Why Marx Loved Central Banks

In his “Manifesto of the Communist Party” (1848), published together with Frederick Engels, Karl Marx calls for “measures” — by which he means “despotic inroads on the rights of property” –, which would be “unavoidable as a means of entirely revolutionizing the mode of production,” that is, bringing about socialism-communism. Marx’s measure number five reads: “Centralisation of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.” This is a rather perspicacious postulation, especially as at the time when Marx formulated it, precious metals — gold and silver in particular — served as money.

As is well known, the quantity of gold and silver cannot be increased at will. As a result, the quantity of credit (in terms of lending and borrowing money balances) cannot easily be expanded according to political expediency. However, Marx might have fantasized already, what would be possible once the state is put in a position where it can create money through credit expansion; where it has usurped and monopolized the production of money. Long before Marx, the English churchman and historian Thomas Fuller had elaborately expressed the power of money: “Money is the sinew of love as well as war.”

The Origins of Modern Central Banking

The idea of central banking has a long history. For instance, the Swedish central bank, the Sveriges Riksbank, was founded in 1668, and the English central bank, the Bank of England, was formed in 1694. The fraudulent operations of such institutions came to light soon, at the latest with the writing of the British economist David Ricardo. In his 1809 essay “The High Price of Bullion” he pointed out that it was the increase in the quantity of money — in the form of banknotes not backed by gold — that caused a general rise in prices, an effect we know as (price) inflation.

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Dr. Thorsten Polleit, Chief Economist of Degussa and macro-economic advisor to the P&R REAL VALUE fund. He is ...

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Gary Anderson 7 months ago Contributor's comment

Or, you could consider that central banking has been couched in a capitalist setting. I think it is a stretch for Mises to say that central banking is communism. There is always a danger of totalitarian possibility with central banking, in such concepts as Cashlessness.