In this post, I want to hammer home two simple points:

  1. You can use the amount of worldwide production of commodity-money (currently gold) to judge capitalism’s health at any given time.
  2. Capitalism is not a planned economy.

You’d think the second point would be obvious.  As it turns out, though, bourgeois economists often assume that capitalism will function as if it were a planned economy, even though those economists are not aware that they are making that mistake.

Economists will assume that capitalist production “has to” make sense, surely! Economists assume that, if something doesn’t make conscious sense to reasoning humans, then SURELY capitalism and its infinitely wise and godlike “invisible hand” would not allow it to happen.

SURELY the amount of effective demand for goods—the worldwide market for goods—doesn’t depend on something as silly and arbitrary as the amount of gold on the world market.  SURELY the opportunity to sell one’s products to realize a profit would not get held up by such a BARBAROUS RELIC as gold!  I mean, you’re telling me that, because there are not enough bullion bars of inert, lifeless metal in the world, that that means that businesses all around the world, including MY BUSINESS, will not be able to find a purchaser for our products at a profitable price (i.e. without cutting the sale prices below-value to levels that are disastrous for our profits), even while there might be just as many eager customers as ever who genuinely want our products!??!

Yes, that is exactly what I will be arguing.  If it sounds absurd, blame capitalism for being absurd.  Blame the unplanned “anarchy of the market.”  Don’t blame me.  ‘Cause that’s the way capitalism works.

And actually, I won’t be so much arguing this point, but rather fleshing out its implications.  The argument for the necessary role of commodity-money in constraining the market under capitalist production has already been elaborately explained by Sam Williams in his excellent blog “Critique of Crisis Theory.”  In particular, re-reading these blog posts of his lately has crystallized these issues in my mind.  I recommend reading the following blog posts before continuing:

Money as the Universal Equivalent

From Money as Universal Equivalent to Money as Currency

Money as a Means of Payment

The Rate of Interest and the Profit of Enterprise

Ricardo’s Theory of International Trade

A Reply to Anonymous on Gold’s Monetary Role Today

Ricardo’s Theories Challenged by the Crises of 1825 and 1837

(If this seems like a lot of reading, sorry folks!  But if you are reading this blog post (hi Jehu fans!) then you are probably serious Marxists willing to put in the effort to understand this issue).

And, to be more precise, it is not the amount of GOLD, per se, that determines when the market for commodities will be exhausted and when a crisis of overproduction will hit.  Rather, it is the amount of COMMODITY-MONEY that determines this.  It just so happens that gold is commodity-money right now, but that need not necessarily be the case.

In fact, if our elected officials somehow became convinced of my claims that commodity-money limits the size of the world market for commodities, and let’s say they tried to use government spending to “artificially” produce more gold in a non-capitalistic, non-commodity way, then gold would no longer be commodity-money—because gold would no longer be a commodity.  Gold would be a use-value, produced not for sale in order to make a profit, but by the government in order for the economy to use.  But, in having gold produced in this way, the government would have inadvertently robbed gold of its current power as an impartial metric of value, of socially-necessary labor time.  The government would be, in effect, counterfeiting gold in the same way that they currently counterfeit paper money.  Those capitalists who wanted to safeguard their value would no longer trust gold as an impartial metric of value, and would dump it for some new commodity-money.

As bloggers Sam Williams and Jehu have often put it, the government does not decide what real money is.  Capitalists decide what real money is.  The only way the government could really decide what counted as money is if the government were able to implement a totalitarian surveillance on all economic transactions to prevent using some new commodity as money.  Would that even count as capitalism anymore, though?  I think not.

Nay, the only way to really get rid of the “barbarous relic” of commodity-money-as-representative-of-social-value would be to institute a planned economy.  So allow me to first show a model of what a planned economy looks like:


This screenshot is from the game “Master of Orion.”  The economic model of this game is very simple:

Every turn (year), each planet has a certain amount of production points divided up between 6 categories (see the bars on the right).

The production points each year are tabulated thus:

Each million of population produces 1 production point and consumes 0.5 production points, yielding 0.5 production points per turn.

Each million of population produces 3 times as much if they have factories to work at (rather than just working with their hand tools).  So, each worker+factory pair produces 3 production per year.  Or, another way to think of it is, so long as there is a worker to work at a factory, each factory produces 2 production points per turn.

Each worked factory also produces 1 million tons of toxic waste per turn, each of which requires 1 production point to clean up.  So the net benefit of each worked factory is 1 production point per turn.  (Later on, you can research better clean-up technologies).

(Here, this planet of Rha would be producing 38*0.5 production points per year from population, and 15*1 factories per turn from factories, or 19+15 = 34 production points per year.  “Growth” means that the planet grew by 2 million in population since the previous year).

At the start of the game, each million of population can operate 2 factories (these are BIG factories!).  You can research technology to give your workers advanced robotic controls so they can work more factories per population.

Your starting planet starts with 40 million in population and 50 factories.  There are enough workers to work all of the factories (and, in fact, some 15 million workers who will at first be left out of working in the factories, since it only takes 25 million of your pop to work all 50 factories).

The game makes the following assumptions:

There are no lazy workers.  Or, if there are lazy workers, there are always just enough hard-working workers to counterbalance them.  In any case, the average productivity of your workers is always 1 production point per million without factories, and 3 production points per million with factories.

Your workers always consume the same number of production points for their own sustenance (0.5 production points per million).  Workers do not competitively bid for jobs and sell their labor power.  Instead, your government just assigns them this ration of consumer goods and keeps it constant per worker.  One could, however, simulate an improving standard of living for the workforce by putting more spending onto the “Eco” slider.  This ecology slider is usually used for doing the necessary minimum of toxic waste cleanup and nothing more.  However, additional spending on that slider goes towards improving the lives of your workers with nice use-values, such that they become happier and start having more babies, boosting your planet’s population growth.  However, when the planet has reached max population, any excess production going into the Eco slider gets “wasted” (except from the point of view of improving your virtual citizens’ lives, of course!) in that there cannot be more population growth on that planet.  You can permit colonists to leave a maxed planet for a new colony.  However, if you don’t do this, the game makes the assumption that your citizens of the future are an enlightened bunch that practice family planning and make sure that a planet is never over-burdened by more population than it can support.

You can also use production points to build more factories, at the starting cost of 10 production points per factory.

Your first year of production is:  40*0.5 (0.5 per population) + 50*1 (1 per factory) = 70 (production points).  You could build 7 factories.  Let’s say the population also grows by 2 million just from natural increase (and let’s assume it does that every year).

Year 2:  42*0.5 + 57*1 = 78.  So you build another 7.8 factories.

Year 3:  44*0.5 + 64 = 86.  So you build another 8.6 factories.

Year 4:  46*0.5 + 73 = 96.  So you build another 9.6 factories.

Year 5:  48*0.5 + 83 = 107.  So you build another 10.7 factories.

Year 6:  50*0.5 + 93 = 119.  So you build another 11.9 factories.

You are now up to 52 million citizens and 105 factories.  But wait!  Uh-oh!  Your 52 million citizens can only work 104 factories.  You now have too many factories for your citizens to work!  There has been an overproduction of productive capacity (I won’t say “capital,” because we are not dealing with capital chasing a profit here).  Surely there is going to be a catastrophic depression, unemployment, starvation, etc….

Actually, nope.  It’s not that big of a deal.  Production will continue increasing, just not at the maximum possible rate.  You could keep building even more factories, and your citizens would not suffer.  They would continue receiving the same rations, the same standard of living, as ever.  Of course, it would not be an optimal allocation of resources from the standpoint of the government in its competition with the foreign races in this game.  One might want to put that production into the Eco slider to boost happiness and population growth, or maybe into ship-building if there were a military threat, or maybe into research for long-term improvements.  But the point is, mis-allocations of resources don’t automatically result in catastrophic crises in this game’s planned economy like they do under capitalism.

You could even set the bar higher and constantly increase the citizens’ rations through the Eco slider, and still you would not see crises.  For example, instead of supplying each million citizens with 0.5 production points of goods, you could increase that ratio all the way up to 0.99 and still be making a “profit” on every citizen’s work.  Assuming that you planned things out correctly so that there were always enough factories for your citizens to work in and increase their productivity with, you could increase their payment all the way up to 1.99 production points per million, and still you would be making a (tiny) “profit.”

And the only mis-allocation of resources in this case that would cause a crisis of unemployment and starvation would be if there were not ENOUGH factories produced ahead of time (or if an earthquake hit, destroying a bunch of factories suddenly), such that some workers would be unemployed and only producing at the lower level of 1 production point per year, thus consuming more than they produced, leading to starvation.  But this would be a crisis of UNDERPRODUCTION, not OVERPRODUCTION, as occurs under capitalism.  The way to deal with crises of underproduction is obvious:  build more of the stuff that is lacking (factories, in this case)!

In this planned economy, there can be relative shortages and oversupply.  In the words of bourgeois economists, there can be “disproportionatlity.”  There can be relative shortages of workers in proportion to the oversupply of factories that are available to work.  And there can be shortages of factories compared to the oversupply of workers available.  But there can never be absolute oversupply of both workers and factories at the same time, with both workers and factories lying idle.

Bourgeois economists, the adherents of Say’s Law, like to imagine that the same holds under capitalism—that there might be periodic crises of disproportionality, but that there can never be absolute overproduction of workers and all commodities AT THE SAME TIME, with idleness on both sides of the question.

If only capitalism were so straightforward….


As a matter of fact, the crises of overproduction under capitalism—in which it appears that, somehow, an absurd situation has arisen in which all commodities have been simultaneously overproduced—are, in fact, their own breed of disproportionality crisis. Except, in the case of capitalist overproduction, the disproportion is between too many non-money commodities on the one side, and not enough of the money-commodity (gold in our current case) on the other side.  In these crises, society has produced too many goods, and not enough commodity-money (gold) with which to purchase them.

If only commodity-money such as gold held to the “quantity theory of money,” as bourgeois economists (and most Marxist economists, for that matter) assume, then everything would automatically correct itself, and this sort of disproportionality would never emerge.  If commodity-money behaved according to the “quantity theory of money,” then what would happen is, as the money-commodity such as gold became underproduced relative to other commodities being overproduced, the “price” of gold would rise (or, saying the same thing, the “price” of other goods in terms of gold would fall), thus making gold production more profitable relative to the business of producing other commodities, and it would encourage investors to go into the gold mining business, thus increasing the gold supply to its proper amount to allow society to purchase the other commodities that had been produced.

Alas! As Sam Williams has shown on his blog (see the links above), gold does not behave according to the “quantity theory of money.”  This is borne out not just by theoretical thought-experiments, but empirically by the crises of 1825, 1837, and the 1970s.

What happens is, when the money-commodity is underproduced relative to all of the other commodities, the money-commodity does not rise in price.  It makes sense, if you think about it:

The money-commodity’s whole role is to act as an impartial metric of value, of socially-necessary labor time.  If its price does not accurately reflect its underlying value, then its use-value as the impartial metric of value in society disintegrates.  It will be of no use to capitalists as a sure way of accumulating value, of “carrying exchange value around in one’s pocket,” as Sam William likes to say.  Its value cannot change according to the whims of supply and demand.  Every other commodity’s price can change according to the whims of supply and demand, periodically diverging from their underlying values while, in the long run, orbiting above and below that underlying value to equal degrees.  But not the money-commodity.

Instead, when the money-commodity is underproduced relative to all other commodities, interest rates rise.  The Sam Williams blog posts above explain the reason for this paradoxical reaction.

The rise in interest ends up correcting the disproportionality by reducing the profit of enterprise, thus forcing businesses out of business and reducing the production of commodities down to a level of value proportional to the production of the money-commodity.

Therefore, the disproportionality between too-little money-commodity and too much of all other commodities cannot be seamlessly adjusted in incremental amounts by raising the price of the money-commodity, and thus incentivizing more production of it.  Instead, the disproportionality must be solved by lowering the price of all other commodities that are being produced in amounts that are too large, and thus discourage their production, bringing their amounts back down to be in proportion to the money commodity.

In other words, under capitalism the disproportionality between money-commodity and other commodities cannot be solved by bringing the production of money-commodity up, but only by bringing the production of other commodities DOWN.


“But wait!” Our bourgeois economist friends would exclaim.  “If there is too little of the money-commodity to allow everyone to purchase the other commodities that society has produced, then just print more token money and helicopter drop it into the banks to lend it out, or into people’s bank accounts directly!”

Unfortunately, while commodity-money such as gold does NOT adhere to the quantity theory of money, token monies such as fiat paper dollars DO adhere to the quantity theory of money.  The only result of such a helicopter drop is to devalue the exchange rate between dollars and gold.  Dollars become worth less, and prices of commodities in terms of dollars rise.  It suddenly takes more dollars to purchase all of the commodities that society has produced, and society is right back into the problem of not having enough money to purchase all of the commodities that it has produced.

“But wait” Our bourgeois economist friends would exclaim.  “What if we extended credit to people so that they can buy up the commodities that society has produced.  No more overproduction, right?”

Not so fast.  Credit money can temporarily allow society to purchase more of the commodities that it has produced, but this only sends the wrong signal that producing more commodities will be profitable (when in fact they wouldn’t be without the credit stimulus), and it only worsens the crisis of overproduction when it eventually hits.  The more credit there is in the system, the more that the prices of goods rise relative to their underlying values (and relative to gold).  On the flipside, this means that gold’s relative price drops relative to other commodities.  The profitability of gold mining drops.  Capitalists then have even less of an incentive to mine gold.  Gold production drops off, thus worsening the eventual crisis of overproduction (or disproportionality between too little commodity-money and too much of other commodities).

As Sam William puts it, those times when society needs more gold are just those times when the incentive to produce gold DECLINES.  One of the cruel jokes of the capitalist system.

By the way, a government’s deficit spending (financed by generous interest-bearing loans to capitalists who would otherwise not get any interest on that superfluous capital) is also a type of credit money.  Keynesianism, like other credit money schemes for avoiding crises of overproduction, is unsustainable.

So of the three types of money:

  1. Commodity-money
  2. Token money
  3. Credit money

Only increasing commodity-money actually expands the market for products in a sustainable manner.  Only increasing commodity-money actually makes capitalism “healthier,” if by “healthier” we mean less prone to crises of overproduction in the near future.


So, how is capitalism doing nowadays?

Fairly well.  Gold production since the financial crisis has been increasing at a good clip.  Thus, we are not likely to experience another crisis of overproduction in the immediate future.

Another way you can tell that we are unlikely to experience another crisis of overproduction any time soon is the fact that interest rates are very low right now.  This suggests that there is plenty of gold relative to other commodities right now.  The Federal Reserve deserves only partial credit for the low interest rates right now.  (As a matter of fact, as Sam Williams explains, the Federal Reserve mostly follows the rates that the market sets.  If the Federal Reserve tries too hard to keep rates down by purchasing bonds with printed money, depreciation of the dollar and, paradoxically, higher interest rates will result as money capitalists try to protect themselves from higher expected inflation by demanding higher interest rates, or else buying more gold instead of bonds).

On the other hand, you can see gold production starting to plateau in the last couple of years.  Other sources I have read have indicated that worldwide gold production might be on a slight downslope after Q2 of 2015.  The reason why is understandable if we look at gold prices, and thus the profitability of mining gold:

When gold prices started going back down again a couple of years ago, gold mining companies started cutting their exploration budgets.  Those adjustments are now filtering down the supply chain and will be leading to a slight drop-off in gold production going forward.

Soon we will be entering the boom phase of the industrial cycle.  Capitalists will see profits ahead and will increase their reckless credit lending once again, interest rates will start to climb (regardless of what the Federal Reserve wants to happen), gold production will continue to drop off and the stage will be set for another crisis of overproduction.  (See what happened the last time world gold production dropped off—from 2005 to 2008, right before the Great Recession!)

But we are not there yet.  So, as a sober and realistic Marxists, I would not go around just yet shrieking about the “imminent collapse of the capitalist system” as some socialist parties habitually do.  It will take a few more years for the cycle to come full circle.

And even then, when the new crisis of overproduction inevitably breaks out, its outcome is not set in stone.  Society will simply be given a choice:  endure the necessary famine in the midst of plenty to forcibly and abruptly correct the disproportionality between too-little commmodity-money and “too much” of other commodities, OR do away with the capitalist system and provide for people’s needs in a conscious and planned manner that is not hamstrung by the asinine and absurd need for enough of a commodity-money to allow people to purchase the goods that they have already made.


Instead of having the consumption of workers and productive enterprises limited by the amount of gold on the world market (a rather silly, arbitrary, and absurd restriction, when you think about it, but one that is unavoidable under the laws of capitalism), we could instead just ration out commodities to people and enterprises in a conscious and planned way, and their lack of money-commodity, that “barbarous relic,” would not be an impediment to them getting a hold of those commodities.  We could produce commodities in whatever large numbers we wanted, and it would not matter how much gold our society had to purchase them with, because our society would not be using gold for that.

The theory against just rationing out commodities to people is, it will remove their incentive to work and “earn” their commodities, and we will be faced with crises of underproduction once again as people decided to slack off in their work of producing commodities for society.

I admit that it is something to consider.  I am not idealistic.  I have my fair bit of cynicism about the tendency towards humans having interests to engage in activities that don’t necessarily serve the social good.  (For example, I might enjoy playing video games all day, which, though it might seem like productive activity to myself, would not serve any social desire or seem like socially-necessary labor).

Could we find non-transferable, non-commodity means of motivating people to work at producing commodities for society (beyond just making the work more pleasant in the first place?)  Maybe social prestige, awards or non-transferable service vouchers for various services could work.  (The vouchers would need to have a person’s name on them and be non-transferable so that they could not be sold as commodities, which would make them into a form of money and re-introduce all of the problems of capitalism).  Something to think about….

And, of course, the populace would need to have strict, transparent, democratic control of the planning authority to make sure that it did not needlessly work them to death building war machines to conquer other parts of the world and enrich some nomenklatura elite, as happened in the Soviet Union.  Instead, a democratically-controlled planning authority would sensibly reduce obligatory labor hours to drastically less—maybe 2-4 hours per day—and would direct those hours of labor towards the production of actual use-values that the populace wanted—such as homes, heating, neat gadgets, etc., rather than war machines.