Many people—both free-market advocates and outright statists—don’t understand how modern banking actually works.  They argue about “private banks” versus “state banks” as if labels determine economic reality.  They don’t.  What matters isn’t who owns the bank on paper, but who controls credit.

Marx understood this perfectly.  In The Communist Manifesto, he called for the “centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly.” That sentence is usually dismissed as a crude call for nationalization, but Marx wasn’t fixated on signs on buildings.  He was identifying the command lever of the economy.  Whoever controls credit controls production.

Modern banking achieves this without overt monopoly.  Banks today are private in name only, operating inside a centrally administered monetary system that determines interest rates, liquidity, credit expansion, and failure tolerance.  The decisive variables aren’t discovered through market competition.  They’re set.  Banks may decide which borrowers receive loans, but they don’t determine the price of money, the overall expansion of credit, or the structure of interest rates across time.  Those governing conditions are set centrally.

Marx was explicit about why this mattered.  He argued that private capital allocation reflected class power and that control over finance was necessary to reshape production itself.  As he put it, “The bourgeoisie has subjected the country to the rule of the towns… and has centralized means of production, and has concentrated property in a few hands.” His solution wasn’t merely to redistribute outcomes, but to seize the mechanism that directs investment in the first place.

That mechanism is credit.

The modern system doesn’t abolish private balance sheets.  It doesn’t need to.  Centralization doesn’t require ownership of every bank, only control over the conditions under which all banks operate.  Risk appears private, but losses are socialized.  Competition appears real, but failure is conditional.  Once liquidity is backstopped and interest rates are administered, credit stops being a market phenomenon and becomes a political one.  Marx called this centralization.

A system like this can’t allow prices to fall.  In a genuine market, falling prices reward productivity, reward savers, expose error, and force capital back into alignment with real demand.  They transfer purchasing power to those who deferred consumption and punish those who misallocated resources.  Marx openly rejected this, describing crises not as signals but as contradictions to be overcome.  He wrote that capitalism produces “epidemics of over-production” that must be resolved structurally, not liquidated through market discipline.

Central banking follows the same logic.  Falling prices would reward savers, reveal malinvestment, collapse debt structures built on perpetual expansion, and force liquidation.  That outcome is unacceptable.  So correction is suppressed.  Inflation isn’t a policy error.  It’s the mechanism.

New money must enter continuously to preserve debt solvency, mask capital errors, and prevent assets from clearing.  Marx described money as a social relation, not a neutral medium, arguing that control over it determines real power.  Fiat currency creation functions exactly this way today, transferring purchasing power without production and rewarding those closest to issuance first.  Governments finance themselves without explicit taxation.  Financial institutions gain privileged access to new credit.  Political priorities proceed without market consent.

The public is told this is necessary for stability.  Marx used the same justification, insisting that centralized control was required to overcome chaos and crisis.  What neither admits openly is that the system depends on preventing correction, not resolving it.

That’s why the boom-bust cycle never ends.  Booms aren’t accidents, and busts aren’t failures.  Artificially cheap credit creates the illusion of abundant capital, encouraging projects that couldn’t survive under genuine scarcity.  When reality reasserts itself, liquidation becomes unavoidable—but liquidation contradicts the logic of centralized control.  So the bust is delayed, softened, reinflated, and extended.  The correction never completes.  Each cycle grows larger, more fragile, and more dependent on intervention.

Marx anticipated this permanence.  He didn’t expect crises to disappear under centralization.  He expected them to be politically managed.  Modern monetary policy delivers exactly that outcome.

Statists defend the system openly, which is unsurprising.  What’s more revealing is how many self-described free-market advocates defend it unknowingly.  They oppose regulation but defend central banking.  They criticize bailouts while supporting the system that makes bailouts inevitable.  They speak of capitalism while defending a structure that abolishes the price test of capital.  They focus on superficial features—private ownership and corporate form—while ignoring that the central bank sets the conditions under which all banks operate.

Private ownership doesn’t make a market.  Competition without monetary discipline is theater.  Marx understood that centralizing credit was enough to reshape the entire economy.  The modern system proves him right—not in theory, but in practice.

Whoever controls credit controls production.  That truth hasn’t changed.  What’s changed is that centralization now wears the mask of private enterprise, allowing people to defend the outcome while denying the cause.

Reference

Karl Marx; The Communist Manifesto