Marxism, money and inflation

The spectre of inflation hangs over world capitalism, putting a major squeeze on the masses around the world. The cost of basic necessities like food and fuel is skyrocketing, and is already provoking major social eruptions, like the insurrection in Kazakhstan in January.

Right-wing economists such as the monetarists blame workers for causing a 'wage-price spiral', refusing to point the finger at the real culprit for inflation: capitalism.

To avoid complete collapse as a result of the pandemic, capitalist governments spent trillions on stimulus and bailouts. But this has now upset the economic equilibrium, leading to instability and volatility in the global economy. Meanwhile, war and supply-chain chaos have pushed up the prices of many key commodities.

This all shows the limits of attempts to manage and reform capitalism. Despite the voodoo economics advocated by Keynesianism and so-called Modern Monetary Theory, you cannot spend money you don’t have without consequences.

The solution is not tinkering with the money supply, but democratic ownership and socialist planning of production, geared towards human needs, rather than maximising the profits of a parasitic few.

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Adam: Karl Marx, writing in poverty in his home in London, said the following: “Never before has someone written so much about money who has so little of it.” But he also noted that, “not even love has made so many fools of men as the pondering over the nature of money.”

We see that, throughout history, money has always held a revered place within society. It seems ubiquitous and omnipotent. It appears as a mystical force that is imposed upon us. Under capitalism, all of our needs are relegated to the need for money.

We see today how the bourgeois economists are dazzled by the question of money. You have a whole school of bourgeois economics called the ‘monetarists’ – people like Milton Friedman – and on the other side of bourgeois economics are the neo-Keynesians, who preach about ‘Modern Monetary Theory’ (MMT). Both of these camps of bourgeois economics imbue money with a mystical power. These charlatans believe that the entire capitalist system can be controlled through monetary policy and changes to the money supply. This is what Marx called ‘tricks of circulation.’

Today, the question of money is being discussed in every household, business, and newspaper because inflation in the advanced capitalist countries has reached levels not seen in decades. In Britain, inflation is now officially at 9.4%. In the USA, it is at 9.1%; in the eurozone it is 8.6%. In countries like Turkey, Argentina, Lebanon, and Sri Lanka, people have effectively given up trying to measure inflation. You have the threat of hyperinflation in these countries that are at the acute end of the crisis of capitalism.

Inflation, by definition, means that a currency loses its purchasing power as the price of goods and services rises across the board. In this respect, it can seem like inflation is a monetary phenomenon – as Milton Friedman, the monetarist economist, described. It seems like inflation therefore should be tackled through monetary methods and means. Marx described this as ‘money fetishism,’ a stupefied fixation on money, and a one-sided focus on the money supply to solve our economic problems.

In fact Marx said, “The riddle of the money fetish is really the riddle of the commodity fetish…” In other words, if we really want to understand ‘monetary phenomena’ we need to go back and look at commodity production and exchange. To understand questions like inflation, we need to ask: what is money, and why does it arise historically? This means going back and understanding the laws of value, the dynamics of capitalism, which is a system where all of production is commodity production – production for exchange on the market – and all social relations (relations between people) are reduced to money relations. If we understand these real laws that underpin capitalism, Marx said, then all further analysis would simply be reduced to looking at the forms of money: whether it be coins, cash, credit, or cryptocurrencies.

Inflation, then, is not simply a ‘monetary phenomenon’ as Milton Friedman asserted. Nor can the economy simply be controlled through monetary policy and monetary means – these ‘tricks of circulation,’ as both the monetarists and the neo-Keynesian MMTers believe. Capitalism is a system of generalised commodity production and exchange; where the means of production are privately owned and the economy and investment is not driven by the availability of money, but by the drive for profit. Resources aren’t allocated rationally, but by the invisible hand of the market in an anarchic way.

The inflation, crises, and chaos we see all around us today in the global economy are the result of the laws and logic of capitalism. If we want to understand the causes behind the current inflation crisis, we must look beyond monetary questions and examine the contradictions of the capitalist system as a whole, starting with the fundamental dynamics of capitalism – of commodity production and exchange, and the law of value. Only then can we really answer the question: what is money?

To discuss this briefly, Marx said that commodities are goods and services that are produced by labour, not for individual use and consumption, but for exchange. He pointed out that commodities have a dual nature: a use value (a usefulness or utility within society), but also an ‘exchange value’ (a quantitative relationship to other commodities). Marx explained that this value is related to the labour time needed to produce commodities. Things that require more ‘socially necessary’ labour time to produce them are more valuable. This includes both the ‘living’ labour of the immediate producers and the ‘dead’ labour embodied within the materials, tools, and infrastructure that are required for production.

Prices are the monetary form or expression of exchange value. These prices fluctuate due to market forces of supply and demand – if the demand exceeds supply, then prices will go up, but generally the fluctuation of prices are around some sort of average, which is the value of a commodity given by its socially necessary labour time. But this all assumes perfect competition, which doesn’t exist in reality. In fact, you see distortions in the market, barriers to supply, things like monopolies, which can restrict the supply of goods and push prices far above the actual value.

All of this is really key to understanding inflation and to understanding what money is. Fundamentally, money, Marx says, is a universal measure of value. The money system we see made up of currencies and credit expresses the distribution of value within society. The money we have or don’t have in our pockets, whether its cash or numbers on a screen in our bank account, is an entitlement to a portion of society’s total wealth of commodities. In theory, this whole system is backed up by the state which attempts to provide confidence and trust by giving currencies the state seal of approval, or legitimacy.

Studying history, we see that money did not always exist. The emergence of money is associated with the development of class society and commodity production and exchange. Early societies were not split into classes of exploiters and exploited, but were based on what Marx and Engels called ‘primitive communism’ – common ownership over tools and products within tribes. There was no exchange between individuals within society, so there was no need for money as a means of exchange. Instead, there was production for the common good, and consumption on the basis of need. All of this on the basis of a very low level of the productive forces, of scarcity, not superabundance. Similarly, we don’t see money as we would think of it today in the earliest civilizations in Mesopotamia. Instead, what you see is a system of top-down bureaucratic management and accounting – much like you have in a modern corporation, where you have accounting going on, a unit of account, but you don’t have money exchanging hands within the firm.

Money then arises with the development of commodity production and exchange – with trade. Production is no longer for individual or communal needs, but for exchange with others. And this does not begin within societies but at the fringe of society, between different tribes. One tribe trading its surplus for the surplus of another tribe. But, once this process begins, it develops its own logic and spreads through society, in the words of Engels, money becomes “like a corrosive acid” that penetrates through society and dissolves all the old communal bonds. Organically over time, a single commodity emerges that acts as a ‘universal equivalent’ – one commodity against which all others can be compared and for which all other commodities can be exchanged. This universal equivalent is the money commodity. This money commodity acts as a means of circulation and exchange, it acts as a unit of account allowing different individuals and parts of the economy to be compared, it allows individuals to store their wealth, it becomes a store of value, and it becomes a means of payment, a means of settling debts and paying taxes.

This money doesn’t arise in a conscious or a planned way, but due to the needs of society and of trade, and for the market and its development. The initial commodity that becomes the universal equivalent is fairly accidental. But it still has a material basis, related to what are the most important commodities in a given society. For example, in some nomadic tribal societies you have herds of cattle acting as money. It was the needs of trading societies, particularly early ones in Greece and Turkey, that led to the development of precious metals as the money commodity. We see gold and silver becoming the money commodities, because these metals were relatively homogenous, they all look the same, they could be divided up into little coins, they were durable and so they could be carried long distances. Importantly, these metals were themselves very valuable, they contained a lot of socially necessary labour time in their production. Marx points out that gold became money not because it was revered, but gold became revered because it is money.

Over the centuries, the expansive needs of the economy led to a debasement of these coins. In other words, their nominal values became separated from their actual value, it might be called a pound of silver or gold but there wasn’t actually a pound of silver or gold in the coins. Instead of money being a commodity itself, money became a representation – or symbol – of value. Once this step was taken, it paved the way for paper notes and digital representations, these papers and numbers are mere totals of value. This was all happening because of the needs of the economy to expand, the need for more and more money to lubricate exchange. 

But this also adds enormous contradictions and potential instability into the system. You now have the potential for these money tokens in circulation to become divorced from the real value in circulation, in the form of commodities. Unless they are anchors to some sort of material base, like gold, this brings in inherently inflationary tendencies into the economy. For example, if you double the amount of money in circulation in the form of these tokens, but the value in circulation in the form of commodities stays the same, then all else being equal, prices will double across the board. 

This is what monetarists mean when they say that inflation is purely a ‘monetary phenomenon,’ and they are correct in this respect to warn of the dangers of recklessly printing money and of Keynesian policies which have this expansionist, inflationary tendency. The monetarists say the solution is to use tight money policy, have a tight money supply. This is why they are in favour of monetary systems like the gold standard, which anchors the money supply to something material; to a base with its own real value, namely gold. The gold standard was introduced initially in Britain in the decades following the Napoleonic Wars, precisely to try and control the debts and inflation that had come about as a result of those wars. And it spread under the dominance of British imperialism, and the impetus of international trade. All national currencies became tied to gold. But this whole setup of the gold standard came unstuck in World War One, when different countries started to print money in order to fund the war.

The gold standard could not handle all the contradictions and tensions that had built up within the world economy, with different national economies moving at different speeds in different directions. This is very similar to what we see within the Eurozone today. All these different currencies pegged to each other, in the case of the Eurozone, all of the different currencies pegged within this one single currency, in the case of the gold standard, all of them pegged to gold. This meant and still means today that if different economies start becoming less competitive, for example, the only way they can increase their competitiveness is through “internal devaluation” – attacks on wages. This paves the way for explosive social movements like what we saw in Britain in the 1920s, which led to the 1926 general strike. The British ruling class was trying to bring Britain back onto the gold standard at a rate that was not sustainable. They had to attack the working class and that paved the way for a general strike.

Eventually, the gold standard collapsed with the onset of the Great Depression. This was similar to the reasons it collapsed at the beginning of the First World War: different governments wanted to try to devalue their currencies in order to export more and to print more money to fund their banks. In other words they wanted to export the crisis of capitalism to another country. After World War Two, the gold standard was then replaced by what’s known as the Bretton Woods system. The dollar became the world currency, with all other currencies pegged to the dollar, which in turn was tied to the gold standard. The dollar was deemed as good as gold and two thirds of the world’s gold was in Fort Knox. This reflected the strength of American capitalism, which emerged from World War Two as the hegemonic imperialist power.

And this provided some stability for a while, on the basis of the postwar boom – a massive expansion of the productive forces and an expansion of world trade. But it began to break down at the end of the 1960s, because of inflationary (Keynesian) policies in the advanced capitalist countries: policies of deficit financing and high military spending. Eventually Bretton Woods collapsed in the 1970s, just before the oil crisis and the world recession, all of this reflecting the contradictions that were built up in the world economy. After Bretton Woods, there was a move to what was known as ‘floating’ currencies or ‘fiat’ currencies, which is what we have today – money supplies that have no anchor to any material base like gold. 

These floating currencies allow governments and central banks to print money without any restrictions, and many governments and central banks will take advantage of this at a time of crisis or even in periods of growth. But the result is to introduce all manner of contradictions and distortions within the capitalist system, the market system. And it doesn’t remove any of the contradictions of the nation state or of the capitalist system as a whole. Instead it allows nation states to try to print their way out of a crisis, to devalue their currencies – which only prepares the way for bigger crises and sharper tensions down the line.

The monetarists, in this respect, are correct to highlight the flaws or the limits of Keynesianism. But despite this, they confuse cause and effect. They are idealists and empiricists. They imagine that attacking the symptom is the same as curing the disease. They highlight inflationary dangers of Keynesianism and they point to examples like Weimar Germany one hundred years ago and Venezuela today, correctly pointing out that you cannot print your way out of a crisis. From all of this, they conclude that they need tight monetary policy and tight money supplies. 

But what they don’t understand and explain is that the gold standard and Bretton Woods collapsed for a reason. Up to a certain point, these monetary systems were able to develop the productive forces and facilitate the expansion of world trade, but as the capitalist system expands, contradictions accumulate. You have credit – money created and lent out by the banks – and this credit expands. The supply of credit expands in order to artificially expand the market and temporarily try to overcome the contradiction and crisis of overproduction. In other words, the needs of capitalism outgrow the restrictions of the monetary system, which in the case of the gold standard and Bretton Woods meant anchoring the money supply to something real. These different national economies begin to move in different directions. Monetary systems, therefore, reach their limit and turn into their opposite, becoming a source of instability and crisis.

This is the important point: these monetary crises, at root, are a reflection of the contradictions and crises of capitalism. They are a rebellion of the productive forces against the fundamental barriers to their development – the nation state and private ownership. Calls to go back to the gold standard are therefore completely utopian. Over the last century we see bouts of inflation in wars and crises – in the 1940s, 1970s, and now today, but these are only a symptom of the real problem. In recent decades, inflation has been relatively subdued in the advanced capitalist countries. On the other side of the coin, you see a huge accumulation of debts. Both of these – the inflation and the debts – are an expression of the same thing. They reflect the fact that capitalism is a senile, sick system which can only be kept alive by these constant injections of debt and money.

We see therefore, that monetarism is at root reductionism. The attempt to reduce a complex system down to one factor or element. They say that inflation is simply a case of too much money chasing too few goods. But what is too much money? And why are there too few goods? In reality, under capitalism the majority of money we see around us is not created by the state but by banks, in the form of credit. In other words, it is not just the state that is responsible for the money supply, and factors other than the money supply also affect the rate of inflation. In reality it’s the demands of capitalism that create the demand for money, with banks creating credit for loans for businesses and households. Businesses borrow money (credit) in order to invest and make a profit. So in this way, the dynamics of capitalism have an impact on the money supply.

On the other hand, it’s also the dynamics of capitalism (the laws and logic of the system) that determine the supply of goods. Capitalism doesn’t produce goods because of needs, but for profit. The capitalists, unless they can make a profit, will not invest no matter how cheap money is in terms of low interest rates. This was demonstrated by the period from the 2008 crash up until the pandemic. You had super-loose monetary policy, with interest rates at near-zero, and yet investment and growth in the economy remained stagnant in the advanced capitalist countries.

This actually also answers the people on the other side, the neo-Keynesian MMT crowd and other reformists, who believe that you can manage and control capitalism through the state and the money supply. We have to point out, instead of trying to manage capitalism through money, we need socialist planning based on common ownership and workers’ control. We shouldn’t be fetishizing money like the MMT and monetarists. Instead we are fighting to create the economic conditions under which money will eventually wither away, in which we can rationally plan the economy and the productive forces according to needs, instead of the market.

Between 2008 and 2020, the biggest worry the bourgeois had was actually about deflation, not inflation, due to the depressive state of the world economy. Even though billions were being injected into the economy through what was known as quantitative easing (QE). Now, according to the monetarists, inflation should have been rampant, but it was not. Why is this? Partially, because this QE money never really found its way into the real economy, into people’s pockets. Instead, it was used to fuel speculative bubbles, like property, shares, and cryptocurrencies. Meanwhile, there was austerity and attacks on the working class that were sucking demand out of the economy, even while they were printing billions and pumping money into the economy.

On the other side, we also had many downward pressures on prices during this period. Importantly, across the globe you had overproduction, or excess capacity. In other words, far greater supply than demand which was pushing prices down. For decades you also had globalisation which provided access to cheaper raw materials and labour and which led to the development of huge multinationals; huge monopolies with efficiencies due to economies of scale. You had new technologies, automation, which allowed a cheapening of capital goods. All of these factors for decades helped keep prices down, but now they’re turning into their opposite and we have an enormous crisis of inflation.

It’s really only armed with a Marxist understanding of value and prices that we can make sense of these inflation prices and understand the real forces and factors behind inflation today. This also requires us to have a firm grasp of dialectical materialism, the philosophy of Marxism, so that we can avoid the one-sided reductionism, idealism, and mechanical empiricism that haunts bourgeois economics. The monetarists and Keynesians both only take one side or one aspect of the problem which is in fact an interconnected problem. For the monetarists, it’s the focus on the money supply and monetary policy to solve these problems. For the Keynsians, the problem is always one of too much or too little demand and they think they can manage the demand through taxes and government spending. Both make correct criticisms of each other, but neither finds the blame where it really lies: the real culprit is capitalism.

Instead, what we see is that every wing of bourgeois economics, the ruling class and its representatives, are today resurrecting an age-old argument: they are blaming workers for inflation, saying that its workers’ wages that provoke what they call a ‘wage-price spiral’. And this is really used as a convenient excuse to justify austerity and attacks on workers’ wages and to drive up the capitalists’ profits.

This claim is clearly untrue, in fact we see that it is wages that are lagging behind inflation. But Marx also answered this argument theoretically a long time ago in his pamphlet Value, Price and Profit, which was a response to a certain man called Citizen Weston. In this pamphlet, Marx explains that all value is produced by the working class, and this value, in the form of a wealth of commodities, is distributed either to the working class in the form of wages or the capitalist class in the form of profits. Prices, as we have already explained, are the monetary expression of commodities’ values. Wages are the price of the commodity that the working class sells – its labour power, its capacity to work. This commodity’s value is determined the same as any other commodity – by the socially necessary labour time required to produce and reproduce the working class.

Imagine, then, that the economy can be represented as a big pie. A pie that is produced by the working class, but is then divided between the workers and capitalists as wages and profits. You can measure the size of this pie however you like. It doesn't really matter what measurements you use, the size of the pie is the same. 

It’s the same with inflation, which changes the names of things but not the reality. Inflation doesn’t make society wealthier in terms of the actual amount of commodities being produced. The overall size of the pie remains the same, but now it has a different name – the same size of the pie is represented by higher prices. Inflation can redistribute the wealth between debtors and creditors, and it will redistribute incomes between workers and capitalists. 

If prices go up across the board, except for the price of labour power (wages) then the capitalists are gaining as the sellers of commodities, without losing as the buyers of labour power. Their profits will therefore increase because the capitalists’ profits are the unpaid labour of the working class. If the workers are getting less because wages are lagging behind prices, then the capitalists will get more. The pie gets redivided to the benefit of the capitalists and their profits, as is the case now. What we have is not a ‘wage-price’ spiral but a ‘profit-price’ spiral.

In this respect, Marx says, it is not workers who are to blame for inflation by asking for higher wages. Rather, every real and generalised increase in wages can only come about by taking away a slice of the profits that used to go to the capitalist. 

And that is why the bourgeoisie viciously resists when workers – like Oliver Twist in Dickens’ novel – dare to ask for more. We see on the other side the big monopoly capitalists are gaining from rising prices and making super profits. That’s the point – if prices are rising faster than wages, that the slice going to the capitalists’ profits is increasing. 

We say that the trade unions shouldn’t simply be fighting for a few extra crumbs of the pie, they should be demanding the whole bakery: a sliding scale of wages with pay linked to prices and the nationalisation of big monopolies under a socialist plan of production. We shouldn’t just be taxing the rich, we should be expropriating the billionaires and their profits.

So workers are not to blame for inflation, but what is? The current inflation crisis really reflects a perfect storm for capitalism. Firstly, there is what Marx referred to as ‘fictitious capital’ – this is capital, or money that circulates as capital within the economy but without any value-equivalent circulating in the form of commodities. This includes things like national debts, government bonds, stocks and shares, but also unproductive state spending, Keynesian policies of digging holes in the ground, and also things like military spending. 

State intervention seen during the pandemic in this respect really helped to blow a gust of fictitious capital into the world economy, which has fanned the flames for inflation. You had around $17 trillion in government spending and a further $10 trillion of central bank money newly printed. As lockdown ended, all of this money in the form of pent-up demand was released into the economy but it crashed up against pandemic-related restrictions to supply, meaning that you now have a reduced amount of value in the form of commodities circulating in the economy, represented by an increased amount of money. This leads to the generalised increase in prices that is inflation.

This really shows the limits of Keynesian and all attempts to manage capitalism. The bourgeois has tried to prevent the collapse of their system, but only by paving the way for a bigger crisis by exacerbating all the contradictions. The result is soaring prices, mountains of debt, and even greater volatility and instability in the world economy. Preparing the conditions for a deeper crisis – not only economically, but socially and politically.

Alongside fictitious capital, we also have a series of shocks to supplies: the pandemic itself, particularly the zero-covid policy in China, and the war in Ukraine, which has cut off the supply of oil, gas, wheat, and many other key commodities. So you have a limited supply meeting excess demand, leading to a rise in prices. In a lot of cases, it’s not that the value (the socially necessary labour time) is going up. It doesn’t cost much more for oil and gas companies in the US to produce oil, for example. Instead, they’re recording superprofits. We see how the anarchy of the market cannot keep up with the volatility, the shocks of supply and the swings of demand. Instead of being efficient at allocating resources, we see that the capitalists are actually profiting from scarcity and shortages. Superprofits should mean new investors entering the market, bringing supply up, but these markets are dominated by monopolies and cartels, who instead of investing to bring down costs and prices are actually profiting from this inflation. This really shows the limits of private ownership and the profit system and the need for socialist planning. 

The final factor is where you have a real increase in value, that is, in socially necessary labour time. Most notably, this comes in the form of a rise in protectionism. The pandemic and the war accelerated the retreat of globalisation and the unravelling of world trade. This led to a ‘balkanisation’ of capitalism, reducing efficiencies in production and increasing prices. This again shows how alongside private ownership, the nation state is this enormous barrier to the development of the productive forces. 

Bringing all these things together, the overall result is that the world economy is heading towards the nightmare scenario of what the bourgeois call ‘stagflation.’ This is a killer combination of rampant inflation alongside slowing or stagnant growth. A new recession is looming, or even a new slump. But the ruling class are stripped of the weapons upon which they would usually rely to fight such a crisis. Keynesian stimulus will only fuel inflation even further, but the interest rates that the monetarists rely on are a very blunt instrument – all they can do is to try to ‘cool’ the economy, as they euphemistically put it, by dampening demand.

A wing of the bourgeois actively wants to provoke a recession, in order to push unemployment up and wages down, like what was done by the US Federal Reserve in 1980. But they are walking on a tightrope, as pushing for a recession could provoke an even deeper crisis – not just economically, but socially and politically. It could push households, businesses, and whole countries into bankruptcy. Global debts are 360% of GDP so raising interest rates would kill off a lot of countries and companies. Sri Lanka is a taste of what’s to come in this respect. Even here in Britain, struggles and strikes are already breaking out over pay. 

The key point is that whatever path the capitalists and the ruling class head down, the road is to ruin. On the basis of capitalism, all the choices will lead to disaster. Whether it’s through austerity or inflation, it will be the working class who is asked to pay the bill. The stage is therefore set for sharp class struggles everywhere.

Inflation, as described, cannot be boiled down to one single cause or factor. It’s a complex phenomenon, a many headed hydra. But the real beast, at root, is capitalism. It is the ruling class who have recklessly sprayed money around the world economy to try and put out the fires of crisis. Like an arsonist being invited to put out a blazing inferno, it’s the capitalists who have profited from scarcity, and who have pushed supply chains and workers to the breaking point. It’s their political representatives, driven by profit, who have gone down the path of economic nationalism and imperialist war.

Above all, it is capitalism to blame for this inherently anarchic, crisis-ridden system. Inflation is a symptom of the anarchy and decay of capitalism. To cure us of this plague, we need to rid ourselves of the market, and instead place the economy under workers’ control. This senile system cannot be patched up. Capitalism is chaos and crisis. It must be overthrown. 


Claudio: The Modern Monetary Theory (MMT) theoreticians and their followers denied the possibility of serious inflation, but here we are. Soaring prices stand as a burning issue before hundreds of millions of people everywhere, and precisely because of its urgent nature, we must focus on this subject without neglecting its theoretical side. The basic argument of MMT traces back to the so-called “chartalist” theories of money that originated at the end of the 19th century and early 20th. Mitchell-Innes, father of the credit theory of money, said: “the monetary unit is merely an arbitrary denomination by which commodities are measured in terms of credit, it serves therefore as a more or less accurate measure of the value of all commodities.” 

So money, we are told, is just an abstraction, an arbitrary measure, a yardstick. Money is not a commodity, and metals or any other goods have nothing to do with money. The point is, though, that this yardstick behaves in a rather strange way. One day it gives one measure, and the following day the result is different. Two equal yardsticks will no longer be equal tomorrow, and so on. A metre is defined in relation to the speed of light, that is, in relation to an objective physical phenomenon. But in what terms is the value of this credit or the value of a certain commodity measured according to MMT? Let’s turn to Mitchell again: “What is a monetary unit? What is a dollar?” he asks, “We don’t know. All we know for certain is that the dollar is a measure of the value of all commodities, but not itself a commodity, nor can it be embodied in any commodity. It is intangible, immaterial, and abstract.” So clearly we are left here with a tautology, or a vicious circle. Yes money is a measure, but it measures a very concrete social relation. Marx gave this definition: “Money as a measure of value is the phenomenal form that must of necessity be assumed by that measure of value which is immanent in commodities that is labour time.” Marx very clearly expressed the difference between metal money, convertible money, paper money, and un-convertible paper money (fiat money). He explained that as soon as money as a commodity is represented by a symbol, it is implicit in the process that there will be a divorce between the two and opens the possibility of its devaluation up to the point of a so-called general discrediting of paper money. 

But all this can really be understood only on the basis of the theory of value. It is a rule to which I know no exception. The discussion about the nature of money is always, in reality, a discussion on the theory of value. Of course the MMT proponents cannot understand what money is insofar as they don’t have such a theory. All those who try to stand midway between the two are in reality eclectics. Many self-titled Marxist economists are in reality Keynesians, who committed some sins of Marxism in their distant youth.

An important question arises here: after the crisis of 2008 an enormous amount of money was put in the economy, but why didn’t we have inflation then? Marx explained, in criticising Ricardo, that prices are not simply a ratio between the whole sum of commodities in the market on one hand, and the sum of all the money in circulation on the other. He was in fact criticising an embryonic expression of the so-called quantitative theory of money. He explained that money circulated only in the quantity actually needed by the exchanges carried out. After 2008, there was greater overcapacity, rising unemployment, rising austerity policies, and all this depressed wages, social expenditure, private and public investment, and so on. That money (approximately $14 trillion) could not really enter into circulation and was stashed by big companies and the financial sector, not inflating prices in general, but several big bubbles in the stock exchanges, cryptocurrencies, properties, and so on. 

By contrast, in the last two years, the Federal Reserve, the European Central Bank and all of the other major central banks during the pandemic, made use of so-called helicopter money, giving out money everywhere. This triggered the present inflation. In many sectors, there is still overcapacity, but that was offset first by the consequences of the lockdowns and thereafter by the war and sanctions. But there are also other factors that I want to mention in the present inflation crisis. Rent is rising everywhere, and I’m not only referring to properties, housing, and so on. Rent on raw material, for instance, is clearly rising. Sanctions, protectionism, and so on are not just raising prices, they are also raising rents for different sections of the bourgeoisie. This is an element of today's inflation directly linked to the increasingly parasitical nature of capitalism. 

Finally, it is not enough for Marxists to denounce the failures of the system and say that socialism is the answer. We have been widely campaigning in Italy in the last month raising the demand for a sliding scale of wages. The sliding scale was a historic conquest of the Italian working class in the 70s, that was surrendered by the Italian trade union leaders exactly 30 years ago in what was one of the most shameful betrayals in the history of the workers movement in this country. The ruling class is now singing an old tune from the 80s: the wage-price spiral. But while campaigning, we heard ordinary workers answering in exactly the way that Marx answered in Value, Price and Profit. They said “raising our wages will not raise prices, but will reduce your profits”. As Marx said, when theory grasps the minds of the masses it becomes a material force. This is precisely the epoch when Marx’s theory can win the minds of the working class and become again a material force that changes the world.

Josh: When bourgeois writers talk about inflation, it’s always presented as a technical, mathematical question. They say when currencies collapse it is because states and central banks fail to compute the correct quantity of currency required for the economy, or simply that they lived beyond their means. But this superficial approach doesn’t actually explain anything, and it deliberately disguises the class question at the heart of high inflation. Inflation is not a purely monetary phenomenon, and neither is high, out of control inflation. It is the monetary expression of the economic and social crisis of capitalism and of the struggle amongst the classes in society. In that sense, it is the expression both of a value relation and of a class relation. 

A classic example of this is hyperinflation in Germany. Inflation had actually started to take off during the First World War. In order to fund the war, the states accrued enormous debts, expecting to pay them off with the conquest of new colonies and so on. The German paper the Vossische Zeitung, would write in August 1921: “It must be admitted generally now, that the cause of the depreciation of our currency and the purchasing power of the Mark was neither the commercial balance during the war nor the estimates of our military situation abroad, but in a fictitious increase of our total income inasmuch as the country issued milliards in the form of extraordinary levies, war loans, treasury bills, and so on, without withdrawing from circulation corresponding amounts in the shape of taxes.” It created new paper income and wealth incessantly, while the real national wealth was steadily being diminished by the war. Inflation was the necessary outcome of this contradiction. 

What we’re talking about here was a massive expansion of fictitious capital. The peace terms further reduced Germany’s productive capacity at the same time as adding more to her burdens in the form of huge reparations payments, the loss of what colonies she had, and so on. And that was on top of her preexisting war debts. Now, a state does not have wealth of its own, it must take it from the various classes that exist in society and the new Weimar Republic wanted to follow a program of trying to extend the working day to enhance production and impose higher taxes, which were already being avoided by the rich and big business. But it came up against the reality of the class struggle and the German Revolution. The workers had conquered the eight hour day in the revolution and they continued to defend it powerfully. As inflation rose, the workers consistently struck and won higher wages to keep up with inflation. Meanwhile, the monopolists resisted any attempts to raise taxes or to cut subsidies on raw materials and things like food which kept labour costs down and profits up. When one minister tried to tackle these issues he was assassinated. One bourgeois newspaper wrote in 1922: “The real collapse of our currency began when it became evident that certain industrial circles became more powerful than the government.” Obviously that’s always the case under capitalism but it became evident here. But even if the bosses had allowed these reforms, it simply would’ve reduced production and created mass unemployment. The government wanted to avoid that at all costs and for only one reason – under the conditions of the time it would’ve sparked another revolution. This meant the state and the middle classes were caught between these two powerful classes in society which were then in deadlock. The workers were too strong but they had been betrayed by the social democratic leaders who were then in the government. Middle class officials and pensioners were initially the hardest hit by inflation, not the workers, because these middle classes have no power, no organisation. They eventually saw that organisation in fascism.

All the central bank could do was kick the can down the road, just like the European central bank today. It lent money to the state in order to cover the huge budget deficits and also to German businesses at low interest rates in order to maintain production. It then had to print money to satisfy the need for cash that all of this unpayable debt produced, but inevitably this way out turned into its opposite – into a cause for further crisis. The French occupation of the Ruhr region became the tipping point beyond which the continuation of this situation was impossible. Not only did Germany lose access to its most important industrial region, it had to continue paying the workers who were resisting the occupation. In reality there were only ever two ways out under Weimar Germany: either the workers would overthrow the bourgeois state, repudiate the war reparations, seize the means of production from the monopolies, and produce and distribute wealth in a planned way in accordance with the needs of society, or the workers must be crushed, the eight hour day must be abolished, and the standard of living of the masses must be reduced to an absolute minimum in order to stabilise capitalist production and the state budget. In short it became a question of revolution and counterrevolution. 

The failure of the communist party to take power in 1923 essentially decided the question. After this, the state suspended most democratic rights and effectively installed a military dictatorship. Only then did it feel safe to cut off the taps, and this provoked a deep recession and an explosion of unemployment, with millions of unemployed workers. It was on this basis that hyperinflation was “solved” in Germany in the 1920s, and it will be on this basis that the capitalists seek to solve it today. But that would provoke titanic class struggles which they cannot be sure of winning. In those struggles we must raise the demand for the sliding scale of wages, but we must also remember that this is a defensive demand. The German workers actually had that for a period, it did not solve the crisis. We must use the demand in a transitional way, to pose the question of who controls society because it is only through the expropriation of the capitalists that inflation can be abolished on a working class, socialist basis.

Luis: If we talk about inflation or even hyperinflation, we can’t ignore the country that for the last decade had the highest inflation rates in the world. We’re talking about Venezuela, which in 2018 went into hyperinflation with an inflation rate of 130,000%, according to the central bank of Venezuela. Monetarists all over the world didn’t miss this opportunity to show that Venezuela is an example of the failures of socialism; and they also show their monetarist reductionism when they attribute this hyperinflation to the increase in the money supply as the only cause. On the other hand, reformists and Neo-Keyneseian economists defended the Maduro government – borrowing ideas from MMT, such as the possibility of the state issuing more money to increase expenditure and the public deficit, without any meaningful impact on inflation. But in the face of the short sighted reductionism of the monetarists and the shameful intellectual tricks of the reformists, only Marxism can help clear this fog. 

First, I’d like to provide some data. In 2014, the international oil prices fell and this massively reduced the state income, since it is a rentier economy where the export of crude oil represents 96% of the foreign exchange; the fiscal deficit reached 21% in 2018. In spite of this fall in state earnings, the government still prioritised the payment of foreign debt over the needs of the population and this showed how far to the right they have moved in recent years. This led to the collapse of financial imports – an 80% collapse between 2013 and 2019. Importantly, this led to a profound economic recession which caused a 75% fall in GDP between 2014 and 2021. So let’s keep this data in mind. In Capital, Marx explained that the circulation of money surrounds the formal movement of all commodities. In this sense, prices, which are an expression of the monetary value of commodities, will be determined by the quantity of products in relation to the mass of currency (money) and also determined by the rhythm of circulation of money and commodities. The Venezuelan government mentioned this to cover up their deficit accounts and starting in 2013 they began an expansionary monetary policy that was totally irresponsible and increased the mass of money in circulation by 60,000%. In other words, it multiplied the money supply 600 times. Let’s keep in mind that this increase in the money supply didn’t have any backing in national production, which as explained earlier was extremely low with the steep fall of the GDP. 

These factors accelerated the increase in liquidity and, when combined with the fall in national production and imports, created a situation where a lot of money was trying to purchase very few products. This got even worse when the population started to spend their money very quickly, in order to purchase commodities that would increase in price in a matter of weeks, days, or even hours. In this way, they increase the speed of circulation, which causes a further rise in the prices. In the midst of all of this, the pro-government intellectuals, among them a lot of Neo-Keynesian economists, made up excuses to deny that this crisis was the government’s responsibility. 

With regards to the expansionary monetary policy of Maduro, some of these people certainly base themselves on MMT; but in order to defend the government, they went even further in their defence of this theory. The more well-known, extended version of MMT among reformists around the world claims that issuing money and a rise in fiscal expenditure doesn’t necessarily have to lead to decisive inflation if there is productive capacity in reserve. These ladies and gentlemen ignored this fact and they spread the thesis that this inflation was due to the positioning of a parallel exchange rate, and on top of that there was a very powerful black market that could destabilise the economy of the whole country – and so they reverted the cause and effect. These people never considered that a parallel exchange rate, as well as the proliferation of the black market in those years, were actually the result of a lack of currency and important goods. So without any shadow of doubt we can say that the Venezuelan hyperinflation of 2017-2021 is actually only proof of the failures in practice of any policy that follows the proposals of MMT. 

Finally, it is very important for all revolutionaries around the world to study the lessons of the Bolivarian revolution. It wasn’t socialism that failed in Venezuela, because socialism was never actually established. What really failed were regulations that were superimposed on Venezuelan rentier capitalism, in the context of the organic crisis of the bourgeois global social order. In their nature, these regulations never had in mind the socialist transformation of society, but they also wouldn’t allow capitalism to function as it normally would – and so the lack of revolutionary leadership has opened up the doors to the catastrophe that the fighting Venezuelan working class has had to deal with over the past years. Only the organised and conscious struggle of the working class can lead to the emancipation of workers. World revolution is an absolute necessity. 

Laurie: Marx explained years ago that money arises with commodity production and exchange – but not everyone agrees with Marx. The chartalists actually attacked the idea that money arises from exchange. Instead they said it is the state that creates money, in order to tax its subjects, and if the state creates money then surely the governments can simply bend it to their will. This is the theoretical basis for Keynesianism and MMT. Of course, the level of inflation that we’re seeing today already exposes the myth that the state is in control of money and money is in control of the economy. But the chartalists and MMTers will tell us that they can prove their theory by going back to where it all began, to history. 

The anthropologist David Graeber wrote a very famous book on this topic called Debt: The First 5,000 Years. In the book he argues that money is debt, which precedes money as a medium of exchange and was created by the earliest states as a tool of oppression to extract tax; transforming a moral economy (he won’t call it communist) into an official economy where debts owed to those in power are enforced through violence. As we know from some of his other books, David Graeber doesn’t always care about facts and evidence, but he does literally dig up some evidence for this. He talked about how in Mesopotamia, far before money was used for markets and commodity trades, accounts and debts owed were used by the temple bureaucracy and the king to extract tribute. He gives the example of Sumerian kings offering loans in exchange for loyalty. But below this argument lies an idealist method. 

In the hundreds of pages in his book, the word ‘agriculture’ appears six times, by comparison ‘Confucianism’ appears 31 times. ‘Agriculture’, ‘surplus’, ‘irrigation’ aren’t even in the index; there is nothing which refers to the greatest development of the productive forces in history, which enabled all of these developments to take place. So Graeber says these debts are an abstraction created by the state, but he never says what it’s an abstraction of. Now we can answer the arguments of Debt in a very straightforward way. All that these little case studies show is that the origins of any given phenomenon don’t necessarily equal the finished product. Something that may be obvious to us, because we see things in their development, but to the anarchists and the reformists maybe not so much. In Bronze Age Mesopotamia, the time that Graeber is writing about, great forces had been unleashed by the Neolithic Revolution; forces neither the villagers nor the temple really understood. They didn’t know what to do with their new surplus that they could produce, so they offered it up to the temple and an objective system of measurement had to be developed to account for all these products. As the temple bureaucrats began to develop into a class in their own right they also needed to tell the villagers what they expected as tax. So-called money arises onto the scene in this specific case as a measure of accounts, but it is not really the same thing as money. Another thing Graeber doesn’t explain is that production in Mesopotamia and other early states was still based on the village commune. The vast majority of villagers didn’t produce or trade in commodities, so no wonder these calculations were reserved for the account books of the state. 

Later, on the basis of the Iron Age, agriculture based on private ownership could emerge. The emergence of slave societies gives rise to long distance trade, commerce, and then money fully develops as a means of exchange throughout society. This has nothing to do with the state, but with commodity production and exchange. Now it may seem radical to say that money is simply an imaginary creation of the state, but it actually leads us to a dead end where all we can do is simply appeal to the banks and the state to cancel all the debts and print more stimulus money. In other words: the dead end of reformism. 

Incidentally, when the Keynsians and MMT theorists are arguing for the banks and the state to solve the crisis by creating more money, they never ask who controls the state, who controls the banks. The so-called anarchists throw themselves at the mercy of the capitalist state. Once again, an idealistic approach takes you to idealistic conclusions: the fetishism of the state, power and authority, but we can explain that the monetary system is linked to the real economy; that is, under capitalism, the generalised production and exchange of commodities. So we cannot solve the crisis of capitalism by monetary methods – whether it is via investing in bitcoin, printing more money or restricting the supply, raising or lowering interest rates, the capitalists cannot control inflation because they can’t control their own system. But on the basis of socialist planning we would be able to control it. Now, at the dawn of class society the temple created writing, mathematics, weights and measures, and they did so to plan the economy, to raise human civilization out of the marshes of Mesopotamia (ironically, the same can be done under socialism). We saw the first steps of this in the USSR. Ted Grant explained that in Russia the law of value did not operate blindly, but was consciously harnessed. In a healthy socialist economy this would only be the start. We would be able to use good planning to raise humanity out of the chaos of the capitalist market, and we could see the withering away of commodities and of money altogether. Then there won’t be any need for money fetishism, state fetishism or anything like it, as it will be very clear who is in control of society.

Dersu: All over the world we have seen what happens when the bourgeoisie parasitically focuses on finance capital and doesn’t invest in technology. But I would like to discuss some points about rising interest rates and economic perspectives. First, the rising interest rates are an implicit admission that Marx was right. The capitalists can only overcome crises by preparing even more violent ones. Today's inflation is the consequence of the era of cheap money and anarchic developments in the world market; but now, dialectically, effect becomes cause. The capitalists have to react to inflation by raising interest rates. By doing so however, they are preparing for a deeper crisis. 

Secondly, with the interest rate hikes, the ruling class has to introduce measures that are very dangerous. They are slowing down growth exactly at a time when they need growth more than ever before. A huge number of companies have been kept artificially alive with cheap money, so cutting down on this cheap money can definitely lead to recession – signs of this are already clearly visible. For example, business activity in the Eurozone has gone into reverse recently. The interest rates are also threatening to burst speculative bubbles. But the biggest threat to world capitalism is probably the historically high level of debt. Even just the fear of interest rate hikes is causing the debt burden to rise higher. For example, the yield on Italian government bonds has increased eight-fold since August 2021. It is therefore eight times more expensive for the Italian state to go further into debt. At some point the huge debt problem must be solved. Either through direct default, through extreme austerity or through rising inflation that eats up the debt – but any one of these would lead to greater instability, and above all it would massively fuel the class struggle. 

My third point is that the ruling class is in a deep impasse – currently they have to choose between raising inflation or another deep recession. Currently, the capitalists cannot decide between plague and cholera, and so they could end up with both. If you look at the current interest rate hikes, they fully express the bourgeois dilemma. On the one hand, the interest rates are still way too low to really curb inflation; and on the other hand even without interest rate hikes the economy is heading for recession. So the real prospect is the worst of both sides. We are facing a prolonged period of stagflation or even slumpflation. The capitalists are aware of their dark prospects, and this was shown by the debate in the US Senate on interest rate hikes. It was very interesting but the atmosphere was just desperate. At the end, one senator tried to summarise the discussion and he said “if we had a real solution we would have done it already.” This deep pessimism reflects the hard fact that the capitalist system as a whole is at a dead end. 

So, the fourth point is this: what does this mean for the working class? There is no solution for the working class within capitalism, as has been said. The workers are paying for the rising inflation right now. The workers will pay for the coming recession with layoffs, wage cuts, or austerity. The working class cannot choose between low or high interest rates because it has to pay for the capitalist crisis in both cases. But of course, the reformists have not understood the character of the situation. In Switzerland, like practically all reformists everywhere, the trade union leaders fully defend the policy of cheap money and low interest rates. In the capitalist dilemma, they choose the side of rising inflation for which the working class must pay. This clearly shows the need for an independent class position, independent of the interests of the bourgeoisie. 

So my last point will be, what does this mean for us revolutionaries? We have to be honest and say our whole life will be marked by brutal instability, revolution, and counterrevolution. Of course there is no final crisis of capitalism, but we have entered a period of extreme intensification and acceleration. Trotsky said in his world perspectives at the beginning of the 1920s: “In periods of capitalist decline, the crises are frequent, deep, and long, while the upswings are short and superficial.” As we have seen in the last two years, this is the new rhythm of the cycle of boom and slump; and it is not boom or slump alone that leads to revolution, but the sharp shifts between the one and the other. Again, our whole life and the lives of the working class will be marked by brutal instability, revolution and counterrevolution. From this perspective, we must draw the greatest urgency for our work and we must dedicate our personal lives to the building of the revolutionary organisation. 


Adam: What’s very clear from all these contributions and examples, is that the bourgeois and their representatives really don’t understand what lies behind inflation – because they don’t understand their own system. In fact, they’ve become completely used to defending their system and being apologists for it. Similarly, all the academics and bourgeois economists in the universities and scientific journals and so forth – and in institutions like the World Bank, the IMF, and all the central banks across the world – none of them are really interested in trying to actually understand what's going on. They’re just trying to prop up this bankrupt, rotten system. For them, everything is just accidental when it comes to inflation or crisis. It just seems to be one accident after another – the war, the pandemic etc. But the war and the pandemic are not the cause of any of these problems; they’ve accelerated processes that were already in motion, they’ve exacerbated contradictions that were already building up: widening inequality and the class divide, the rise of protectionism and economic nationalism, the debts, the speculation, and the zombie capitalists. All of these have been exacerbated by the war and the pandemic – but even when the war and the pandemic end we will not go back to normal. These huge events mark turning points in the development of capitalism. 

As has been highlighted, we’re entering a new normal. The war and the pandemic have turned everything into their opposite. All these things that were driving economic growth are now turned into their opposite. ‘Just in time’ production has now led to these fragile supply chains of bottlenecks and disruptions. Casualisation of work and the scourge of low wages have led to shortages of labour. All this cheap money and credit has now become a mountain of unaffordable debt. We’ve got to remember that inflation began before the war in Ukraine. All the pressures that were discussed at the beginning – fictitious capital, supply shocks, protectionism – all of these were already present. But now the conflict and the sanctions have poured petrol on this already raging fire. They’ve made inflation more entrenched, more widespread. And we’re only at the beginning of the process. 

In truth, the ruling class had become extremely arrogant and hubristic about the question of inflation. They thought even until recently that inflation was only transitory – but now it is out of control and they are going to have to go to more extreme lengths to bring it back down. They might have to go back to the days of the 1980s, with a big rise in interest rates to try to provoke a recession. The thing is, 2022 is not 1980. Back then you had a sharp recession followed by a big upswing. That’s not the perspective for today. Back in the 1980s globalisation was just beginning, as China and then the Soviet Union opened up to capitalism. Today, however, globalisation is in retreat. Also, all of the advanced capitalist countries went into the 1980s with historically low debts. Now, debt is at historic highs, particularly in countries like Italy, and the market today is all the more volatile because of all the money they’ve pumped in and all of the speculative bubbles that exist. Above all, the world market is far more integrated than it was even in the 80s. 

They used to say that if America sneezed then the rest of the world would catch a cold. Well now, the rest of the world will catch something far more deadly and contagious if America sneezes. And it’s not just America, but the Chinese economy, Europe, all of the other big world economic powers that are in crisis. The crisis will be far more international and the backlash will be far more international, as we are seeing in Sri Lanka and elsewhere. That’s why we’re discussing things like money, inflation, and Marxist economics. These differences in how we understand money and inflation have very real political consequences. We need to understand the world in order to change it and to understand that there is no way out within the confines of capitalism for humanity. 

As has been pointed out, we’re like doctors trying to point out not just the symptoms but the real disease. Even if we accepted what the monetarists said, that inflation is a monetarist phenomenon, well that would mean if we want to get rid of inflation and the scourge of rising prices once and for all, we need to get rid of money. But money arises out of specific historical conditions. There’s a material reason that we see money in early societies up until now. Therefore, in contrast to the anarchists and the reformists, we understand that money can’t simply be abolished. Money represents value and value is a relationship arising out of commodity production and exchange. 

So if we want to get rid of money, we need to rid ourselves of commodity production and exchange and that means returning to a communistic society. With communal ownership over the means of production – the tools, the technology, the wealth in society – this wouldn’t be primitive communism like our tribal ancestors had; communism today would be based on a far higher economic and cultural level. It would be based on a society of superabundance. In this sense, money isn’t abolished – but, like the state, class society, and even so-called ‘human nature’, all of this will wither away. There will be a transitional period from socialism to communism – the highest level of communism – beginning with the working class seizing the main levers of the economy and of production, putting them under a democratic plan, and more and more the economy would be brought under communal ownership and workers control. The more this process continues, the more commodity production and exchange withers away; the more the market is gotten rid of, the less need there is for money. Products of labour, now communally and socially owned, cease to be commodities. And as commodity production and exchange withers away, so the need for money withers away also. Instead of having money representing value in the form of socially necessary labour time, you would have mere tokens, entitling people to a share of the common pot. Eventually, as all scarcity is eliminated, even the need for these tokens would disappear. As people become accustomed to a world of plenty, we’d be free to take at will, safe in the knowledge that scarcity was a thing of the past; and we would live according to Marx's maxim: ‘from each according to his ability, to each according to his need’. 

I think, therefore, that we can leave the final word to Leon Trotsky, the great Russian revolutionary, who says in his masterpiece The Revolution Betrayed: 

“Money cannot be arbitrarily abolished. It must exhaust its historic mission, evaporate, and fall away. The death blow to money fetishism will be struck only upon that stage when the steady growth of social wealth has made us bipeds forget our miserly attitude towards every excess minute of labour and forget our humiliating fear about the size of our ration. Having lost its ability to bring happiness or trample men in the dust, money will turn into mere bookkeeping receipts for the convenience of statisticians and for planning purposes. In the still more distant future, probably these receipts will not be needed, but we can leave this question entirely to posterity, who will be more intelligent than we are.” 

Comrades, this is the future that we are fighting for – a future without the scourge of inflation, and without the money that really lies behind this disease; fundamentally, without the market system, and without capitalism which is the real root of our problems. This is the future that we are fighting for, but it requires a revolution – and that is what we’re organising to bring about. So if you haven’t already, join the IMT and help us fight for revolution in our lifetime.