined by supply and demand. The prices and quantities of such commodities are regulated by the state in accordance with the economic plan.

The role of money, the banking system, and prices

During socialism and more specifically the transition to socialism, the role of money is altered to serve the new social and economic relations of the society.

Money came about as a result of commodity production, therefore it also expresses certain relations of production. As a result, money is therefore conditioned by those relations. To begin the process of eliminating commodity relations money must take on a new form to facilitate this elimination.

“It is important to point out, for reasons we will come to later, that money reflects the relations of production; it cannot exist without a commodity society. We can also say that a bank cannot exist without money and, for that reason, that the existence of banking is dependent on commodity relations of production, however developed they may be.”

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Marx laid out the five functions that money perform in commodity production. And according to Marx only two of these forms should continue in the transition period:

– Money of account, that is, money as a measure of value

– Money as a medium of circulation and/or distribution – between the state and the remaining small private proprietors, and between the state and individual consumers.

As Che explained:

“Another difference is the way money is used. Under our system, it functions only as money of account, as a reflection, in prices, of an enterprise’s performance that can be analyzed by the central bodies in order to review its functioning. Under the system of economic accounting, money serves not only this purpose but is also a means of payment that acts as an indirect instrument of auditing and review, since it is these funds that permit the production unit to operate. The production unit’s relations with the bank are similar to those a private producer maintains with capitalist banks, to whom it must thoroughly explain plans and prove its solvency. Naturally, in such cases decisions are not arbitrary but are subject to a plan, and these relations take place between state bodies.

“Consistent with the way in which money is used under the budgetary finance system, our enterprises have no funds of their own. At the bank there are separate accounts for withdraws and for deposits. The enterprise may withdraw funds in accordance with the plan from the general expense account and the special wage account. But its deposits automatically pass into the hands of the state.

“In the majority of the fraternal countries, enterprises have their own funds in the banks, which they can add

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to with bank loans for which they pay interest. But it must not be forgotten that the enterprise’s ‘own’ funds, as well as the loans, belong to society, and their movement reflects the enterprise’s financial situation.”

In Capital we read:

“There is a contradiction immanent in the function of money as the means of payment. When the payments balance each other, money functions only nominally, as money of account, as a measure of value. But when actual payments have to be made, money does not come onto the scene as a circulating medium, in its merely transient form of an intermediary in the social metabolism, but as the individual incarnation of social labour, the independent presence of exchange-value, the universal commodity.”

This idea of using money as a means of accounting was so useful it began showing in the the most developed capitalist monopolies. They began using a variation of this technique for their subsidiaries.

Using money in this way, as a measure of value in the form of prices, can be used to measure how well a state enterprise is being managed. This way money of account can be used to analyze it. This allows the state planning body to evaluate the functioning of the enterprise.

Socialism takes every enterprise and makes it one big enterprise. This way none of them need their own money. Under this system the enterprise has separate bank accounts for deposit and withdrawal:

“Once the means of production are socially owned, through the state, and once this financial system is applied to transactions between the socialist enterprises, it becomes possible within the state sector to convert the buying and selling of commodities on the market into simply the mutual delivery of products. It also

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becomes possible to limit the function of money as a means of payment, reducing it to a measure of value; and to eliminate the function of accounts payable and accounts receivable as credit instruments, transforming them conceptually into simple administrative or accounting acts. These acts take the concrete form of payment orders, whose sole purpose is to maintain accurate banking records.”

The banking system will disappear over the long run in the transition to communism. It will only survive during the time in which commodity relations still exist, because banking requires commodity relations in order to exist.

“In the periods of building socialist society, all previous concepts of the political role of the banking system change, and other ways must be sought to put its experience to use.”

As a result of the new socialist order the bank no longer has a dominant role in the economy. The bank in socialism, unlike in capitalism, does not own any of its own capital. Because of this, the bank remains the property of the state which is used to carry out economic functions.

Conclusion

This is in no way a complete work on economics in the transitional period from capitalism to socialism. Obviously it is much larger and complex than I have lain down from the works of Che Guevara and Carlos Tablada. This is only meant to give you a kind understanding.

Hopefully form this you will learn enough to go out and investigate your own understanding of how a society plans its change from capitalism to socialism. There are many great works out there worth reading and I think you should study them closely.

Just keep in mind these points when doing so:

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1. The goal is to change the social relations of production. Don’t just use economic rationality as a way of measuring success. You have to measure the social progress of the society as well.

2. Economic policy should serve the social goals of society, not just the bottom line.

With that being said I thank you for watching the whole video. I know it was really long so I appreciate it. I hope you enjoyed this video. I spent a hell of a lot of time and effort making it. I hope this helps on your path to understanding socialist economics better, because that was my intent. Thanks for watching.

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13

THIRD WORLDISM

Revisiting Vale and Exploitation

When her father died in 1883, Eleanor Marx wrote an article celebrating her father’s achievements. At the heart of these was “his theory of value, by which Marx explains the origin and the continued accumulation of capital in the hands of a, thereby, privileged class.”110 What was seen as so important at the time of his death has fallen by the wayside over a century later among the majority of those calling themselves “Marxist.” So-called Marxists today are content to forget Marx’s true theory of value because of the embarrassing fact that it would, if taken literally, preclude most First World workers from being exploited. It would count them outside of the proletariat, outside the revolutionary class. It is the mark of a scientific theory that it has a higher degree of explanatory and predictive power than its competitors. Whether Marx’s theory of value is the most scientific theory today is still an open question. However, Marx’s actual theory, in its best version, is far more scientific than the kind of butchered “Marxist” theories so often put forward by First Worldists. Not only does Marx’s theory gives us the tools, the language, to account for the rise of the mall economy of the United States and other First World countries, it helps us predict and explain the lack of revolutionary sentiment amongst the

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vast majority of those in the First World. Marx’s theory of value is the astronomy to the astrology of the First Worldist soothsayers.

Eleanor Marx describes the origin of value under capitalism:

“The sum thus entering the pocket of the capitalist Marx calls surplus-value. It is not all profit, but includes the employer’s profit. He has to share it with others: with the Government in the shape of rates and taxes, with the landlord for rent, with the merchant, etc… Thus, all of the classes of society not composed of actual and immediate producers of wealth… all classes, from kings and queens to musicmasters and greengrocers, live upon their respective shares of this surplus value. In other words, they live upon the net producer of the surplus labor which the capitalist extracts from his work people, but for which he does not pay. It matters not whether the share of surplus-labor falling to each member of society not actually a producer is granted as a gift by Act of Parliament from the public revenue, or whether it has to be earned by performing some function not actually productive. There is no fund out of which they can be paid, but the sum total of the surplus value created by the immediate producers, for which they are not paid.”111

According to both Karl and Eleanor Marx, the value that makes society run has only one source, the “immediate producers of wealth.” In the England of Marx’s day, most of this class would have been industrial, waged workers — this would include workers on industrial farms since peasant direct producers were passing from the scene. Marx predicted that the trends that he witnessed in Western Europe would occur globally. He thought that society would become polarized into two great classes, the industrial capitalists and their workers. Thus, as capitalism advanced, the paradigmatic direct producer would come to be represented by the industrial worker. He saw the industrial working class as the proletariat, the revolutionary agent. Marx thought competition and development would even out from country to country. Thus

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revolution was a matter of “workers of the world, unite!” However, things did not work out exactly the way Marx foresaw.

It is always important to note that many of Marx’s conclusions were arrived at because he extrapolated from abstract models just as economists do today. This and a good deal of teleology informed his views. However, the real world is more complex. Global society has not polarized exactly in the way that Marx foresaw. Instead, there exist different configurations of class society across countries. In some countries, there are very few direct producers at all. These are First World mall economies. Factories no longer dominate the lives of First World peoples. Only a small percentage of people in the First World work in factories anymore. A far greater number are employed in management, services, etc. This can be described in Marx’s terms as a decline in the percentage of the population engaged in productive labor, labor that adds to the total social product. Many First World economies can be described as a mall writ large. Nothing, or very little, is produced at the mall. Yet people are employed managing, transporting, securing, etc. goods that are produced elsewhere but are sold at the mall. It is the influx of goods from outside the mall that keeps the mall afloat. Production is going on outside the mall, in the Third World. It was the evaporation of direct production, and along with it the evaporation of revolutionary consciousness, that caused Friedrich Engels to write of the bourgeoisification of the English working class on the back of India and the world. Of English workers, Engels writes, “workers merrily share the feast of England’s monopoly of the colonies and the world market.” Even though Marx may have been wrong on unitary development and about the polarization of class, his theory of value does account for today’s world.

The world economy is made up of chains of economic interaction. Each commodity has a point where it was produced. Before a commodity finally leaves circulation it might be exchanged several times. Let’s say a commodity was produced at point A. It was bought by a middleman company and transported and sold again at point C. After being sold at the department store, the commodity leaves circulation. This chain can be represented thus:

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A → B → C

At each stage of the commodity’s journey profit may be obtained. Let’s suppose profit is obtained when the commodity is sold from the factory at A to the middleman at B. Profit is obtained when the middleman company B sells it to the retail store C. And profit is also obtained when the retailer C sells the commodity to the consumer. Even though profit is obtained at each point in the circulation chain, surplus value can only be produced by the direct producer. Even though profit is obtained by the middlemen and distributor, this profit is not produced by the workers employed by either the middleman B or the retailer C. This allows Marx to make the point that the merchant does not get rich by cheating his clerks:

“We must make the same distinction between him and the wage-workers directly employed by industrial capital which exists between industrial capital and merchant’s capital, and thus between the industrial capitalist and the merchant. Since the merchant, as mere agent of circulation, produces neither value nor surplus-value.. it follows that the mercantile workers employed by him in these same functions cannot directly create surplus-value for him.. In other words, that he does not enrich himself by cheating his clerks.”112

When Marx is at his most consistent he extends this point very broadly. There is no reason we cannot extend Marx’s point about clerks to all of those outside production. Even if Marx isn’t always clear, and sometimes contradictory, one has to make this generalization to be consistent with the Labor Theory of Value. Direct production is the origin of value and the original source of all profit in the Marxist Labor Theory of Value paradigm. Thus, as Eleanor Marx points out, the value that is obtained by all classes has its origin in the direct producers. This is true not just of true of the traditional ruling classes, but also of those who are employed but are not direct producers or part of direct production. These workers may help realize value but they do not produce it as the direct producer does. A bank does not create its profit by squeezing value out of its tellers. A bank obtains its profit by receiving a share of the

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total social product produced by direct producers. Banks obtain their share through investments and financial manipulations, but the origin of that value lies in direct production. The same is true of supermarkets. It isn’t like they grow the lettuce in the store parking lot. Santa’s elves are not toiling away in the back of the Toys ‘r’ Us.

Because of the tremendous productive capacity of capitalism, these unproductive sectors have expanded significantly. These unproductive sectors have come to dominate whole national economies in the First World. Walmart, for example, is the biggest employer in the United States, with over 1 million employees.113 The total population of the United States is 309million. Of the 145 million people who are employed (this includes the undocumented too) within the United States, roughly 26 million are employed in those sectors of the economy that loosely (since we are relying on Bureau of Labor Statistics’ data) correspond with direct production.114 However, it is important to note that many of those employed in these sectors are not the direct producers themselves. Many in these sectors are management, etc., even if they are employed in the direct production sector of the economy. It is a conservative estimate that at least 10% to 30% of this sector can be considered to not be direct producers in a literal or extended sense. We can generously say that 23.4 million to 18.2 million people in the United States can be counted as direct producers in the loosest sense of the term. By contrast, 126.8 million to 121.6 million in the United States are employed but are not direct producers.115 This tremendous lopsidedness is why the United States’ economy can be described as a mall economy. As great as the productive forces may be, 23.4 million to 18.2 million people cannot account for the sum of the incomes of the 145 million employed plus the incomes of those tens of millions who are not employed but still have incomes, i.e. capitalists, the petty bourgeoisie, the unemployed, those on welfare, retirees, students, etc. Rather, it stands to reason, the value that allows for this tremendous lopsidedness has to be coming from outside “the mall,” from the Third World. It is, of course, no accident that the increase of this lopsidedness in the United States corresponds to the rise of the United States as the supreme imperialist power after World War II and the decline of interimperialist rivalry. Imperialism aided this lopsided

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development, and continues to maintain it. The lopsidedness is production, but also in wealth and power, after World War II, is why Lin Biao noted that revolution in the First World had halted even while revolution was bursting on the historical stage in the Third.

“Since World War II, the proletarian revolutionary movement has for various reasons been temporarily held back in the North American and West European capitalist countries, while the people’s revolutionary movement in Asia, Africa and Latin America has been growing vigorously.”116

Another assumption Marx made was that the incomes of the direct producers under capitalism, which for Marx mostly meant the industrial workers, would be reduced to subsistence or sub-subsistence. This is because in a pure model competition between capitalists results over time in equalization of technique. So, the only way left for a capitalist to increase profits is to reduce wages. So much did Marx think this an inevitability of capitalism that Marx identified the value of labor-power with the bare minimum necessary to keep the worker reproducing his labor from day today. Although this immiseration of direct producers does bear out in much of the Third World, it hardly characterizes any worker in the United States except perhaps some negligible undocumented workers at the very edges of the economy. Often, this does not even characterize the situation of prisoners who are forced to produce. Even those who produce in the First World obtain a wide range of incomes, all of them well above the value of labor-power as set by Marx. Their incomes and standard of living are so high as to make them generally happy with their lot within the system. They align with the imperialist system. Even though Marx was wrong about the exact details of immiseration, this view of value allows for what is seen today. Under Marx’s model, it is possible for value to be transferred from direct producers to others. It is also possible for value to be transferred from direct producers to direct producers. In other words, First World direct producers can obtain a share of the surplus that originates in the Third World. Even if a direct producer in the First World is adding to the global social

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product through his labor, at the same time, he is subtracting from the global social product the same way that other exploiters do. He is obtaining a share of value from the Third World. This offsets whatever value he produces. This makes him a net-exploiter, just like members of other exploiting classes.

Marx’s theory of value allows for these possibilities that go a long way in explaining current reality. The claim by First Worldist that if profit is being obtained by a particular business, then there is exploitation by that business of its workers does not follow. An epistemological problem arises: how do we know whether a worker is an exploiter or not? Because value can be transferred in so many ways from one person to another, from one direct producer to another, it is necessary to establish a way to measure who is and who is not exploited. Either it is necessary to assign a value to labor-power or it is necessary to find another way to measure exploitation. Today virtually the entire world’s economy is integrated into one giant imperialist formation. The production of a commodity may take place across several countries. To complete a commodity it is not unusual for producers across vast distances to have contributed to its completion. To maintain that the labor-power of First World producers is different than the labor-power of Third World producers is pure chauvinism, especially since economies are so globalized today. Any approach to solving this problem should apply to workers everywhere. Comrade Serve the People has advanced a solution to the problem that establishes a rough estimate for the value of laborpower:

“Comrade Marx pointed out that labor is the substance of value. He said that the number of hours of average abstract socially necessary labor needed to produce a commodity represents its value. That means labor of average productivity under the given working conditions for the specified type of work. Therefore, if traded at value, one hour of labor put into harvesting parsnips is exchangeable against one hour of assembling washing machines (if the labor in both cases is of average productivity).

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“The nominal GDP of the entire world was $31.9 trillion in 2002. This figure represents everything produced in the world, including services (which tend to be overvalued), in a year’s time. The population is about 6.4 billion people. Assume that 2/3 of them work full time on a typical US schedule of 2000 hours per year. Then the value of average labor is $7500 per year, or about $3.75 per hour. (Slightly higher, actually, since the world’s population was a bit lower in 2002 than it is today.)

“Elsewhere I have seen estimates from the UN that the world’s nominal GDP in 2005 is about $36 trillion. That would put the value of labor at $8400 per year, or $4.20 per hour. What is the implication? In the US, the minimum wage is $5.15 per hour, and even higher in some states and cities. If average labor is worth $4.20, then even people making the minimum wage are overpaid on average by about 23%. The average wage in the US is about $18 per hour, which is more than 4 times the value of labor.”117

Let’s look at another solution. In her characterization of her father’s theory of value, Eleanor Marx discusses the distribution of the global social product under capitalism. Her father’s theory of value implies certain distributions are capitalist ones, other distributions are socialist ones. Eleanor characterizes the society of her day as a capitalist one with a distribution where those who do not contribute to the global social production receive shares from it. In fact, the majority of the shares of surplus-labor are distributed to non-producers of various kinds under capitalism. It is correct to criticize the distribution of the social product to reactionary non-producing classes. However, any contemporary socialism has to direct distribution toward not only producers, but also the vast destitute stagnant, non-working poor across the Third World. The non-working destitute are a very significant, potentially explosive, class that is coming into its own as a class in the slums of Third World cities. Had the world polarized as Marx suggested, then a socialist distribution aimed at producers, to near exclusion of others, makes

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sense. However, this is not our world today, or our socialism. Our problem is that given that, under Marx’s scheme, value can be transferred from producers to both non-producers and to other producers, a bar needs to be set to establish who is and who is not exploited. I have advanced another possible solution to this problem that moves away from Marx’s theory of value, but can be said to be implicit in the Marxist criticism of imperialism:

“Some might object that a socialist distribution is not an egalitarian distribution. Rather, a socialist distribution is one where wealth is spread out, not evenly, but to those who do the work and those nations who do the work: she who does not work, shall not eat. Whereas the labor theory of value may be necessary for explaining the mechanics of exploitation, the distribution principle associated with it is not adequate to rectify the problem of inequality between countries that has been generated by imperialism. Such a distribution principle does not address the problem of underdevelopment. Surely populations in the most underdeveloped parts of the Third World, that have been rendered unproductive by imperialism, should not continue to remain in dire poverty under a global socialism. Whole countries of the “industrial reserve army” in the Third World may not currently be productive, but should not resources and development be directed to such populations under socialism? According to demographers, very soon, for the first time in history, the majority of the world’s populations will be living in cities. The new “global countryside” as the base areas of the global people’s wars may very well be the ghettos of Third World megacities. These ghettos are less sites for production then blights that show just how capitalism’s anarchy of production has failed to bring huge segments of the human population into production. Surely socialism must speak to these vast populations that will be the soldiers of the people’s wars over the next century. The global economy is a causal nexus where value in various forms is transferred

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around the globe from one person to another. So, if one person is receiving more than an equal share, then somebody else is receiving less somewhere in the causal nexus. Likewise, if someone is receiving less, someone else is receiving more. Imperialism has created a world order where those who receive less and those who receive more correspond to populations in the Third World and First World respectively. Using egalitarianism as a regulative idea, one is exploited when one does not receive an equal share. One is an exploiter when one receives more than an equal share. A country is exploited when its population is largely made up the exploited who have less than an equal share. A country is an exploiter when its population is largely made up of exploiters who have more than an equal share. Implicit in the Marxist critique of imperialism is the idea that countries of the world should exist side by side as equals. The opposite relationship to the imperialist one is a relationship based on egalitarianism and self-determination.”118 119

Marx avoided the problem by ascribing historical necessity to the trends he saw around him. Even though Marx’s real theory of value is largely forgotten, it is much better than anything advanced by First Worldists today. We must start from, but also go beyond, Marx’s theory of value in order to answer what Mao called the question of first importance, the question of class: “Who are our enemies? Who are our friends?” Global society looks very different today than in Marx’s day. Lenin writes, “Imperialism has the tendency to create privileged sections also among the workers, and to detach them from the broad masses of the proletariat.”120 Today this division has evolved such that whole countries lack the proletariat as the revolutionary class. This is why the world revolution has taken a very different shape than that in Marx’s day. Lin Biao writes:

“[T]he contemporary world revolution also presents a picture of the encirclement of cities by the rural areas. In the final analysis, the whole cause of world

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revolution hinges on the revolutionary struggles of the Asian, African and Latin American peoples who make up the overwhelming majority of the world’s population.” 121

Real Versus Fake Socialism on Socialist Distribution

A global, socialist distribution of the world’s wealth implies a distribution that approaches egalitarianism or a distribution where the only inequalities that exist are ones that benefit the proletariat and most oppressed segments of the global population. These distribution principles, taken together, can be described as roughly, reasonably egalitarian vis a vis the current world economy. (1) The question that every serious Marxist must ask is whether people in the United States, and First World peoples generally, benefit or lose out under a socialist distribution of the world’s income. If the incomes of the First World working class, like the imperialist bourgeoisie, are so inflated that they need to be lowered under a socialist distribution, then there is no meaningful sense in which the First World working class is exploited. And, if, like the capitalists of the imperialist countries, the First World working class does not benefit under such a socialist distribution, then there is no reason to consider them part of the revolutionary subject, as part of the proletariat.

The majority of the world’s population live on under $ 2.50 (USD) a day. Over 80 percent of humanity, more than 5 billion, live on less than $ 10 (USD) per day.122 The vast majority in the Third World live very differently than the working class of the First World. For example, the average working person in the United States has a white-collar job. He has an income of $ 32,000 (USD) or over $ 87 (USD) a day.123 There are more people in India alone who make less than $ 0.80 (USD) a day than reside within the borders of the United States.124 The working class of the First World often has more access to capital than the Third World capitalists, which explains how First World workers can obtain debt that is larger than the lifetime earnings of many Third World workers. This is because the ability to have large debt in the First World is a sign of wealth, of access to capital, not a sign of pauperization as it is in the Third

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World. Also, the average person in the United States lives in a house in a suburban setting, not in the destitute ghettos of megacities or in impoverished rural areas as Third World peoples often do.125 The working class of the First World has much more in common with their own bourgeoisie, culturally and materially, than they do with the average Third World worker scraping by on survival wages. The latter, not the former, is who Marx described as the proletariat, as only having their labor to sell, as earning nothing but enough to eat and work the next day, of owning nothing, as having nothing to lose but her chains.

Virtually all First World peoples fall within the top 20 percent of global income. Most of the world’s richest 20 percent are First World peoples. Almost every person in the United States, for example, falls within the top 15 percent. A person in the United States at the so-called “poverty line” is at the richest 13 percent globally.126 The top 20 percent, which includes the entire First World, accounts for three-quarters of world income. This leaves only one-quarter to be distributed to the bottom 80 percent in, mostly, the Third World.127 The only way that the current income levels for First World peoples are maintained is through the imperialist exploitation of the Third World. The world economy is one that directs value flows from the Third World to the First World such that the First World as a whole benefits. The only way to maintain or expand current income levels in the First World is by maintaining these flows. This is going to be the case whether a regime in the First World calls itself socialist or not. In fact, many regimes, especially in Europe, have called themselves socialist or social democratic. None of these regimes sacrificed the income levels of their populations in order to redress Third World exploitation by the imperialists.

Three-quarters of the private consumption in the world is accounted for by the world’s richest 20 percent, mostly in the First World. Nearly all adult working in the United States fall within the richest 10 percent.128 The richest 10 percent accounted for over half, 59 percent of the world’s private consumption.129

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The current share of First World peoples is already much larger than what would be entailed by a rough egalitarian distribution. With the gap between the wealthy countries and the poor countries as large as it is, it is simply not realistically possible to increase the share of the First World working class without lowering the share of Third World peoples. Even if, by some miracle, the global pie was doubled and First World income and private consumption remained constant, the top 20 percent would still account for a disproportionate, nearly 40 percent, of the income and a disproportionate, nearly 40 percent, of the private consumption. In other words, it is not possible to even-out the situation between the top 20 percent and the rest of humanity even if the social product dedicated to consumption was doubled with all of the extra product going to the bottom 80 percent. It would take, roughly, a tripling of the pie under the current system to even things out.

First Worldist revisionists, like other imperialists generally, contend that First World peoples deserve more than their current share of the world’s resources. Even though overt white supremacy is now seen as uncouth, similar assumptions underlie all variants of First Worldism. First Worldists assume in a religious way that people in the United States, and First World peoples generally, should have more and that Third World peoples should have less. Because if one upholds the former, then one is committed to latter. To significantly raise the distribution in one part of the causal nexus of the world economy requires that the distribution be lowered elsewhere. It is simply impossible to maintain or significantly raise the standard of living for 300 million people in the United States without enforcing poverty elsewhere, in the Third World. Similarly, it is impossible to significantly increase the standard of living of roughly five billion people in the Third World without lowering the incomes of the remaining First World peoples. Failure to acknowledge this fact is pure utopianism, not Marxism. One cannot just wave a magic wand and raise everyone in the Third World to the First World, exploiter-level income and consumption levels. In fact, to universalize such levels is probably not even desirable or ecologically sustainable. Real socialists fight for a reasonable standard of living for all as part of ending all oppression. Socialists do not advocate a fantasy world where everyone lives as the

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wealthiest do. And, socialists do not advocate that current exploiter level income and consumption levels be maintained, let alone increased, for the First World. After all, there is only so much productive capacity on the planet and only so many resources. This revisionist denial is where First Worldism meets the Theory of Productive Forces. First Worldists either have to reject the idea that socialism entails rough egalitarian distribution between peoples or they have to abandon their claim to be socialist. In either case, the First Worldist vision for society is one that seeks both to maintain and increase current global inequalities. First Worldism, whether it calls itself socialist or not, advocates inequality between peoples. It advocates imperialism.

It was Lenin who criticized the German and French social democrats when they supported the war efforts of their imperialist homelands in World War 1. The revisionists placed their own peoples, their own working class, ahead of the global proletariat by doing so. Lenin, by contrast, advocated the policy of revolutionary defeatism. Lenin sought the defeat of the Czarist empire in the hope that a defeat for his imperialist homeland could lead to a revolutionary situation. Contrary to Lenin, the revisionists of the Second International were the social imperialists and social fascists of their day. They were socialist in name, but in reality, they were imperialists. Today, First Worldism is the main form of social imperialism and social fascism. First Worldists may use Marxist and socialist rhetoric, but, in reality, they seek the advance the interests of their populations at the expense of the vast majority of humanity. Like Lenin before, Leading Light Communism represents the interests of the proletariat and oppressed as a whole. Just as Lenin made the break from the kind of narrow, unimaginative, dogmatic thinking of his day, so does every real revolutionary scientist, so too does Leading Light Communism. It is no surprise that our movement is universally condemned by the imperialists and social imperialists.

In Long Live the Victory of People’s War!, Lin Biao characterized the main social dynamic shaping our world as the global countryside confronting the global city. Thus the world revolution was conceived as a global people’s war where the revolutionary forces of

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the global countryside surrounded, cutoff, and crushed the global city. In this way, Lin Biao extended and universalized Mao’s theory of people’s war. Today, the characteristics of the global countryside and city are changing. For example, there has been a major demographic shifts within the global countryside. The peoples of the poor countries are not as rural as they once were. More and more are trapped, leading cruel, unproductive lives in the megacities of the Third World. In addition, the global countryside is more and more the site of capitalist production, not merely the site of backward, feudalistic agrarian production. Along with this, there is less and less production going on in the global city. Instead, the economies of the First World can be described as mall economies where people earn exploiter-level in comes employed in the areas of distribution, services, and management. The idea that the Third World lags behind the First World because they do not have technology within their borders is, more often than not, a First Worldist canard. The Third World is underdeveloped, it is configured to direct value flows to the First World. However, this is not the same thing as lacking the technology of production within its borders. Theorizing these changes within the context of the global people’s war is one of the main breakthroughs of the Leading Light Communist movement.

Equality and Global Alignments

“Taking the entire globe, if North America and Western Europe can be called ‘the cities of the world’, then Asia, Africa and Latin America constitute ‘the rural areas of the world’. Since World War II, the proletarian revolutionary movement has for various reasons been temporarily held back in the North American and West European capitalist countries, while the people’s revolutionary movement in Asia, Africa and Latin America has been growing vigorously. In a sense, the contemporary world revolution also presents a picture of the encirclement of cities by the rural areas. In the final analysis, the whole cause of world revolution hinges on the revolutionary struggles of the Asian, African and Latin American peoples who make

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up the overwhelming majority of the world’s population.” — Lin Biao, Long Live the Victory of People’s War!130

The first eight words of Mao’s Selected Works are “Who are our enemies? Who are our friends?” Marxism is revolutionary science. Marxism applies science to the task of reaching communism. And communism is nothing less than total human liberation, the end of all oppression. Mao called the question of friends and enemies the question of first importance. If an organization can’t answer this question correctly, then everything else is moot. If one’s class analysis is off, then one won’t be able to make communist revolution anyways. Visions of social revolution mean nothing, they are merely utopian dreams, if they are not based in material analysis. Only by understanding the material basis for revolution, only with a correct class analysis, will one be able to align the necessary social forces to bring the proletariat to power in order to begin socialist construction, to begin the long march toward communism. In order to understand who can and cannot be aligned against imperialism and aligned in favor of socialism, it is necessary to ask: who will benefit and who won’t under socialism? Those social forces that do benefit from socialism will fall on the side of revolution. Those that do not will not. This is basic materialism.

In some sense, everyone will benefit from communism. Ultimately, life under communism will be more fulfilling and healthier for everyone, even those who were once members of reactionary classes. Also, capitalism’s destruction of the environment is so great that, in a sense, it is in everyone’s long-term interest to support an alternative. In that distant future, classes will have ceased or nearly ceased to exist. Nearly everyone will benefit then. Even though everyone will benefit from communism in the long run, in the short run, many will lose out. Socialism is about redistribution of wealth and power. And, in the real world, these are finite and limited. For the vast majority to have more, the minority must have less. This is the material reality that prevents the wealthy from aligning with the poor worldwide. The real world is a world of class conflict. In other words, we must orient toward classes as they currently exist. Just because a member of the bourgeoisie may cease being so decades

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from now does not mean that we appeal to him today as though he were a proletarian. To do so is to toss class analysis in favor of bourgeois humanism and vague moral appeals. We must orient toward the present, not toward some distant, possible future.

The single most glaring fact about the world is the gap between the First World and the Third World. The capitalist-imperialist system is one where power and wealth are concentrated in some places and not others. Power and wealth are channeled to some populations at the expense of others; a minority of countries benefit and a majority do not. Looking at income globally, across populations, we get a good sense of who is wealthy and who is not. After all, income will roughly tend to correlate with other indicators of wealth, such as assets. Looking at income will give us a good picture of how wealth is distributed globally. It is no secret that wealth and power are correlated. Those social groups that have more wealth tend to have more power; those that tend to be poorer have less. Looking at income distribution globally will give us a rough picture of where First World workers stand in relation to the world system.

Let’s use a thought experiment to show what a world would look like if income was evened out. This is not a real image of socialism, obviously. Socialism is a much more profound transformation; it is not just about income. However, the thought experiment will give us a sense of which populations are benefiting from the imperialist distribution and which ones are not. The median income per household member in the United States for a year is roughly 19,400 dollars.131 Income is not just wages and salaries, but also includes such items as unemployment payment, welfare, disability, child support payments, regular rental receipts, as well as any personal business, investment, or other kinds of income received routinely. The average Joe American, who is 25 or older, has a total income of 32,000 dollars per year.132 Hardly anyone in the United States is merely paid the minimum wage of 7.25 dollars per hour. Most entry-level jobs, for example, employ workers at 10 dollars or more per hour. Very few make merely this wage either. The rare individual who only makes minimum wage who works full time in the United States makes about 15,000 dollars a year, plus he may have other sources of income too.133 By contrast, the median

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income globally is about 850 dollars a year. Most do not even make 3 dollars a day in the exploited countries of the Third World. Most of humanity in the Third World just subsists, just survives. What would things look like if equality governed the global economy? What would incomes look like under a system where income was distributed equally, where everyone receives an equal share of the global social product? If the world’s income were divided up equally among the world’s population of 6.7 billion, each person would be entitled to the equivalent of roughly 8,000 dollars (PPP) (5,500 dollars using Atlas method).134 135 In other words, each worker in the United States is, at most, entitled to a share of the pie equal to roughly 8,000 dollars of total income under this distribution. Even the rare person who makes minimum wage in the United States would stand to lose out substantially under an equal distribution. Such a person would lose about half of their total income. Also, a person receives all kinds of secondary benefits simply by living in the First World including: greater class mobility, public and social services, access to infrastructure, greater public education, greater security, etc. Even the very poorest of First World workers is unlikely to benefit under a more equal system. In addition, such an equal distribution scheme does not even take into consideration the need to rectify the historically entrenched, uneven development globally. The exploiter countries of the First World have benefited due to centuries of plunder, exploitation and underdevelopment of the Third World. To truly even out the situation, extra value would need to be directed to the exploited and poor countries. In other words, the population in the United States and First World generally would be entitled to even less, Third World peoples even more. There are those utopians who object to this. They baldly assert that First World wealth can be maintained under an equal distribution if production were, as if by magic, increased by leaps and bounds. Firstly, it is not possible to even-out the consumption level between the top 20 percent, where nearly all First World peoples fall, and the rest of humanity even if the social product dedicated to consumption were doubled with all of the extra product going to the bottom 80 percent. It would take, roughly, a tripling of the pie.136 Secondly, First World consumption and the First World lifestyle generally are not even ecologically sustainable. First Worldism is killing the planet and our future.

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What our thought experiment shows is that First World peoples receive more than their share of the global social product. They do not have a material interest in an equal distribution of private income, let alone socialism. Socialism aims for an egalitarian or near egalitarian distribution. However, this obviously doesn’t mean socialism is merely about evening-out incomes. Real socialism will end up reducing private wealth even more than our hypothetical distribution does. This is because socialism aims to collectivize property, not to just even out private property. Socialism is about radically altering society in order to reach communism, to end all oppression. However, using equality as a regulative idea shows us what most people with common sense already know. There are winners and losers in any unequal distribution. First World peoples lose out under a global distribution that evens out income. Under a truly socialist system, not only would equality govern the global distribution of value, socialism has the goal of eliminating of private property and bourgeois right altogether. In other words, under real socialism, First Worlders would lose more than their wealth, their lives would be turned upside down.

Socialism has always been closely linked to the idea of equality. Just as class society is a system based on inequality of power and wealth, so too is the current world order based on inequality. The criticism of imperialism is a criticism of inequality. Rather than a global system where some countries have wealth and power at the expense of other countries, real Marxists advocate a system where countries have equality. To advocate, as Lenin did, for the self-determination of nations is to advocated for a transnational system that is organized around equality. After the Soviet Union fell to revisionism and became imperialist itself, Lenin’s flag was raised to new heights by Maoism. Maoism too criticized imperialism, social imperialism, chauvinism, hegemony and global inequality. Maoism was an explicit plan of action to destroy the old global order and replace it with the new. It was Chen Boda and Lin Biao who articulated Maoism as Maoism, as a new stage of Marxism. Chen Boda’s conception was of Maoism as the universal Marxism of the colonial and neocolonial countries. Lin Biao too linked Maoism to the collapse of imperialism worldwide. Lin Biao’s conception included Maoism at the forefront of a global people’s war that

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advances from the poor countries to the rich ones. Maoism advanced our understanding significantly, but it took Leading Light Communism to make the total breakthrough. It was Leading Light Communism that finally dispensed with all First Worldism, that purified the global people’s war and socialism. A socialist distribution globally is one that rectifies the inequalities of wealth and power that exist under the current order. Socialism may not always deliver. Errors are made. Poor planning exists. However, the gross inequalities that exist under imperialism are a far cry from what will exist under socialism even at its worst. If inequalities are tolerated, they will be inequalities that benefit the poorest countries. Equality, in a general sense, is what socialism aspires to. True communists reject all First Worldism.

The First World is simply incompatible with socialism worldwide. Even those at the bottom of First World societies will, for the most part, be entitled to less under socialism. This is why First World workers have always aligned with their own bourgeoisie against the popular classes of the Third World. First World workers align with imperialism against the vast majority of humanity, including the vast majority of workers. This is one reason why First World workers should be regarded as part of the imperial bourgeoisie. The First World workers are not a social base for proletarian revolution because they are not a proletariat. They are not an exploited class nor are they a revolutionary class. First World workers often have more access to capital than Third World capitalists. Marx linked poverty to revolution. For Marx, the proletariat has nothing to lose but its chains. It is an immiserated, exploited class, a class reduced to subsistence or near subsistence. It is the class that is made up of those who have only their labor to sell. The proletariat is the main source of value under capitalism. Marx’s description of the proletariat hardly describes the First World worker. However, it does describe many in the Third World. Marx’s description should be uncontroversial. Those who rebel are those the system has failed. The social peace in the First World is a product of the high standard of living there. It is no great mystery why the past century witnessed many revolutions in the Third World and, yet, there has never been one in the First World. Thus Mao’s question of first importance is answered.

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Revisionism is very powerful. Neither the Soviet Union nor China were conquered militarily. Capitalism was restored to both. It was the enemy within that reversed socialism and restored capitalism. Sugar coated bullets proved the most dangerous, as Mao warned. Revisionism has been criticized by every great leader since Marx. Lenin criticized the revisionists of the Second International for their narrow, chauvinist outlook. The revisionists of the Second International voted for imperialist war when it worked to the benefit of the working class of their individual countries. French social democrats voted for French imperialism. German social democrats voted for German imperialism. Lenin, by contrast, took the outlook of the global proletariat. Lenin advocated for the defeat of his own country and for an end to imperialist war. The First Worldist so-called socialists deserve to be labeled as social imperialists and social fascists just as Lenin labeled the revisionists of his day. Just as the revisionists advocated imperialism in the name of socialism, so to do First Worldists today. First Worldism seeks to increase the wealth of those who already receive more than their fair share at the expense of the proletariat in the Third World. By contrast, the Leading Light Communist movement advocates on behalf of the vast majority, the exploited and truly oppressed. Leading Light Communism explains our world as it really is. Our banner is at the head of the global people’s war. The Leading Light shines the way forward.

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14

PRIVATE TO PUBLIC BANKS: A SHORT HISTORY OF WAR

AND RELIGION

To really understand why we moved from privately owned banks to public central banks; we have to understand how banks came into existence along with the practice of lending. Its roots are surprisingly religious in nature. We have the Catholic Church to thank for the basis for our modern banking system. So let us begin a short history lesson.

Money lending wasn't originally used to finance production. In a way, quite the opposite. Loans were made against existing values. The borrowers were merchants and states. Loans were made to people who had collateral to put up. A mortgage is a good example. You're borrowing with the value of your house if you default on the loan. Banks are hesitant to loan with the promise of future value yet to be created as a means of payment.

During the early years of loaning, there were no national banks. There were privately owned banking cartels: Italian families in feudal Europe, Dutch, and other foreign investors centuries later. The biggest customers were states. They were mainly borrowing

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money to finance public deficits, primarily war spending. War itself required money lenders. These loans were profitable for the bankers because states levied taxes to pay them. Meaning, they were good customers that could always pay. Ultimately, these loans weren't productive because they weren't generating value. They didn't build up the country's productive powers, which would generate an ability to pay. War loans almost always come with a heavy burden because they destroyed property and value, not generate it. There were only incidental value creation via military armaments.

Eventually, people caught on that owing massive debt to a foreign cartel was dangerous and unnecessary. If states created their own banks, they could dictate much better terms; especially interest rates. The central bank was created to avoid international bankers.

The history of monetary systems cannot be detached from religion and war. Wars have caused debt from peasants all the way up to Europe's feudal monarchs. These war debts required the creation of more and more taxes to service them. This has been a huge part of our post-war deflation.

So, where did the monetary system originate? Our monetary system has its beginnings in money metals paid as tribute to the Church. The temples served as vaults on the civic level to store the money. They also had the authority to oversee the weights and measures in which payments were made. History shows this happening as far back as Mesopotamian times. However, those leaders chose to abolish debt overhead at opportune moments.

Banking over long distances has its roots in the Crusades. As knights conquered places, they needed a means of transferring the looted valuables from one place to another. The Templars and Hospitallers developed routes along the Crusade path to move this money. Over the long term, routes following a chain of shrines were developed. These shrines could loan money to people taking pilgrimages from one shrine to the next. Once they returned home, they were expected to pay the debt. Notices of money owned were

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written down and passed along theses routes to the Church authority near their homes.

This enabled Templars to be able to receive payments from the local branches. It was even possible to receive it in a local currency. An equivalent amount could be given out with an agio fee for money-changing, and transfer.

Often there were donations of land to these institutions. The donor usually received a rental value for the land as long as they lived. Significant here, is the phenomenon that was created. This ability to transfer land is what, in time, became the basis for the seizure of land by creditors.

Banking continued to grow from there.

As secular demands were placed on loans, private families (closely associated with the Church) took on those tasks. They provided credit to traders and to rulers; which usually consisted of war loans. Mercantile credit was used to ship goods from one place to another. These were paid for by export sales and orders.

Over time it took on a very commercial nature. It facilitated trade between countries. England would send an amount of money owing in wool to Rome. Bankers would take the wool and send it off to various weaving centers to be transformed into finished textiles.

Kings and other rulers were the best customers for loans because they had an extraordinary ability to pay off debt by levying taxes. Britain and France were the largest customers who financed almost unending wars. As a result, they had to constantly levy new taxes to pay the interest costs of each new loan. Warships, cannons, and mercenaries were very capital intensive.

War eventually takes its toll. As trade routes were ruined by constant war, the ability to pay interest diminished for states. A long period of lending eventually came to an end when England and France could no longer tax their publics. This occurred around the

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late 17th century. It was Edward III's French campaign, the Nine Years' War, that encountered the problem.

England found a way to create a supplementary revenue to pay these loans: they created monopolies in Crown Corporations, and then sold them to private buyers. In 1600, England sold the East India Company, a trading monopoly. Afterward, several other monopolies were sold as well. The earnings from trade companies were squeezed as the market took hold and drastically increased prices for British consumers.

It took a while to solve the problem. Eventually a liberal reform took place that sought to raise new credit without creating heavy taxes, or increasing consumer prices. The solution was to found the first central bank in 1694: The Bank of England.

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15

ORIGINS OF THE JEWISH BANKING CONSPIRACY

THEORY

Prior to WW1 there were competing ideas about how credit should be used. Germany was of the opinion that credit should be steered towards industrial development. The government regulated credit towards tangible value creation. In the rest of Europe, particularly England and France, credit was used for mercantilism and government loans. Upon default, the banks could seize the goods as collateral from merchants. In industry, the collateral was a promised value yet to be created. Germany, however, saw it as imperative to industrialize.

Germany had reached a height in industrial baking at the time. The Reichsbanks and the largest private banks had built up a relationship the government and heavy industry. Usually they were linked by cross-holdings of stocks of major customers. Their creation of credit allowed them to play a major role in determining the long-term strategic development of industry. The debate became about how best government could use finance to promote industry.

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Germany was blazing a new trail in banking. They were advocating carrying out a mix of different financial policies with the intention of creating a sustainable and expandable economy. A great deal of the funds of German banks didn't come from deposits. Instead, it came from capital subscribed by the proprietors themselves. This allowed them to avoid a lot of the excesses that appeared in American finance. Germany created stocks and bonds at the actual cash value of the property owned by the corporation being financed.

In the US, corporations issued bonds and borrowings well beyond what they actually needed to carry out business. The "overfunded money" was taken by the directors of the companies themselves for personal use. Such behavior caused Americans to avoid banks and finance. To Marx, this was a problem systemic to capitalism itself, not some aberrant behavior that some unethical people carried out.

"Those who say that there is merely a lack of means of payment, have either the owners of bona fide securities alone in view, or they are fools who believed that it is the duty and power of banks to transform all bankrupt swindlers into solvent and solid capitalists by means of pieces of paper."137

By contrast, German banking avoided this. Credit Anstalt Für Handel und Gewerbe in Austria had followed a similar line of financing industry. Meanwhile, in France, economic policy was radically altered after the Franco-Prussian War (1871). There was an anti-Semitic reaction to the Jewish banking families that had made up most of France's finance. France's failure to win the war was blamed on Jewish bankers. When this policy change was made by royalist leaders in 1878, they founded the Union Generale with the stated goal of "Christianizing" banking.

Classical historian George Edwards noted:

"The Bank organized a group of business enterprises, and used the simple financial device of applying its funds to purchase its own stock and that of its

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controlled companies. The consequent rise in the price of these securities then enabled the Bank to increase the capitalization of its companies, and the new funds were again used to purchase the outstanding securities."138

Policy opinions became catalyzed during the First World War in 1914. Germany scored a series of decisive victories over Belgium and France. In the eyes of many this seemed to reflect the superior financial system of Germany. Lenin noted the huge role that financial capital played in imperialism. The war was a struggle between which financial and economic system was to become the dominant one in Europe. A struggle was taking place between laissez faire or a more state directed economic system. Right before the war broke out, German Christian-socialist priest-politician Friedrich Naumann described this divide in banking policy for Europe. It was acknowledged that the individualistic capitalism (the so-called English-type) was disappearing in favor of more state directed economy, which was disciplined (the so-called German-type). English Professor F.H. Foxwell agreed with Naumann and claimed that:

"Into everything today there enters less of the lucky spirit of discovery than patient, educated industry. To put it otherwise, we believe in combined work."139

A good deal of Germany's strength resided in its connections between industry, finance, and government policy. Political connections were of the utmost importance. Banks kept on hand industrial experts who helped in the shaping of Germany's economy. This allowed bankers and government planners to become the creators of a new industrial philosophy of how government should steer credit markets. It should also be noted that in the United States, the same was being advocated by Thorstein Veblen in his work, The Engineers and the Price System.140 But, it seemed no one was interested in listening to him.

Both finance and industry saw their growing futures under the protection and support of the state. It was seen as superior that the

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government should work with capital to carry out war and promote commercial expansion. Today, we call this imperialism. Thus, it could only be seen as natural that the job of the national banking system was to promote this cooperation. Economic history was moving in the direction of political centralization, national planning and the large-scale financing of heavy industry.

On the other side of Europe, English merchant-based bankers were not keen on this idea. They saw that lending should be done on a mercantile basis. Loans should be determined by what could be seized in the event that the loan could not be paid. To them, it was nonsense to loan money for something which may or may not exist in the future to pay the debt. This was a clear shortsightedness, they were interested in immediate returns, not the possibility of great wealth expansion in the future from a larger gamble. Instead, they preferred an ability to seize inventories of unsold goods, money due on bills for goods sold to customers but not yet paid, and real estate. This attitude prevented there from being any kind of long-term planning of the economy.

British banks much preferred paying out earnings in dividends as opposed to investing in shares of companies that their loans were constructing. This mindset forced people who borrowed to remain in a high state of liquidity, defeating any ability to plan long- term strategies. Foxwell stated that English manufacturing of steel, automotives, capital equipment and other heavy industry was going to become obsolescent because bankers were not providing the investment credit necessary to promote industrial expansion.

German banks functioned quite differently. They paid out only half of the dividends that were due. The other half was kept as capital reserves, using them to invest in the stocks of their industrial clients. German banks saw them as allies as opposed to merely being customers, which existed to leach profits out of as largely and quickly as possible. The German bank officials sat on the board while giving loans to foreign governments. They did so with the condition that these customers be named the chief suppliers on major public investments.

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This superior German economic stance seemed to be a guarantee that they were going to win the First World War over the mercantile-type money lenders. It was seen that it was inevitable that state directed credit control was going to build Germany into an impressive empire that all could be proud of. As history shows, it took a great deal of cooperation of countries with the mercantile-credit-style economies to defeat them. This loss in WW1 was perceived to have been a plot by Jews to preserve their banking practices in the face of German "Christian" successes. In truth, it was a struggle between competing national capitals who saw themselves as the rightful leaders of the economic and political world. One side just happened to be dominated by Jewish families, the other Christian state investors.

After the First World War, Germany was forced to pay reparations to the countries it had been fighting. Of course, it didn't actually have that money to pay out, considering they were already in debt due to the war. It had to take out new loans to pay them, increasing the amount of debt overhead the society was already carrying. These loans were taken from the "English-type" banks, which the population already saw as "Jewish banks." Industry had already been destroyed as a result of the war. The debts, both war and reparation, siphoned off the revenue that was needed to begin the economy again - undermining their ability to pay the debts, keeping them in a state of economic chaos and poverty.

This was perceived as a "Jewish plot" which Adolf Hitler rode all the way into power. In truth, it was the parasitism of finance, not something "the Jews" did. I'm sure Nazis really did see it as a conspiracy. The fusion of repressive capitalist banking practices and already rampant anti-Semitism manifested themselves into a political movement that was powerful enough to confront the German government and the rising influence of communist resistance in the country. After all, blaming "the Jews" and espousing patriotism is much easier than learning the global financial system. It's a great deal more useful to political powers as well.

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Two economic policies were clashing to see who would take the future. As it so happens, the state directed economies won out in the end, opposite to what happened in Germany. This explains many of the economic positions of Nazis and other White Nationalists as well. They have a tendency towards a strong government to protect the nation and the economy. This is also why we see a lot of them advocating a strong state hand in the economy. The idea of state control is why they think they can call themselves National Socialists. Because, they're conflating the term socialist with government planning and control in the same manner as libertarians and anarcho-capitalists do. And, I think it's why we see Nazbols who think they can fuse Nazism and socialism. Because, they're making the same error.

The great irony here is that Marx advocated a state hand in directing the economy, particularly with regards to the promotion of industrialization. His stance is the opposite of what the Jewish banking families advocated. The claim that Marx was part of a conspiracy by the "Jewish banks" doesn't even make sense.

It all was just a contradiction of capitalism.

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Glossary

Abenomics Nickname for the multi-pronged economic program of Japanese prime minister Shinzō Abe. Abenomics seeks to remedy two decades of stagnation by increasing the nation’s money supply, boosting government spending and enacting reforms to make the economy more competitive. (Investopedia)

Basket of goods A relatively fixed set of consumer products and services valued and used on an annual basis to track inflation in a specific market or country. The goods in the basket are often adjusted periodically to account for changes in consumer habits The basket of goods is used primarily to calculate the Consumer Price Index (CPI). (Investopedia)

Beggar-Thy-Neighbor

Beggar-thy-neighbor is an international trading policy that utilizes currency devaluations and protective barriers to alleviate a nation's economic difficulties at the expense of other countries. While the policy may help repair an economic hardship in the nation, it will harm the country's trading partners, worsening its economic status. (Investopedia)

Cash For Clunkers Cash For Clunker was a U.S. government program that provided financial incentives to car owners to trade in their old, less fuel-efficient vehicles and buy more fuel-efficient vehicles. The formal name for the program was the Car Allowance Rebate System (CARS). The CARS program gave people who qualified a credit of up to $4,500, depending on the vehicle purchased. (Investopedia)

Capital Account A capital account shows the net change in physical or financial asset ownership for a nation and, together with the current account, constitutes a nation's balance of payments. The capital account includes foreign direct investment (FDI), portfolio and other investments, plus changes in the reserve account. A capital account may also refer to an account showing the net worth of a business at a specific point in time. (Investopedia)

Capital Market Capital markets are markets for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals. Capital markets are vital to the functioning of an economy, since capital is a critical component for generating economic output. Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing

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securities.(Investopedia)

Central bank A central bank, reserve bank, or monetary authority is an institution that manages a state's currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state's legal tender. (Wikipedia)

Competitive devaluation

A series of sudden currency depreciations that nations may resort to in tit-for-tat moves to gain an edge in international export markets. Competitive devaluation refers to a scenario in which an abrupt national currency devaluation by one nation is matched by a currency devaluation of another, especially if they both have managed exchange-rate regimes rather than floating exchange rates determined by market forces. Competitive devaluation is considered a “beggar-thy-neighbor” type of economic policy, since it amounts to a nation trying to gain an economic advantage without consideration for the ill-effects it may have on other countries. (Investopedia)

Constant capital Constant capital is the value of goods and materials required to produce a commodity, while variable capital is the wages paid for the production of a commodity. Marx introduced this distinction because it is only labour-power which creates new value. (MIA)

Consumer Price Index

The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indices and sub-sub-indices are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index. It is one of several price indices calculated by most national statistical agencies. The annual percentage change in a CPI is used as a measure of inflation. A CPI can be used to index (i.e., adjust for the effect of inflation) the real value of wages, salaries, pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values. In most countries, the CPI is, along with the population census one of the most closely watched national economic statistics. (Wikipedia)

Core inflation Core inflation reflects the long-term trend in a particular price level. It is a measure of inflation that excludes certain items that face volatile price movements because in finding out the legitimate long run inflation, short-term price volatility and transitory changes in price must be removed. Core inflation is most often calculated using the

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consumer price index (CPI), which eliminates products — usually those in the energy and food sectors — that can have temporary price shocks because these shocks can diverge from the overall trend of inflation and give a false measure of inflation. (Investopedia)

Cost-push inflation Cost-push inflation is a phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials. Cost-push inflation develops because the higher costs of production factors decreases in aggregate supply (the amount of total production) in the economy. Because there are fewer goods being produced (supply weakens) and demand for these goods remains consistent, the prices of finished goods increase (inflation). (Investopedia)

Credit Credit is a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some date in the future, generally with interest. The term also refers to the borrowing capacity of an individual or company. (Investopedia)

Creditor A creditor is an entity (person or institution) that extends credit by giving another entity permission to borrow money if it is paid back at a later date. Real creditors (i.e. a bank or finance company) have legal contracts with the borrower granting the lender the right to claim any of the debtor's real assets (e.g. real estate or car) if he or she fails to pay back the loan. (Investopedia)

Current Account The current account is an important indicator about an economy's health. It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers. (Investopedia)

Debt deflation A situation in which the collateral used to secure a loan (or another form of debt) decreases in value. This can be detrimental because it may lead to a restructuring of the loan agreement or the loan itself. Also known as "worst deflation" and "collateral deflation". (Investopedia)

Debt service Debt service is the cash that is required for a particular time period to cover the repayment of interest and principal on a debt. Debt service is often calculated on a yearly basis. Debt service for an individual often includes such financial obligations as a mortgage and student loans. Companies may have outstanding loans or outstanding interest on bonds or the principal of maturing bonds that count towards the company's debt service. An individual or company that is not able to make payments to service the debt can be said to be "unable to service (his/her/its) debt." (Investopedia)

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Demand-pull inflation

Demand-pull inflation results from strong consumer demand. Many individuals purchasing the same good will cause the price to increase, and when such an event happens to a whole economy for all types of goods, it is called demand-pull inflation. (Investopedia)

Department1 commodities

Department I is the production of the means of production, i.e., capital invested in producing materials, machinery, software, services, etc., to be consumed by other capitalists for the purposes of production, “constant capital”. (MIA)

Department 2 commodities

Department II is the production of the means of living, basic consumer goods for the workers (chiefly) to live and work, “variable capital”, as well as luxury items which capitalists (mainly) buy with the proceeds of exploitation. (MIA)

Federal Open Market Committee

The Federal Open Market Committee (FOMC), a committee within the Federal Reserve System (the Fed), is charged under the United States law with overseeing the nation's open market operations (i.e., the Fed's buying and selling of United States Treasury securities). This Federal Reserve committee makes key decisions about interest rates and the growth of the United States money supply. (Wikipedia)

Fictitious Capital Fictitious Capital is value, in the form of credit, shares, debt, speculation and various forms of paper money, above and beyond what can be realised in the form of commodities. [...]Fictitious capital is that proportion of capital which cannot be simultaneously converted into existing use-values. It is an invention which is absolutely necessary for the growth of real capital, it constitutes the symbol of confidence in the future. It is a necessary but costly fiction, and sooner or later it crashes to earth. (MIA)

Fixed exchange rate A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen or a basket of currencies). In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged. (Investopedia)

Floating exchange rates

Unlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed "self-correcting," as any differences in supply and demand will automatically be corrected in the market. Look at this simplified model: if demand for a currency is low, its value will decrease,

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thus making imported goods more expensive and stimulating demand for local goods and services. This in turn will generate more jobs, causing an auto-correction in the market. A floating exchange rate is constantly changing. (Investopedia)

Fractional Reserve Banking

Fractional reserve banking is a banking system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties. Many U.S. banks were forced to shut down during the Great Depression because too many people attempted to withdraw assets at the same time. (Investopedia)

Great Recession The sharp decline in economic activity during the late 2000s, which is generally considered the largest downturn since the Great Depression. The term “Great Recession” applies to both the U.S. recession – officially lasting from December 2007 to June 2009 – and the ensuing global recession in 2009. The economic slump began when the U.S. housing market went from boom to bust and large amounts of mortgage-backed securities and derivatives lost significant value. (Investopedia)

Historical materialism

This concept is founded on Dialectical Materialism applied to history. Another name for the "materialist conception of history" formulated by Marx and Engels, 'Historical Materialism' was coined by Engels, and later popularised by Kautsky and Plekhanov. (MIA)

Hyperinflation Hyperinflation is extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless. (Investopedia)

Inflation Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly. (Investopedia)

Insolvency Insolvency is when an organization, or individual, can no longer meet its financial obligations with its lender or lenders as debts become due. (Investopedia)

Interest rate Interest rate is the amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). The assets borrowed could include, cash, consumer goods, large assets, such as a vehicle or building. Interest is

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essentially a rental, or leasing charge to the borrower, for the asset's use. In the case of a large asset, like a vehicle or building, the interest rate is sometimes known as the "lease rate". When the borrower is a low-risk party, they will usually be charged a low interest rate; if the borrower is considered high risk, the interest rate that they are charged will be higher. (Investopedia)

Liquidity trap The liquidity trap is the situation in which prevailing interest rates are low and savings rates are high, making monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and keep their funds in savings, because of the prevailing belief that interest rates will soon rise. Because bonds have an inverse relationship to interest rates, many consumers do not want to hold an asset with a price that is expected to decline. (Investopedia)

Mode of production The method of producing the necessities of life (whether for health, food, housing or needs such as education, science, nurturing, etc.). (MIA)

Mortgage backed security

A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that securitizes, or packages, the loans together into a security that investors can buy. The mortgages of an MBS may be residential or commercial, depending on whether it is an Agency MBS or a Non-Agency MBS; in the United States they may be issued by structures set up by government-sponsored enterprises like Fannie Mae or Freddie Mac, or they can be "private-label", issued by structures set up by investment banks. The structure of the MBS may be known as "pass-through", where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs. Other types of MBS include collateralized mortgage obligations (CMOs, often structured as real estate mortgage investment conduits) and collateralized debt obligations (CDOs). (Wikipedia)

National Endowment for Democracy

The National Endowment for Democracy (NED) is a U.S. non-profit soft power organization that was founded in 1983 with the stated goal of promoting democracy abroad.[1] It is funded primarily through an annual allocation from the U.S. Congress in the form of a grant awarded through the United States Information Agency (USIA). It was created by The Democracy Program as a bipartisan, private, non-profit corporation, and in turn acts as a grant-making foundation.[1] In addition to its grants program, NED also supports and houses the Journal of Democracy, the World Movement for Democracy, the International Forum for Democratic Studies, the Reagan–

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Fascell Fellowship Program, the Network of Democracy Research Institutes, and the Center for International Media Assistance. (Wikipedia)

Negative Interest Rate Policy

A negative interest rate policy (NIRP) is an unconventional monetary policy tool whereby nominal target interest rates are set with a negative value, below the theoretical lower bound of zero percent. (Investopedia)

North American Free Trade Agreement

NAFTA is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada–United States Free Trade Agreement between the U.S. and Canada. The goal of NAFTA was to eliminate barriers to trade and investment between the U.S., Canada and Mexico. The implementation of NAFTA on January 1, 1994 brought the immediate elimination of tariffs on more than one-half of Mexico's exports to the U.S. and more than one-third of U.S. exports to Mexico. Within 10 years of the implementation of the agreement, all U.S.-Mexico tariffs would be eliminated except for some U.S. agricultural exports to Mexico that were to be phased out within 15 years. Most U.S.-Canada trade was already duty-free. NAFTA also sought to eliminate non-tariff trade barriers and to protect the intellectual property rights on traded products. (Wikipedia)

Non-Governmental Organizations

A non-governmental organization (NGO) is a not-for-profit organization that is independent from states and international governmental organisations. They are usually funded by donations but some avoid formal funding altogether and are run primarily by volunteers. NGOs are highly diverse groups of organizations engaged in a wide range of activities, and take different forms in different parts of the world. Some may have charitable status, while others may be registered for tax exemption based on recognition of social purposes. Others may be fronts for political, religious, or other interests. (Wikipedia)

Overhead an accounting term that refers to all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. Overhead must be paid for on an ongoing basis, regardless of whether a company is doing a high or low volume of business. It is important not just for budgeting purposes, but for determining how much a company must charge for its products or services to make a profit. (Investopedia)

Principal Principal is most commonly used to refer to the amount borrowed or the amount still owed on a loan, separate from interest. If you take out a $50,000 loan, for example,

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the principal is $50,000, so if you pay off $30,000, the remaining $20,000 left to repay is also called the principal. (Investopedia)

Productive forces The productive forces are the unity of means of production and labour: 1. All labour (individual, union) 2. Instruments of production (buildings, machines) 3. Subjects of production (raw materials, labor) (MIA)

Purchasing power Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you would be able to purchase. (Investopedia)

Quantitative Easing Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Quantitative easing is considered when short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes. (Investopedia)

Scarcity Scarcity refers to the basic economic problem, the gap between limited – that is, scarce – resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants at possible. Any resource that has a non-zero cost to consume is scarce to some degree, but what matters in practice is relative scarcity. (Investopedia)

Simple interest Simple interest is a quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the daily interest rate by the principal by the number of days that elapse between payments. (Investopedia)

Stagflation A condition of slow economic growth and relatively high unemployment – economic stagnation – accompanied by rising prices, or inflation, or inflation and a decline in Gross Domestic Product (GDP). Stagflation is an economic problem defined in equal parts by it’s rarity and by the lack of consensus among academics on how exactly it comes to pass. (Investopedia)

Surplus value Surplus-value is the social product which is over and above what is required for the producers to live. The measure of value is labour time, so surplus value is the

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accumulated product of the unpaid labour time of the producers. In bourgeois society, surplus value is acquired by the capitalist in the form of profit: the capitalist owns the means of production as Private Property, so the workers have no choice but to sell their labour-power to the capitalists in order to live. The capitalist then owns not only the means of production, and the workers’ labour-power which he has bought to use in production, but the product as well. After paying wages, the capitalist then becomes the owner of the surplus value, over and above the value of the workers’ labour-power. (MIA)

Supply and demand Supply and demand is the theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be. (Investopedia)

Troubled Asset Relief Program (TARP)

A group of programs created and run by the U.S. Treasury to stabilize the country’s financial system, restore economic growth and prevent foreclosures in the wake of the 2008 financial crisis through purchasing troubled companies’ assets and equity. The Troubled Asset Relief Program initially gave the Treasury purchasing power of $700 billion to buy illiquid mortgage-backed securities and other assets from key institutions in an attempt to restore liquidity to the money markets. The fund was created on October 3, 2008 with the passage of the Emergency Economic Stabilization Act. The Dodd-Frank Act later reduced the $700 billion authorization to $475 billion. (Investopedia)

Variable capital Variable capital means that proportion of capital which is invested in wages, in the purchase of labour-power. Marx called this capital “variable” because it is this proportion of capital which, if it is used wisely may produce a new, surplus value in the course of the labour process, over and above the “necessary labour time” which the worker needs to live and is paid in the form of wages. This investment is the only one which creates new value, because the worker is able to produce more than he needs in order to live.(MIA)

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END NOTES

2. Marx's Optimistic and Incorrect View of Industrial Finance Capitalism

1 Marx, Karl. Capital: A Critique of Political Economy Vol. 3. 1867 2 Ibid. 3 Ibid. 4 Ibid. 5 Ibid. 6 Ibid. 7 Ibid. 8 Ibid. 9 Ibid. 10 Ibid. 11 Bailout Recipients. Pro Publica. Retrieved July 18, 2016. http://projects.propublica.org/bailout/list

3. The Financial Cycle and Credit 12 Capital Vol. III Part IV, Chapter 18. The Turnover of Merchant's Capital. Prices. 13 Capital Vol. III Part V, Chapter 28. Medium of Circulation and Capital; Views of Tooke and Fullarton 14 Capital Vol. III Part V, Chapter 30. Money-Capital and Real Capital. 15 Capital Volume II, Chapter 16: The Turnover of Variable Capital 16 Capital Vol. III Part V, Chapter 35. Precious Metal and Rate of Exchange 17 Capital Vol. I, Chapter Three: Money, Or the Circulation of Commodities 18 Critique of Political Economy, b. Means of Payment 19 Capital Vol. III Part V, Chapter 33. The Medium of Circulation in the Credit System 20 Capital Volume II, Chapter 16: The Turnover of Variable Capital

4. Problems of Credit 21 Marx, Karl. Capital: A Critique of Political Economy, Vol. III. Externalization of the Relations of Capital in the Form of Interest-Bearing Capital. 1867 22 Sanchez, Juan. Jiang, Helu. Households Less Likely to Say Using Credit Is OK. St. Louis Federal Reserve Bank, Monday, June 27, 2016 https://www.stlouisfed.org/on-the-economy/2016/june/households-less-likely-using-credit? 23 Marx, Karl. Capital: A Critique of Political Economy, Vol. III. The Process of Capitalist Production as a Whole. 1867 24 Marx, Karl. Capital: A Critique of Political Economy Vol. 3. 1867 25 Marx, Karl. Theories of Surplus Value. 1863 26 From Buffett to Budweiser: What’s Driving Merger Mania. The Fiscal Times. February 15, 2013 http://www.thefiscaltimes.com/Columns/2013/02/15/From-Buffett-to-Budweiser-3-Reasons-Merger-Mania-Is-Back

5. Inflation

27 Definitions come from Wikipedia for ease of reading.

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28 Definitions come from Investopedia for ease of reading. 29 Harvey, J. (May 14, 2011). "Money Growth Does Not Cause Inflation!". Forbes. Retrieved July 15th, 2016 30 Ibid. 31 Ibid. 32 Ibid. 33 Statement on Longer-Run Goals and Monetary Policy Strategy. Adopted effective January 24, 2012; as amended effective January 26, 2016 34 Grossman, Peter Z. and Horváth, János, "The Dynamics of the Hungarian Hyperinflation, 1945-6: A New Perspective" (2000). Scholarship and Professional Work - Business. Paper 29. 35 Ibid. 36 Parker, Randall E., and Robert Whaples. Routledge Handbook of Major Events in Economic History. N.p.: Routledge, 2013. Print. 37 Ibid. 38 Petrovic, Pavle and Bogetic, Zeljko and Mladenovic, Zorica L., The Yugoslav Hyperinflation of 1992-1994: Causes, Dynamics, and Money Supply Process (December 23, 1998). Journal of Comparative Economics, Vol. 27, p. 335, 1999. 39 Ibid. 40 Ibid. 41 Steve H. Hanke. Yugoslavia Destroyed Its Own Economy. The Wall Street Journal. April 28, 1999. 42 Fergusson, Adam. When Money Dies: The Nightmare of the Weimar Collapse. London: Kimber, 1975. Print. 43 Evans, Richard J. (2003). The Coming of the Third Reich. Penguin Press. ISBN 978-0141009759. 44 Ibid. 45 Board of Governors of the Federal Reserve System (1943). Banking and Monetary Statistics 1914-1941 (PDF). Washington, DC. p. 671. 46 Fergusson, page 38. 47 Board of Governors of the Federal Reserve System (1943). Banking and Monetary Statistics 1914-1941 (PDF). Washington, DC. p. 671. 48 Civilization in the West, Seventh Edition, Kishlansky, Geary, and O'Brien, New York, page 807. 49 Coffin, Judith G. Western Civilizations: Their History & Their Culture. New York: W.W. Norton, 2011. Print.

6. Quantitative Easing 50 Krugman, P. (February 5th, 2015) Quantitative Easing and Monetary Aggregates. The New York Times. Retrieved July 6th, 2016 51 Wikipedia. Quantitative easing. US QE1, QE2, and QE3. Retrieved July 6th, 2016 52 Zumbrun, Joshua (13 September 2012). "Fed Undertakes QE3 With $40 Billion MBS Purchases Per Month". Bloomberg News. Retrieved 13 September 2012. 53 "Federal Reserve issues FOMC statement". Federal Reserve Board. 12 January 2012. Retrieved 1 January 2013. 54 Jensen, Greg (19 September 2012). "QE3 Launched: The Ever Decreasing Effects of Monetary Stimulus". NASDAQ. Retrieved 19 September 2012. 55 Haver, J. (Friday, September 14, 2012). "QE-Infinity: Poking Holes in Bernanke's Logic". Pretzel Logic's Market Charts and Analysis. Retrieved July 6th, 2016 56 Board of Governors of the Federal Reserve System. (December 12, 2012). Press Release. Retrieved July 6th, 2016

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57 Board of Governors of the Federal Reserve System, (November 25, 2008). Press Release. Retrieved July 13th, 2016 58 Ali, Abdulmalik. "Quantitative Monetary Easing: The history and impacts on financial markets". academia.edu. Retrieved 14 February 2015. 59 Censky, Annalyn (3 November 2010). "QE2: Fed pulls the trigger". CNNmoney.com. Retrieved July 13th, 2016 60 Board of Governors of the Federal Reserve System, (October 24, 2012). Press Release. Retrieved July 13th, 2016 61 Board of Governors of the Federal Reserve System, (December 12, 2012). Press Release. Retrieved July 13th, 2016 62 Appelbaum, Binyamin (29 October 2014). "Federal Reserve Caps Its Bond Purchases; Focus Turns to Interest Rates". The New York Times. 63 Wolfers, Justin (29 October 2014). "The Fed Has Not Stopped Trying to Stimulate the Economy". The New York Times. 64 Peter Schiff, Glenn Beck Program - December 28th, 2009 https://www.youtube.com/watch?v=bwBzNkoeXlc 65 Investopedia, Why Didn't Quantitative Easing Lead To Hyperinflation? http://www.investopedia.com/articles/investing/022615/why-didnt-quantitative-easing-lead-hyperinflation.asp 66 Unconventional Choices for Unconventional Times: Credit and Quantitative Easing in Advanced Economies; by Vladimir Klyuev, Phil de Imus, and Krishna Srinivasan; IMF Staff Position Note SPN/09/27; 4 November 2009. 67 Dan McCrum and Elaine Moore (April 24th, 2016) US stock market set for second-longest bull run: S&P 500 to surpass postwar boom with length of sustained share price rally. Financial Times. Retrieved July 13th, 2016 68 Board of Governors of the Federal Reserve System, (October 11, 2012). Press Release. Retrieved July 13th, 2016 69 Hayes, A. (March 7, 2016). " Quantitative Easing is Now a Fixture, Not a Temporary Patch ". Investopedia. Retrieved July 13th, 2016

7. Crisis Theory

70 Frederick Engels, Anti-Dühring, Part III: Socialism, II. Theoretical 71 Karl Marx, Capital, Vol. III, Chapter III. Excess Capital And Excess Population 72 Tim Hortons workers in disputed federal program file human-rights complaint, Globe and Mail, November 9th, 2012 73 Chinese mining firm in B.C. facing another legal challenge over foreign workers, CTV News, December 19th, 2013 74 It should be noted that Marx was not the only economist to notice that profit tended to decline. Adam Smith, David Ricardo, and John Maynard Keynes did as well.

8. The Great Recession

75 As measured by the Case-Shiller Home Price Index. 76 Results of the Immediate Process of Production”, Capital, vol. 1

9. Currency War

77 Picardo, E. (April 20 2015) What Is A Currency War And How Does It Work? Investopedia. Web. July Accessed 25 2016

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10. Economic War in Venezuela 78 America's backyard is a concept often used in political science and international relations contexts to refer to the sphere of influence of the United States... The term "America's Backyard" started in reference to Central and South America. "America's Backyard" is about the United States' traditional area of dominance and major sphere of influence, which was Central and South America for a long time. (Wikipedia) 79 Golinger, E. (April 25 2014) "The Dirty Hand of the National Endowment for Democracy in Venezuela". Counter Punch. Web. Accessed July 24 2016 80 Ellis, E. (January 21 2011)"Arrests Made in Arson of Venezuelan Government Building, Opposition Involvement". Correo Del Orinoco International. Accessed July 24 2016. 81 "Continuation of Terrorist Plans from the US" Cuba Debate. October 7 2010 82 Person, T. (September 16 2010) "U.S. Government and CNN Openly Protect and Support Venezuelan Terrorist". Venezuelanalysis.com. Accessed July 24 2016 83 "Citibank Closing Venezuela's Accounts as Part of 'Blockade'" TeleSUR. N.p., July 12 2016. Web. 24 July 2016. 84 Ibid. 85 Gladstone, R. (2016, May 27). How Venezuela Fell Into Crisis, and What Could Happen Next. New York Times. Retrieved July 19, 2016, from http://www.nytimes.com/2016/05/28/world/americas/venezuela-crisis-what-next.html 86 Hidalgo, J.C. (2016, February 29.) Socialism Has Created a Humanitarian Disaster in Venezuela. Cato Institute. Retrieved July 19, 2016, from http://www.cato.org/publications/commentary/socialism-has-created-humanitarian-disaster-venezuela 87 Ibid. 88 Worstall, T. (2016, July 17.) Congratulations To Bolivarian Socialism - 35,000 Venezuelans Leave The Country To Feed Themselves. Forbes Online. 20 July 2016, from http://www.forbes.com/sites/timworstall/2016/07/17/congratulations-to-bolivarian-socialism-35000-venezuelans-leave-the-country-to-feed-themselves/ 89 "Dependence on Single Agricultural Commodity Exports in Developing Countries: Magnitude and Trends." Food and Agriculture Organization of the United Nations. Retrieved 11 Feb. 2002. Web. 20 July 2016. 90 "Rich Eating Well in Venezuela, Basque Executive Shows." TeleSUR. N.p., 31 May 2016. Web. 20 July 2016. 91 "President Maduro: Economic actions taken by the nation should have the human being as center". AVN/ Prensa-Embajada de la República Bolivariana de Venezuela. (21 January 2016) 92 Ibid. 93 "Venezuela’s currency: The not-so-strong bolívar". The Economist. 11 February 2013. Retrieved 18 February 2013. 94 Hidalgo, J.C. (2016, February 29.) 95 "GDP (current US$)" World Development Indicators. World Bank. Retrieved 21 July 2016. http://databank.worldbank.org/data/download/GDP.pdf 96 "Venezuela: Seized Factory Was Well Stocked but Wasn't Producing". WSJ-La Iguana. Telesur. 16 July 2016. Accessed July 22 2016 97 Ibid. 98 Telesur English. "Venezuela Opens Border Again but Many Return Empty Handed". Venezuela Analysis. (July 18 2016) 99 "Venezuela: Seized Factory Was Well Stocked but Wasn't Producing". WSJ-La Iguana. Telesur. 16 July 2016. Accessed July 22 2016

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100 FAO (2015) ‘Venezuela and FAO create SANA, a new cooperation programme to eliminate hunger.’ <http://www.fao.org/americas/noticias/ver/en/c/283757/ 101 Schiavoni C, Camacaro. W. (July 14 2016) Special Report: Hunger in Venezuela? A Look Beyond the Spin. Venezuela Analysis. Retrieved July 22, 2016, from http://venezuelanalysis.com/analysis/12084 102 100 días Agricultura Urbana en Venezuela apostando a un nuevo modelo productivo. MultimedioVTV. Published on YouTube on 7 Jun 2016. Accessed July 22 2016. https://www.youtube.com/watch?v=BFWfx9jutjs 103 Schiavoni C, Camacaro. W. (July 14 2016) 104 "Venezuela’s currency: The not-so-strong bolívar". The Economist. 11 February 2013. Retrieved 18 February 2013. 105 Schiavoni C, Camacaro. W. (July 14 2016) 106 "Venezuela's Maduro Commits Funds to Seized Factory". Telesur. Telesur. 22 July 2016. Web. 22 July 2016 107 Ibid. 108 World Economic Outlook Database. International Monetary Fund. October 2015 109 Hausmann, Ricardo, and Francisco Rodri guez. "Venezuela after a Century of Oil

Exploration." Venezuela before Cha vez: Anatomy of an Economic Collapse. N.p.: n.p., n.d. N. pag. Print.

13. Third Worldism 110 Marx, Eleanor “Marx’s Theory of Value,” in When Karl Marx Died ed. Foner, Philip S. International Publishers. USA: 1973 p. 230 111 ibid. p 235 112 Marx, Karl Capital Vol. 3 Chapter XVII 113 http://www.usatoday.com/money/industries/retail/2003-11-10-walmart_x.htm 114 Data extrapolated from BLS statistic from 2009 and 2010 http://www.bls.gov/cps/faq.htm#Ques8 and ftp://ftp.bls.gov/pub/suppl/empsit.cpseea21.txt 115 The method here is to add up all industries that can loosely be considered “direct production.” We do the same for other sectors. Also, 10% to 20% is subtracted in order to roughly account for those employed in the direct production sector, but who are not themselves direct producers, i.e management, etc. The numbers are from the employment charts at the Census Bureau. 116 Lin Biao Long Live the Victory of People’s War! http://www.marxists.org/reference/archive/lin-biao/1965/09/peoples_war/ch07.htm 117 Serve the People A Rough Estimate of the Value of Labor. http://llco.org/archives/459 *The minimum wage in the US is now $7.25 per hour. 118 Prairie Fire Real versus Fake Marxism on Socialist Distribution. 119 Prairie Fire Global Inequality or Socialist Equality. 120 http://www.prisoncensorship.info/archive/etext/mt/imp97/imp97b1.html 121 Lin Biao Long Live the Victory of People’s War! http://www.marxists.org/reference/archive/lin-biao/1965/09/peoples_war/ 122 Even the latter distribution principle, which draws its inspiration from John Rawl’s Second Principle of Justice in A Theory of Justice, is still going to be vastly more egalitarian than the current world distribution or anything that First Worldists would propose. 123 http://www.globalissues.org/article/26/poverty-facts-and-stats 124 The Average Joe Amerikan, Monkey Smashes Heaven, July 2009

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125 Amerikkkans rich, Indians poor, so-called “ICM” deaf and dumb, Monkey Smashes Heaven, August 2007 126 The Average Joe Amerikan, Monkey Smashes Heaven, July 2009 127 http://www.globalissues.org/article/26/poverty-facts-and-stats 128 http://globalrichlist.com 129 http://www.globalissues. 130 Lin Piao, Long Live the Victory of People’s War!, (Foreign Language Press,1965) http://www.marxists.org/reference/archive/lin-biao/1965/09/peoples_war/ch07.htm 131 Household Income for States: 2008-2009, (U.S. Census Bureau, 2010), p. 1 (50,221 dollars was median household for 2008-2009. Divide this by 2.59, the average number in a U.S. household to get roughly 19,400 dollars.) 132 The Average Joe Amerikkkan, (Leading Light Communist Organization, 2010) 133 http://wiki.answers.com/Q /How_do_you_calculate_work_hours_for_a_year (multiply hours per year by 7.25 dollars.. either way, the figure is roughly 15,000) 134 Per Capita Income around the world, http://www.successand-culture.net/articles/percapitaincome.shtml 135 Average Earnings Worldwide, Boston Globe, October 7, 2007. http://www.boston.com/news/world/articles/2007/10/07/average_earnings_worldwide/ also http://www.wisegeek.com/what-is-the-median-income-worldwide.htm (These sources use another method that would reduce First World entitlement even more) 136 Prairie Fire, Real versus fake Marxism on socialist distribution

15. Origins of the Jewish Banking Conspiracy Theory 137 Marx, Karl. Capital: A Critique of Political Economy Vol. 3. 1867 138 Edwards, George W. The Evolution of Finance Capitalism. 1938 139 Economic Journal 27 (September and December 1917), pp. 514 140 Veblen, Thorstein. The Engineers and the Price System. 1921. Publisher: B. W. Huebsch