When Marxists Deploy the Quantity Theory of Money and Other Economic Nonsense

by Philip Pilkington

Article of the Week from Fixing the Economists

It’s truly infuriating to watch left-wingers talk absolute nonsense when discussing the economy. I encounter it all too often. What you generally get is a hodge-podge of incoherent economic ideas — usually incorporating the worst aspects of right-wing doctrines like monetarism — topped off with a general hand-wave that, well, capitalism is full of ‘contradictions’ and doesn’t work anyway so what’s the use of discussing it in any detail.

Joan Robinson — probably the Post-Keynesian economist who dealt with the left in the most depth (I think others just get peeved) — noted this time and again. In her Open Letter From a Keynesian to a Marxist she mocked the tendency of left-wing economists to simply worship at the feet of Marx rather than trying to figure out what was good and what was bad in his analysis. A classic example of this is the following two paragraphs,

Again, suppose we each want to recall some tricky point in Capital, for instance the schema at the end of Volume II. What do you do? You take down the volume and look it up. What do I do? I take the back of an envelope and work it out.

Now I am going to say something still worse. Suppose that, just as a matter of interest, I do look it up, and I find that the answer on my old envelope is not the one that is actually in the book. What do I do? I check my working, and if I cannot find any error in it, I look for an error in the book. Now I suppose I might as well stop writing, because you think I am stark staring mad.

Robinson was completely right, of course. Most Marxists have no interest in figuring out what is good and what is bad economic analysis. Rather they are just interested in ideology. Any old silliness that can buttress their ideological and political claims can be brought into service.

I saw a rather egregious example of this today when I watched a video entitled What’s Driving Inflation in Venezuela?. I’ve posted the video below so that readers can view it. In it a sociologist tries to explain the inflation in Venezuela. Some of the reasons he gives are entirely nonsensical.

For example, he claims that because the economy is reliant on oil revenues that arrive to the country in the form of dollars this is a key determinate of inflation. Yeah, I know… what on earth is he saying? Only an incredibly primitive economic theory would claim that an increase in foreign reserves due to an trade surplus would generate inflation. A trade surplus leads to an inflow of foreign reserves and increases the value of the domestic currency. This allows for cheaper imports and puts downward pressure on prices.

But as you continue viewing it becomes clear where all the confusion comes from: the sociologist is espousing the quantity theory of money. Okay, this theory doesn’t tell us that a trade surplus leads to inflation but that is only because he doesn’t understand it properly. But it is quite obvious from listening to him that all of his views are centered around the quantity theory of money — this is the only solid pillar in his otherwise haphazard framework for interpreting economic events.

This reminded me of another Joan Robinson quote. This time from her book Economic Philosophy. It runs like this,

Marxist critics have understood that Keynes’ theory leads to conclusions which from their point-of-view are reactionary. They therefore deny the logic of his analysis and even find themselves in alliance with the protagonists of the humbug of finance which Keynes first attacked. For instance, Professor Baran [a prominent Marxist economist] is not content with showing that an economic system that can maintain prosperity only by expenditure on armaments is a menace to humanity, morally abhorrent and politically disreputable; he also has to bring in the Quantity Theory of Money to show that it cannot work because Government expenditure causes inflation. (p90)

Reading quotes like the one Robinson mentions and watching videos like that posted below one wonders what exactly people who consider themselves Marxists actually take out of Marx’s writings. You see, Marx was an adherent of Thomas Tooke’s theory of money — which ran directly contrary to the quantity theory. Here is a quote from the second chapter Marx’s early work Critique of Political Economy lambasting Ricardo’s quantity theory of money and saying that it was a tautology that had no ability to explain the underlying cause of price changes,

Ricardo’s monetary theory proved to be singularly apposite since it gave to a tautology the semblance of a causal relation.

The typical refrain now would be to say: “Oh, if only they read their Marx properly!”. But I don’t buy this at all. I think that Marx is a muddle. And I think that Robinson is correct: Marx is not read to be understood; he is read to endow the reader with a mystical sense that some sort of Truth has been accessed.