Non Credit Money

What are, really, economic laws?

Many economic theorists tend to blame systemic policies for constraining the natural economic laws. However, in order to conceptualize and institute a system where economic laws will be able to operate freely, it is first necessary to understand these laws, and this is the very task of economic theorists. Also, theorists must supply policy makers with the economic and political instruments necessary, as well as indicate possible ways and means to achieve desired goals. Whenever goals fail to materialize, theorists are inclined to ascribe this to the policy makers’ inability to make proper use of the economic and political arsenal the theory provides them with. In addition, economic theorists usually purport that they are well-versed in economic laws, and that the system’s poor performance is due to politicians’ “wrong turns” and lack of consistency in following the opinion and advice of economic theorists.

But what will happen in case if economic theorists actually do not understand the truly-governing objective categories and laws of economy?

Then they will not only give policy makers wrong advice, but will not even have any valid criteria for evaluating the performance of the system and policy. This, in fact, is the reality in the world today.

Economic science is in crisis, because its system of categories and laws deduced from the premises its analysis rests on, is only adequate for an earlier stage of development of productive forces and relations, while the current stage of development (and particularly the pace of development) creates substantially different premises that can be theoretically articulated only by a new, revolutionary theoretical paradigm, that is, a new system of new categories and laws.

Surplus utility

The new paradigm should certainly be able to explain the existing reality, i.e. the deepest causes of the existing crisis, as well as to point out the ways to overcome it. I believe this new paradigm may be developed by first taking a look at the fundamental views of classic economists (usually deemed relevant primarily to the system of primitive barter economy):

“In a future society, in which class antagonism will have ceased, in which there will no longer be any classes, use will no longer be determined by the minimum time of production; but the time of production devoted to different articles will be determined by the degree of their social utility.”

(K. Marx: The Poverty of Philosophy).

“Various articles’ use value, weighed against each other and against quantities of labor necessary for their production, will ultimately determine economic planning.”

(F. Engels: Anti-Dühring).

If we presuppose that the mentioned fundaments of a new society could be realized within a particular (new) type of commodity production, then it is obvious that:

1. In such mode of production, there must exist, analogous to the category of abstract labor (as a measure of costs), a category (as an equivalent in the sphere of consumption) of abstract social utility (that would represent a measure of the quantitative aspect of use value).
2. Objective abstract labor and objective abstract utility (i.e. costs and utility in general) can be quantitatively compared (and expressed in money).

Thus, in such a society, money appears as a measure of objective abstract utility. Since costs and utility materialized in commodity can be quantitatively expressed (in money), market price would naturally take a level between the maximum possible price (equaling utility) and the minimum possible price (equaling costs). The difference between abstract utility and abstract labor I define as surplus utility. The level of the market price will determine how this surplus utility will be divided between buyers and sellers (into the consumer’s and manufacturer’s surplus).

According to the new paradigm, in every commodity are materialized three quantitatively different dimensions of value: cost, market price and utility. These can also be viewed on the global (national and international) level, and so:

• The total amount of invested labor I define as product of the culture.
• The sum total of the market prices – gross national product.
• The total abstract utility obtained - product of the civilization,

and

• The difference between the product of the civilization and the product of the culture - social (or national) surplus utility.

The traditional economic theory, which finds in the value of the goods, basically, only one quantitative dimension, is based, in fact, on the implicit and explicit assumption that these three dimensions are quantitatively equal. Thus, the traditional theory appears only as a borderline, special case of the new theory, i.e. the traditional theory is valid only for the case when the utility surplus equals zero (at least at the global level). In other words, economic theory does not know one of the fundamental economic laws of modern society, and it was inevitable that economic policy would ignore the legality of the existence of surplus utility, which then leads to a series of defects and irresolvable contradictions in the real economic life.

Deflation and Inflation

The usual manner of emission of money in the form of credit is consistent with the assumption of a uniquely determined value of gross social product, but in contradiction to the existence of social surplus utility.

Credit money really represents only the value of culture, i.e. invested labor, and if a society creates any amount of surplus utility (which corresponds not to invested labor, but to rationality of spending), there will lack a monetary equivalent for its realization, which will cause a deflation problem in the society (this being the deepest cause of economic crisis), proportional to the quantity of the actually created social surplus utility. Deflation problem hinders the realization of the material gross national product – leading to stock accumulation, stagnation, dormancy of capacities and unemployment – while inflation represents only an instrument for overcoming (i.e. attempt to fight against) this fundamental deflation problem.

Inflation, along with time asynchronization of incomes and expenditures, in fact represents a spontaneous mechanism for expression of surplus utility. It does so by providing a nominal balance (necessary to meet the dogma of economic science) and a real imbalance of social accounts (realized through rate of inflation and delay between income and expenditures), needed to realize at least a portion of the surplus utility, without which there is no real social progress.

The inflationary and deflationary problem can be overcome only through legalization of a monetary equivalent of the social surplus utility and inauguration of a new system of social accounts, because it is obvious that, being based on the economic theory that does not know the category of surplus utility, current systems of social accounts are valid only for the case when surplus utility equals zero, and economic systems are organized so that they can only function normally if there is no surplus utility.

It should be noted that abstract utility is a completely objective category (unrelated to the bourgeois theory of subjective utility) and just as the quantity of abstract labor is measured by length of working hours, so is abstract utility measured by length of exploitation time of a product (of course, within certain social standards of use).

If abstract labor and abstract utility were quantitatively (in money terms) equal, this would also mean that the length of the cycle of reproduction (i.e. the period after which a new production is to begin) is equal to the length of the cycle of re-consumption (i.e. the period after which a new consumption is to begin), and thus the frequency of supply and demand would also be equal. If, then, were to increase either the rationality of production (an increase in labor productivity would reduce the quantity of abstract labor invested in a commodity) or consumption (extending the use time would increase the substance of abstract utility stored in a commodity), there would appear a surplus utility. Frequency of supply would exceed frequency of demand and there would arise the problem of effectuation of this (over-) production that constitutes the material substrate of surplus utility.
This production can be effectuated only by emitting a monetary equivalent of surplus utility, which is non-credit cash money that must be allotted to the consumers who have real needs for these products. That way their needs are legitimized and money is promoted to a function of measure of abstract utility.

“According to the needs”

In the new society based on this new mode of commodity production (in which laws of value and surplus value are replaced by laws of abstract utility and surplus utility), total income must come from total amount of abstract utility (which, according to the suggested terminology, is product of civilization). This income consists of incomes generated by labor (i.e., incomes representing the product of culture) and incomes from social surplus utility, this representing the superstructure that needs not be financed by taxes that only burden the economy.

By eliminating a tax amount equivalent to social surplus utility, the contention between the business (base) and the non-business sphere (superstructure) is abolished. Nonproductive population (e.g. pensioners, children, pupils and the like), that grows with the growth of the surplus utility, gets its money (income) from the social surplus utility (a separate account of the central bank, according to the decision of the parliament), while the economy grows by selling them goods and appropriating this social surplus utility money, that then becomes the manufacturer’s surplus that adds to his cash accumulation for financing expanded self-reproduction. If exactly the required amount of money is emitted, prices cannot grow, while at the same time a new model of social accounts is established, where the total social income is, by the amount of the emitted non-credit money, greater than the labor value of the social product.

Therefore, legalization of income from social surplus utility that is divided “according to the needs” is shown to be a condition of normal reproduction of any economy and society that has reached a level and pace of development where surplus utility must exist.

If we legalize the monetary equivalent of the social surplus utility, we will provide the economy and society with the amount of money it needs (i.e. the key deflationary issue will be solved) and thus establish a condition sine qua non for the normal functioning of market mechanism.

Only then will particular system policies and socio-political decisions have an opportunity to show and prove their value, while economic policy will, equipped with a simple but adequate set of economic and political (monetary) instruments, effectively and without over-administration serve the realization of the desired goals: stable and fast development with full employment.

Stojan Nenadović, Serbia

stojan.nenadovic@gmail.com