The Real Movement

Anyone who thinks Greece should leave the euro might want to revisit the Argentina depression of 1998-2002. According to Wikipedia, at the height of the depression almost 60% of the country lived below the poverty line. Argentina was forced to default on its debt, unemployment rose to 25% and the state froze all bank accounts for 12 months.

The parallel to Greece is significant because although Argentina never was a member of a common currency, at the outset of the crisis, its currency, the peso, was fixed 1-1 to the dollar. The parallel between Greece and Argentina is that the euro also acts like a fixed exchange among many different national currencies. Thus, if Greece were to exit the euro common currency system, it would essentially be like floating the drachma against the mark, franc, and so forth. If this is true, at least in theory, the exit of Argentina from its fixed exchange with the dollar at the beginning of its own 1998 crisis may throw light on what Grexit would mean for the Greece working class.

For the past week or so, I have surfed the web trying to find any Marxist economist who has attempted to calculate the real impact of Grexit on the working class. It will be no surprise to many who follow me that thus far I have found no one at all among these useless Marxist academics who have made even the slightest attempt to model that scenario using the assumptions of labor theory.

According to many Marxists, a Greece exit from the euro and from the EU is the only basis for a revolutionary position; yet none of them have tried to estimate the cost that would be borne by the working class in terms of currency instability and loss of markets this implies. But a Greece exit from the EU not only implies the drachma floats against the euro common currency, it also means the end of free movement of Greece’s commodities, capital and workers within the EU market. Given this, and working with almost no actual useful input from Marxist economists beyond ideological white noise, I am going to try to do a back of the envelope scenario.

At the outset, it should be clear that floating the peso under much the same circumstances Greece will be facing when it leaves the euro, implies it will experience a second depression on top of the one it is already experiencing. If the Wikipedia entry is accurate, this implies a further 25-30% unemployment on top of the 25-30% unemployment Greece is suffering right now and all of Greece’s debt, both public and private, will now be denominated in foreign currencies.

Here is Costas Lapavitsas’s take on Grexit from the euro, which in truth should be called the “Golden Dawn economic platform of 2014”; although, its likely target is dumb Marxists and progressives. Lapavitsas asserts in his opening statement that, the crisis Greece is now passing through has its roots, not in the mode of production, but in its membership in the eurozone:

“Greece is paying the price for a belief in the ancient fallacy that possessing “hard” money puts a weak economy on a par with the strong. In reality, “hard” money is more likely to destroy a weak economy”.

Unknowingly, in the passage, Lapavitsas provides us with a clue as to the true origins of this crisis: Hard money, i.e., a money with a relatively stable value, has become incompatible with the operation of the capitalistic mode of production. But money itself is only exchange value — the expression of the value of commodities in the form of some money — and capitalism is only the production of surplus value.

In other words, Lapavitsas has told us that “hard money”, a money with a stable purchasing power, is now incompatible with the production of surplus value. This is an observation that is almost 80 years old, having first been made by John Maynard Keynes against gold. The view was “confirmed” by none other than former Federal Reserve chairman, Ben Bernanke, in the 1980s in a paper he wrote on the subject: “The Gold Standard, Deflation, and Financial Crisis in the Great Depression”. According to Bernanke, the gold standard was the cause of the Great Depression, transmitting a contractionary shock throughout the economy:

“Recent research on the causes of the Great Depression has laid much of the blame for that catastrophe on the doorstep of the international gold standard. In his new book, Temin (1989) argues that structural flaws of the interwar gold standard, in conjunction with policy responses dictated by the gold standard’s “rules of the game,” made an international monetary contraction and deflation almost inevitable. Eichengreen and Sachs (1985) have presented evidence that countries which abandoned the gold standard and the associated contractionary monetary policies recovered from the Depression more quickly than countries that remained on gold. Research by Hamilton (1987, 1988) supports the propositions that contractionary monetary policies in France and the United States initiated the Great Slide, and that the defense of gold standard parities added to the deflationary pressure.”

In labor theory it is assumed a depression results in a fall in the quantity of money circulating within the economy, because the prices of commodities fall due to overproduction and fewer commodities are sold. For the bourgeois simpletons, however, the case is the reverse: in their opinion, it is the lack of sufficient money in circulation that causes deflation and depressions.

In his argument, then, Lapavitsas is simply regurgitating the typical simpleton Keynesian/monetarist argument for inflationary economic policy. But his argument at the beginning of this article points to a problem far deeper than Greece and the euro: If Lapavitsas, Keynes and Bernanke are correct, the production of value is no longer compatible with the production of surplus value.

To put this another way, if the production of commodities is to be profitable, the prices of these commodities cannot express their values. There is a growing divergence between the prices of commodities (measured in some fiat currency) and the values of those same commodities (measured in a commodity money). With regards to labor power, this is expressed in a growing divergence between the nominal wage and the real wage. No matter the increase in their nominal wages, the workers find their wages never keep up with the increased prices of those commodities. If production is to remain profitable, nominal prices must rise faster than nominal wages, no matter the rate of increase in the latter.

Lapavitsas’s complaint against the “hard money” policies of the European Union and the European Central Bank is basically a complaint that the rate of inflation — the divergence between real and nominal prices — is insufficient for profitable production in less developed national capitals within the EU like Greece, Portugal, Ireland and Spain. To save itself, Greece national capital must exit from the common currency and forcibly devalue the real wages of the working class through a devaluation of the exchange rate of its own currency with dollars and euros.

Thus, argues Lapavitsas,

“Greece is heading for an exit from the euro and the rest of the eurozone periphery is likely to follow, with severe implications for the monetary union. Coping with an exit will require the reintroduction of economic controls, a major retreat from the neoliberal, pro-market approach to economic policy.”

Greece national capital cannot compete against German national capital. If it is to compete it must reduce still further the subsistence of the Greece working class and increase the rate of surplus value.

For several years now, the troika working with Greece national capital (not against it, as is commonly reported) has tried to forcibly adjust the economy through a combination of measures to increase the absolute and relative rate of surplus value within the context of the common currency. This program, the so-called “internal devaluation” scheme, or labor flexibility scheme, has so far proven insufficient, resulting in at least a semi-permanent state of depression lasting far longer than expected.

To be clear, the depression was intentional; but no one expected it to have to last this long. The aim of the depression was to forcibly reduce nominal wages below the value of labor power and thus to raise the rate of surplus value. However, in 2013, the IMF assessed the “adjustment” program and found it to be a complete disaster. While the troika and Greece national capital were successful in gutting a good portion of Greece’s social labor costs, economic activity fell faster. For every dollar of labor costs that was trimmed, it appears that GDP fell by perhaps as much as $1.60.

Against this clusterfuck of neoliberal economic management, Costas Lapavitsas makes a plea for a return to good old-fashioned fascist state management.