ABOVE: From Wikimedia
[Preface: the author is a self-described socialist, and though he utilizes Marxian analysis, he is not an orthodox Marxist. Nevertheless, this editorial will proceed under the assumption that the economic theories of Marx are valid.]
Written by Ben Szioli
Edited by Jeff Epstein
A prominent political theorist once recommended that for the good of their citizenry, industrialized nations should begin a process of “centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.” Guess who it was.
It was not the economists Keynes, Friedman, or John Stuart Mill. It was not Alexander Hamilton, Charles Montagu, or Henry Thornton, the fathers of American and English central banking.
It was Karl Marx, in tandem with Friedrich Engels, writing in the famed Communist Manifesto. In the second chapter, the writers lay out ten measures for revolution. Central banking is the fifth measure.
In our current political climate, this might come as a surprise. Typically it is the capitalist neoliberal majority that values central banking, since the welfare state is usually funded by the issuing of fiat currency, and welfare is liberalism’s response to the inherent contradictions of capitalism.
Fiat currency and central banking, therefore, are often interpreted by socialists as being capitalist in nature. Materially speaking, as far as their impact in the world today, they do form a part of the capitalist mode of production.
However, Marx and Engels understood through historical materialism (the theory that economic conditions drive historic change) that the existing mode of production could be used against itself. Manifesto compels Marxists to replace the ruling investor class with a ruling working class. The ruling working class can then use the power of the state to end capitalism.
Shying away from involvement in – or understanding of – that economy simply because it is not already socialist in nature actually contradicts Marx, who was a leading scholar of capitalism as well as communism.
Remember, historical materialism did not predict that socialism would immediately follow capitalism. Marx didn’t explicitly predict the rise of late capitalism. Could there be yet another stage within historical materialism before socialism can be achieved? Marxists may have a new set of material conditions to move through before they can put together the measures for revolution and bring about socialism.
A new progressive monetary system is replacing the classical liberal economy of the past. Marxists will need to make changes to this new system, not the old system, in order to arrive at socialism. To do that, they must understand not just the neoliberal status quo, but also the modern monetary reality that we moved into in 1971, when the US moved off the gold standard and began issuing a fiat currency.
This represents a contradiction for Marxists. Though they must understand the modern economy to change it, they must choose between understanding it through one of the two reigning philosophies in mainstream economics – neoliberal monetarism (the belief that money must be backed by a commodity, usually gold, in order to have value) and conservative neoclassical macroeconomics (market economics) – both of which Marxians regard as flawed. The resolution of this contradiction would be a third macroeconomic theory, consistent with the monetary reality we live in, which also explains the flaws of the other theories.
Modern Monetary Theory has emerged as the only theory with the validity to correct the misconceptions of both neoconservatism and neoliberalism, rejecting the concepts of reserve labor (unemployment) and austerity (constrained fiscal spending).
The key assertions of MMT are that nations should move to eliminate unemployment and that money derives value from its ability to settle tax liabilities (and need not be limited by the supply of an underlying commodity). In this way, MMT implies a new monetary policy.
And what is that monetary policy? Please refer to the quote above: “centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.” Similar to what Marx and Engels suggest, MMT recommends utilizing that national bank to employ every willing worker, creating as much money as needed.
In the absence of unemployment, with workers guaranteed a job, employers would be defanged, unable to suppress wages and unable to prevent employees from walking off the job. This would transition us into a new monetary reality, perhaps a new stage of capitalism beyond late capitalism.
If we were to arrive at a weakened form of capitalism that is less hostile to socialism and provides proof-of-concept for ideas like decentralization, public property, and workplace democracy, this would make the job of Marxists far easier. The modern monetary system is an easier place from which to transition to socialism than harsh neoliberalism, and it puts us one Marxian measure closer to revolution.
Now we need only understand how the economy has already worked for almost fifty years.