[OPE-L:3874] Re: Causes of inflation

Gerald Lev (glevy@pratt.edu)
Mon, 23 Dec 1996 07:59:30 -0800 (PST)

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Alejandro R wrote in [OPE-L:3873]:

> 2. I am leaving Bolivia for a month. I will be in
> Argentina, mainly in a small town called Parana.
> Unfortunately, I think I will not have means to follow
> OPE-L discussions from there.

We'll miss you. You've played an important role in stimulating discussion
in the last few months. I'll answer your post now, though, in the hope
that others will continue this thread.

> 3. A brief comment on 2 points of Jerry's OPE-L [3866]:
> 1. In a simple closed economy where there is a commodity
> money system, what are the causes of inflation?
> * I think the cause of inflation would be the reduction in
> the labor-time needed to produce commodity-money. This is
> the kind of situation Marx presents in Value, Price and
> Profit (Int. Publ.), p 52 which I cited in OPE-L 3801. In
> this case "inflation" provokes an increase in the rate of
> exploitation.

In general terms, the above basically conforms to the second instance that
Marx wrote of in the following excerpt from VI, Ch. 3:

"A general rise in the prices of commodities can result either from a rise
in their values, which happens when the value of money remains constant,
or from a fall in the value of money, which happens when the value of
commodities remain constant" (Penguin ed., p. 193).


a) note that Marx clearly indicates above that a general rise in prices
can result from *either* a rise in the value of commodities *or* a fall in
the value of money.

b) if there is a reduction in the *socially-necessary* labor time required
to produce the money-commodity (assumed to be gold, for simplicity), this
would most likely result from increasing technical change and the
production of relative surplus value in the gold-mining branch of
production (although, an increase in the intensity of work in the
gold-mining branch would have the same effect). This roughly corresponds to
*one* of the causes of inflation identified by Otto Bauer in his 1910 book
_Die Teuerung: Eine Einfuhrung in die Wirtschaftspolitik der
Sozialdemokratie_ ("Inflation: An Introduction to the Economic Policies of
Social Democracy").

c) In addition to identifying the decreasing value of gold due to
technical progress in the gold mining branch of production as a cause of
inflation, Bauer also (rather vaguely) includes the development of the
productive forces, the anarchy of capitalist production, the organization
of producers (competition), and international trade and speculation as
contributory causes of inflation. The 1910-1912 debate in German-Austrian
Social democracy on the cause of inflation, which took place primarily in
the pages of _Die Neue Zeit_, concentrated on the relation of gold
production to inflation. The debate itself arose from a controversy about
section 5, Part 1 ("Das Geld") of _Die Teuerung_ (which is surprising, in
part, because this section is only 5 pages long and because Bauer did not
place any greater emphasis on increasing technical change in gold-mining
than on any of the other causes of inflation that he identified. It is
also somewhat surprising that this was the stimulus for the debate because
_Die Teuerung_ was intended as a popular exposition rather than a major
theoretical contribution and because Bauer did not really attempt to
develop a *theory* of inflation in the remaining two parts of the book).
Anyway, the debate itself centered around Eugen Varga's claim that
technological progress in the process of goldproduction has no affect on
the level of prices since it only, he claimed, generates differential
rents within the gold-mining branch of production. This debate, in which
Bauer, Varga, J.v.G., Spectator, and Kautsky contributed (none of the
articles from _Die Neue Zeit_ have been translated into English), is well
worth examining as it represents the first real debate among Marxists
about the causes of inflation (if there is interest, and if I I have the
time, I might consider at some point summarizing and critiqueing the
positions in that debate).

d) Alejandro writes that in the case of a reduction in the labor time to
produce the money-commodity (gold) "inflation" provokes an increase in the
rate of exploitation. Let's consider this question further. The *cause* of
the reduction in labor time to produce the money-commodity is, primarily,
increasing technical change and, thereby, increasing production of
relative surplus value in that branch of production. Consequently, in that
instance, it is the increase in the rate of exploitation in the
gold-mining branch which triggers inflation rather than inflation causing
an increase in the rate of exploitation. Yet, to the extent that this
process (inflation) then means that the value of labor-power (in real
terms) decreases, it would contribute to a general increase in the rate
of exploitation.

* In general terms, this means that "inflation" in Marxian
> terms means that "money" (commodity-money, symbol-money or
> credit-money) represents less labor-time that in some
> precedent period.

I think it is important to qualify the above statement with the expression
SNLT instead of labor-time in general.

> 2. How does the above change when we have a credit-money
> system?
> * I think Jerry is forgetting an intermediate possibility:
> in V.1, Ch. 3 Marx does not present only "commodity-
> money", but also "symbol-money". So, it is possible to
> firstly analyse inflation in a situation simpler than that
> involving credit money. In this case the key relation is
> that between commodity-money and symbol-money.

This is an interesting point.

I think Alejandro is referring to Ch. 3, Section 2 ("The Means of
Circulation), Sub-section (c) ("Coin: The Symbol of Value). In that
section, Marx notes how both coin and paper notes can serve as a symbol of

What I find interesting concerns the question of *where* this subject
should be concretized.

For instance, regarding coining, Marx writes:

"The business of coining, like the establishing of a measure of prices, is
an attribute proper of the state. The different national uniforms worn at
home by gold and silver as coins, but taken off again when they appear on
the world market, demonstrate the separation between the internal or
national spheres of commodity circulation and its universal sphere, the
world market" (Penguin ed, pp. 221-222).

Marx goes on to note the role of "laws" (by the state) in establishing
these symbols. For instance, he writes: "The metallic content of silver
and copper is arbitrarily established by law" (Ibid, p. 223).

He also writes that "In its form of existence as coin, gold becomes
completely divorced from the substance of its value. Relatively valueless
objects, therefore, such as paper notes, can serve as coins in place of
gold. This purely symbolic character of the currency is still somewhat
distinguished in the case of metal tokens. In paper money it stands out
plainly" (Ibid, pp. 223-224). "Here we are concerned with inconvertible
paper money issued by the state and given forced currency" (p. 224) which
emerges from the process of the circulation of metallic money in contrast
to credit-money which "implies relations which are as yet totally unknown,
from the standpoint of the simple circulation of commodities" (Ibid, p.
224). Later on, he writes, "Paper currency is a symbol of gold, a symbol
of money. Its relation to the values of commodities consists only in this:
they find imaginary expression in certain quantities of gold, and the same
quantities are symbolically and physically represented by the paper. Only
in so far as paper money represents gold, which like all other commodities
has value, is it a symbol of value" (Ibid, p. 225).

Of course, this last claim is highly suspect in *our* time (as distinct
from Marx's time) where the connection between paper money and gold is
rather problematic at best.

Yet, I want to address another issue. In Ch. 3, Marx often addresses some
issues related to the functions of money as asides. For instance, after
discussing the meaning of a "general rise in prices" (quoted above), he
begins the next paragraph by writing: "Let us now go back to considering
the price-form."

My questions: Although Marx introduces the subject of money functioning as
"symbol of value" and "world money" in V1, Ch. 3, doesn't the further
development of these subjects require the more concrete investigation of
the *state-form* and the *world market* respectively? If that is the case,
should they be further investigated before or after the development of the
subject of credit-money? Alejandro sees to think that "symbol money"
should be introduced as an "intermediate" step between commodity-money and
credit-money and I think there is some reason to believe that this should
be the case. Yet, as Marx very clearly explains, the function of money as
a symbol of value is related to the subject of the state. Since that is
the case, when should this subject be more concretely developed in terms
of the order of presentation and the "archiotronics" of explaining the
capitalist mode of production in thought?

In solidarity, Jerry