Demonetization is Nothing but Deliberate, Calculated, Regulated, Destruction of the Productive Forces

Rajesh Tyagi/ 15.12.2016

Economists both on the right and the left have attempted to decode and explain demonetization. Those on the right have conceived and explained it in terms of its avowed objectives that are almost farcical, while those on the left have failed to look beyond the conspiracy theories, which in no way explain demonetization.

Suddenly, but with great fanfare the right-wing government under Narendra Modi announced that the currency notes of Rs.1000 and 500 denomination would cease to be legal tender with immediate effect. In a live telecast, in the evening of November 8, the Prime Minister himself announced that the purpose of demonetization was to push out the ‘black’ money from circulation, as well to pull it out from hidden stacks.

Critiques have continued to attack the move on the ground that the same has failed to achieve its declared objective, i.e. ouster of black money, while supporters are calling for ‘wait and see’.

Neither conspiracy theories or the after-effects of demonetization, nor the failure of proclaimed objectives takes us to the real issue, i.e. the need and character of demonetization and its place in economy. To understand demonetization, first of all we have to travel beyond the alleged objectives or conspiracy theories.

Any move of a right-wing government would obviously be designed lopsidedly to the benefit of corporates and to the detriment of the poor. Still, this common feature in policy regime, comprises only the secondary aspect and offers no explanation for what has prompted the government to enter into the gamble of demonetization.

Demonetization cannot be understood except in context of an economic scenario that had virtually compelled the government to move.

This scenario unfolds itself in the dialectics of world economy, primarily in the self-contradictory character of the Indian economy itself, where it opened-up to the world economy more and more since 1991, still continuing within its cocoon, resisting and thwarting the tempo of its integration into the world economy.

Three economic crises of 1998, 2001 and finally the major sub-prime crisis of 2008, had shaken the world economy to its roots. US and after it Europe were the worst hit by these jolts and their economies lost a lot of flab in the process. There was great internal destruction of productive forces in advanced world due to these crises, specially the 2008 crisis.  

While the advanced world was doing all weightlifting of the economic crises, few economies, India and China included, were insulated from their devastating effects. Thus at a time when the west was being stripped off the growth, economy was being slowed down and profit rates were steeply falling there, the productive forces were growing at great tempo in India and China to great advantage of their economy and elite rulers. It is not that these economies were not hit by the crises, but the damage was nothing compared to that in the countries of advanced Europe or the US. The gains in terms of the inflow of investments and finances from the global pool, were huge, especially between 2004 and 2010. No doubt these economies did operate inside the framework of the world economy but they were big gainers by and even at the time of loss in the west and the US.

But what appeared to be a boon in previous years of economic boom, soon turned to its opposite. The uninterrupted proliferation of Indian economy for fairly long period, turned into a noose around its neck. The immense growth of productive forces inside the old narrow shell of its national state, that too in the times of overall crisis of world economy, resulted in over-saturation and ever increasing pressure upon its economy.

In the last century, these pressures were again and again created by the growth of productive forces inside the womb of national economies, resulting into wars and revolutions. The two world wars alongside innumerable big and small wars and the revolutions of the last century, were the direct outcome of these pressures.

The imperialist countries had continuously engaged themselves into releasing this pressure upon their economies, through expansion of territories and zones of their influence. In this expansion, they have sought opportunities to capture virgin territories, new markets and sources of raw material to accommodate the expanding economic forces. However after division of the world into zones of influence of world powers, massive destruction of the productive forces every now and then, through wars and violence, has been the sole way out to create space for fresh growth inside the same old shell of national economies and national states.

Lately, India had been home to immense growth of productive forces, but without any avenues to occupations, annexations or wars to release the pressure created by this growth. Its opportunities, for expansion of its zone of influence, had been more limited. An Indo-Pak war could have carried out such massive destruction, but that also could not materialize for the geo-political situation including the nuclear deterrent.

The ever increasing pressure upon its economy, had been reflecting itself in the continuously falling rates of profits ever since 2010. This meant, not only diminishing possibilities of new investments, but outright flying away of global capital already invested inside the country.

To release this bottleneck in economy, demonetization was applied as a tool to give a cascading effect from below to create breathing space at above.

Ascent of the right-wing BJP under Modi to power, was the result of this crisis that continued even after its ascent. Immediately after coming to power in 2014, Prime Minister Modi himself undertook touring of all major capital exporting countries, to generate confidence among the big foreign investors.

The core task before the rightwing government was to arrest the falling rate of profit to attract the global investments. But this could be done only through massive cleansing, i.e. through destruction of old economic structures and forces, that included chiefly and primarily the trimming, if not wiping out, of petty trades and businesses.

Demonetization is the major tool to implement the program of this cleansing, to deflate the inflated economy, to prune its expansion. Far from being insane and thoughtless exercise, as bourgeois opposition is accusing the move, it is deliberate, calculated and regulated destruction of old productive forces to make space for the growth of the new. It is chemotherapy of the economy to keep it alive for more time. It is dialysis of ailing capitalism.

The declared purpose, the weeding out of black money, was absolutely farcical. It was aimed at covering up the real motives. It emerged out of the malevolent concern of the government how to sell off the malicious project to the people, to its prospective victims.

More than 70 have since died in long queues outside the banks awaiting their turn to get the new currency in exchange of the old one. Billions are still queuing up day and night all over the country. Banks and ATMs have dried up and mostly gone cashless. There is huge chaos everywhere. Markets are ruined, with petty traders, vendors and small business people as worst victims under the axe of demonetization.

Government knew in advance that the consequences are going to be explosive and the destruction it had planned meticulously would result in incalculable loss of human and material resources. But did it really have any choice? It had none, in fact! Had it not carried out the mammoth destruction at lower rungs of the economy, the economy would have crumbled under its own weight.

To understand and explain in simple terms the demonetization, we may well draw a parallel with compulsion of a gardener to uproot a plant to prune its roots that have already covered the space inside a pot, to its full capacity. Further expansion of the roots (productive forces), would either stifle the plant (stagnate the economy) or break the pot (revolution).    

Finally, demonetization cannot be reduced to a conspiracy of Modi Government as most of the bourgeois opposition parties and Stalinist left is arguing. Demonetization, on the contrary, is the compulsive mandate, thrust upon Modi government, by the blind forces of moribund capitalism.

It is learnt that even before Modi, Manmohan Singh has proposed this economic measure, but Raghuram Rajan blocked this for many pragmatic considerations, prime among them the cost of printing and distribution of the new currency. His advice was that the measure was going to cause more damage than benefit. The more this destruction was delayed, the more heat was felt and the more it became indispensable. What the liberal representative of the bourgeoisie could not perform, the fascist did. Here lies the nub why in the time of crisis, the rich and elite support fascists.  

Immediately after India, Venezuela has also carried out similar measure, delisting its top currency as legal tender. China, being a major exporter of finance and broadly a state monopoly, set off this measure in advance with another, i.e. devaluation of Chinese Yuan. Countries that did not suffer a military engagement in near past and had been beneficiaries of economic boom are being forced by the outcome of this boom itself to take emergent measures to clip the wings of their economies, to carry out the conscious, regulated destruction of the productive forces of their own that could not be destroyed by economic crisis and wars.

For more than a century, world capitalism is living through these cycles of limited growth and unlimited destruction of its own produce that it has no appetite to digest. This frequent destruction is preventing any real development of the productive forces on global scale. Long ago in history, productive forces of capitalism had started to stagnate and imperialism has since struck its dead-end. Demonetization itself is the best living proof of the fact that the world cannot grow further even an inch on a capitalist basis.

The ruin and pain that people in India have suffered and are still suffering under demonetization, is only a promo of the future when far more predatory and cruel measures would be undertaken one after the other by the elite rulers to keep the old capitalist system intact through violence and destruction. On top of this destruction, are bound to appear the unlimited wars, culminating finally into a nuclear holocaust.