Surplus Value (draft)

Another draft chapter for my book. All comments welcome. The most interesting part, I think, is the last section.

Surplus Value

Marx begins Capital with an analysis of the commodity form. He immediately tells us why: because the commodity is the most elementary form of capitalist wealth. From an analysis of the commodity a whole host of categories arise, many of which have been discussed in previous chapters (abstract and concrete labor, general equivalent, money, intrinsic value, etc.) These categories all relate to specific social relations, relations between producers. However, what is missing from the opening moves in Marx’s analysis is an exploration of the twin categories that are the hallmark of his analysis of capitalism: wage-labor and capital. It is not until the second part of Capital that he introduces these central categories.

This is no accident. It is true to Marx’s form. Reality is a concrete totality of many inner relations. It is the job of philosophy to begin with the most abstract categories and slowly expand them until we construct a picture of the concrete totality. In a famous passage in the Grundrisse Marx discusses the task of his new science:

…the abstract determinations lead towards a reproductionof the concrete by way of thought. In this way Hegel fell into the illusion of conceiving the real as theproduct of thought concentrating itself, probing its own depths, and unfolding itself out of itself, by itself,whereas the method of rising from the abstract to the concrete is only the way in which thoughtappropriates the concrete, reproduces it as the concrete in the mind. But this is by no means the processby which the concrete itself comes into being. For example, the simplest economic category, say e.g.exchange value, presupposes population, moreover a population producing in specific relations; as wellas a certain kind of family, or commune, or state, etc. It can never exist other than as an abstract,one-sided relation within an already given, concrete, living whole.”1

The abstractness of value cannot exist on its own. It only makes sense within a certain type of society. But in order to prove that this type of society is necessary for value relations to exist we must probe the category of value as much as we can to see how much it can explain on its own. Once we hit limits, once we find questions we can no longer explain, we find that we are forced to expand the analysis outward to encompass more concrete social relations. If we were to claim, in Hegelian fashion, that reality was a product of the self-expansion of these ideas we would be making a mistake. Rather, our ideas are a product of the world we live in. To make sense of ideas we must identify the social relations that make them possible. We must ‘ground’ the ideas in concrete social practices.

Because Marx holds back his introduction of wage-labor and capital he is able to tease out many of the subtleties of the commodity form that might be skipped over if we rushed head-long into a discussion of wage-labor and capital. For instance, other forms of the accumulation of abstract value, such as hoarding, merchant capital, usury, etc., are all theoretically developed, to an extent, prior to introducing wage-labor and capital. Of course, because wage-labor has not been introduced to the discussion yet these categories often appear only partially, or as potentials. It is not until capitalist production takes the stage that they can develop fully.

At the same time this allows Marx to explain how a theoretical project of building up a concrete picture of capital from the most basic abstractions is different than the real, historical process of capitalist development. Many of the component elements of a capitalist society (money, usury, merchant capital, even the commodity!) existed long before the capitalist mode of production. In their pre-history these categories all exhibited potentials, partially developed aspects of the commodity form that would only fully develop in a capitalist society.

The fact that Marx does not develop the categories of wage-labor and capital until after he has developed all of the categories of the form of value (intrinsic-value, abstract and concrete labor, money, etc.) has historically led some Marxist writers to conclude that Marx began Capital with an analysis of a pre-capitalist society based on “simple commodity production”: a society in which small, independent producers own their own means of production and exchange wares in the market. This interpretation, which begins with Engles and dominates a great deal of Marxist thought, has more recently fallen out of fashion.2 If we try to image how a ‘simple commodity production’ society would operate under the law of value we quickly see that value relations would have a very difficult time disciplining and apportioning labor in a society in which producers were tied to their own means of production. You can not fire and hire workers in response to market signals or race to beat the socially necessary labor time when everyone works for themselves on their own means of production.3 If such a society had existed historically then we could speak of it too having certain potentials and partially developed aspects that could eventually fully develop in a capitalist mode of production. However there does not seem to be historical evidence for this type of society. Rather history shows us communities organized around some form of directly social labor which then sell their surplus product to other communities.

A variant of this myth is that though Marx is not talking about an historical period of simple commodity production he is making an abstraction which operates on the level of a theoretical simple commodity production, a sort-of thought-experiment which imagines the relations between independent commodity producers. I see no evidence in the actual text to support this interpretation. (The most glaring evidence is the lack of the term “simple commodity production” in any of Marx’s writing!4) Rather, what Marx is doing is to slowly expand his picture of capitalism beginning, as he tells us, from the most elementary form of capitalist wealth, the commodity. He will not introduce new categories into his analysis until the categories themselves force the analysis in that direction. This has the advantage of avoiding arbitrary choices in levels of abstraction and starting points. It also allows him to fully develop the potentials of each category before moving on.

This chapter reviews the details of how Marx grounds his analysis of the commodity-form by introducing the categories of wage-labor and capital. It does so by asking the question “Where does profit come from?” Along the way we review the reasons why value cannot be created in exchange, which will lay the groundwork for a discussion of Marx’s theory of price in chapter 9. The end of this chapter discusses the importance of a temporal, non-equilibrium framework for Marx’s theory or surplus value.

The theoretical precision and discipline of Marx’s exposition in Capital is such that he must always develop categories from previously developed ones. It is not enough for Marx to say to his readers, “You must look behind circulation to the realm of capitalist production!” Marx has to show the reader that the categories of circulation are inadequate to the task. He must show that circulation cannot explain itself without reference to production relations. In this way his exposition constantly drives itself forward.

The phenomenon within circulation that drives the analysis toward production is the phenomenon of capital. Marx shows that circulation always maintains a conservation principle: value cannot be created by the mere circulation of commodities and money. Yet capital is a phenomenon made possible by the existence of profit. Because aggregate profit cannot come from circulation we must look to production to discover is origins. This leads to the revelation that the exploitation of wage-labor is the source of profit. Let us review some of the details of this argument.

Marx begins by contrasting two forms of circulation: simple commodity circulation (C-M-C) and the circuit of capital (M-C-M).

Susan sells a pie for $10. She then uses this $10 to buy a book. A commodity (C) has turned into money (M) and then this money has turned into another commodity (C). The same sum of value has changed forms twice: Commodity-Money-Capital, or, as Marx abbreviates, C-M-C. C-M-C, or simple-commodity-circulation, deals with the production of commodities and their exchange with money.

This is contrasted to the circuit of capital: M-C-M. Here a capitalist starts with a sum of money with which she buys commodities. She then sells these commodities for money. Obviously this process is only worth the investment if the capitalist ends up with more money at the end of the process. There must be a profit in sight at the end of M-C-M in order for the circuit to begin.

These two processes, C-M-C and M-C-M, are qualitatively and quantitatively different. C-M-C starts with a use-value and ends with a use-value. When Susan begins the circuit she has a final use-value as her aim even though her initial production is production for exchange. By contrast our capitalist begins with value in the abstract and ends with value in the abstract. The goal of capitalist investment is not the attainment of a specific use-value but rather the attainment of value in the abstract, unattached to any specific use-value.

A superficial reading might make it seem like C-M-C is a tale of ‘simple commodity production’, the supposed mythical society in which all producers are self-employed persons owning their own means of production. There certainly are many people who are self-employed and who participate in the market this way. However the primary way the great mass of people enter the market is by beginning C-M-C with the sale of a very special commodity: labor-power. By selling their labor-time as a commodity to the capitalist they attain money to buy their means of subsistence. C-M-C refers to the way in which both the self-employed and workers participate in the social economy.

M-C-M describes the behavior of capitalist investment. Because the goal of this investment is to make more money this is often written as M-C-M’ to show that the two sums of money are of different quantities. This circuit describes all types of capital investment: banking capital (which loans money in order to earn interest), merchant capital (which buys cheap in order to sell dear), and productive capital (which exploits wage-labor in order to produce profit.) As we will later see, while bank capital and merchant capital predate productive capital, it is capitalist production that dominates in a capitalist society.

These are the qualitative differences between C-M-C and M-C-M. These qualitative differences reflect different social classes with different access to resources and different relations to the social labor process. There is an obvious quantitative difference as well. After Susan buys her book this circuit closes. The book and the pie have left circulation and are in the possession of their final owners. C-M-C has a finite timeline. When Susan makes her pie she ends up with another commodity of the same value. She does not become wealthier through the process. The opposite is the case with M-C-M’. Since capital begins and ends with the same substance, money, there is no point to the process other than to continue investment, to continue to increase the amount of money. Money capital stays in circulation, constantly being reinvested in the search for more profit. The circuit has an infinite timeline. This gives Susan and the capitalist very different motives. It is common in popular discourse to treat the expansive quality of capital as the result of subjective motivations. In other words, we hear a lot of complaints about ‘corporate greed’ as a cause of social ills. As we can see from this simple analysis of the circuit of capital, the term ‘corporate greed’ is a useless concept. The pursuit of value as an end in itself is a natural and logical result of the circuit of capital. There may be a lot of greedy capitalists in the world but they are greedy as a result of the structure of the circuit of capital, not vice versa.

Even though there is a quantitative difference for Susan and the capitalist there is also a very important quantitative similarity. Both C-M-C and M-C-M obey the same conservation principle: value is not created through either process.

Susan starts with a $10 pie, sells it for $10 and buys a book for $10. All together $30 of value has changed hands: a $10 pie, $10 of cash and a $10 book. All that has happened is that three sums of value have changed hands. It would be the same as if three friends went to a Christmas gift exchange and traded three gifts worth $10. No value is created in this process. Value has just changed hands. This is what circulation is, the movement of previously produced values between different people.

Things might seem different for the circuit of capital but they are not! Our capitalist begins with $100, buys $100 worth of commodities and sells them for $110. The capitalist has seen an increase in value but what about the total value in society? We started with three sums of value ($100 in money, $100 of commodities, and $110 in money) for a total of $310 worth of value. At the the end of the process these three sums of value still exit and still add up to $310. While the capitalist has benefitted from the process, no value has been created merely by moving these three sums between different hands. In the above example the capitalist has benefitted from exchange while the buyer of the $100 of commodities has lost $10 of value in the process. Profit merely through buying and selling, merchant capital, is an old form of capital, one that proceeds industrial capital. While merchant capital may be a good way for a class of merchants to make money it is not a way to increase the total amount of value in society. It can only profit through an inequality in exchange. This is why industrial capital comes to be the dominant form of capital. More on this shortly…

The same law of conservation would apply if Susan was to exchange her pie for $11 instead of $10. Here a $10 pie trades for $11. The process involves $21 of total value changing hands. One person wins and another loses but there is no aggregate increase in value. Exchange of unequal values is par for the course in a society where production and exchange are regulated through fluctuating averages enforced through market laws. People get ripped off, they have incomplete information about markets and demand and supply constantly fluctuate. None of this changes the aggregate value in society. It merely producers winners and losers.

The concept that value cannot be created in circulation seems simple enough and we would be able to leave the issue and move on were it not for a category-confusion introduced into the discussion by subjective value theory. Subjectivists claim that commodities have no intrinsic value but that they get their exchange value from the subjective valuations that consumers give to them in exchange. Hence they argue that exchange is not an exchange of equivalents (as when Susan sold a $10 pie for $10) but rather of non-equivalents, that in exchange people trade something they value less for something they value more therefore ending up with a ‘subjective profit’. Prices are merely a result of this process and not a reflection of an underlying value.

There are too many problems with subjective value theory to deal with them all here, but there is one major one that we should address: the conflation of two different notions of ‘value’.5 People make subjective judgements about their preferences for commodities. Commodities have exchange-values. These subjective valuations are not the same thing as exchange-values. Subjectivists have to prove a necessary, causal relation between personal values and exchange-values. There are many problems with their attempts to do so. Regardless of these arguments exchange-values are really existing magnitudes. Thus if a pie has a price tag of $10, regardless of whether this price is a result of its socially necessary labor time or the subjective preferences of consumers, and if this pie is sold to a consumer for $10, then equal quantities of exchange-value have traded hands and no exchange-value has been created from the process. Subjectivists may make arguments about an increase in psychological satisfaction that comes from either side. Though this cannot be quantified or proven they are welcome to make these assertions, but this changes nothing about the fact that equal amounts of exchange-value have changed hands.6 Thus there is nothing about subjective value theory that can change the law of the conservation of value in circulation.

In C-M-C money serves as a passing mediation between two use-values. But in M-C-M’ the commodity stands between two sums of money. Our capitalist’s capital changes form between money and commodities while always being a sum of value. Where as C-M-C is a finite process that ends in the consumption of a use-value, M-C-M’ is a never-ending process of the ‘self-expansion of value’. Capital is this process of self-expansion. A sum of value expands itself over and over by changing form between money and commodities. This new value, above the quantity of the original investment, is ‘surplus-value’.

Saying that value cannot be created in circulation is the same as saying that value cannot be created through the change of form between money and commodities. A capitalist can make money through unequal exchange, buying cheap to sell dear, but this does not change the total amount of value in society. A profit system that relied purely on unequal exchange would not allow an economy to grow because net gains would always be balanced by net losses. Yet we know that capitalist economies grow and that the aggregate profits of the capitalist class grow. How can we explain this given the conservation of value in the circuit of capital?

If surplus-value cannot arise from the change of form of commodities and money then it must arise from one of the stages of the circuit M-C-M. It makes no sense to look for the source of surplus-value in the money stage because money, as a mere quantity of value has no ability to expand. Change in a piggy-bank does not grow more change just by sitting there. However the commodity stage of the circuit points us to the realm of commodity production. We know that production is the sphere of value creation so it makes sense to look there for a source of surplus-value.

When the capitalist invests in production she buys different types of commodities, materials, machines/tools, and labor-power. The non-labor inputs into production Marx calls “constant capital” because these inputs do not transfer any more value to the final product than the original cost of their purchase. If Susan buys a bag of apples for $5 and bakes 5 pies with these apples then value of $1 of apples is passed onto each pie.

The same logic applies to machines which transfer their cost onto the final product over a longer period of time. We call these ‘fixed capital’, a subset of constant capital. If a machine costing $1,000 is used in the production of 1000 widgets over a period of years then $1 of value is transferred into the final value of each widget. Sometimes this way of looking at the value transfer of fixed capital is not intuitive to people. For instance, it is not uncommon to hear the opposite (hypothetical) conception: “I spent $1000 on grow-lights and fertilizer. It was a big expense but after the first batch of marijuana was sold it was all paid off. All future batches were pure profit.” In this conception the cost of the inputs are transferred in full to the first production period (or as many as it takes to pay off the fixed capital) and the successive production period pass on no fixed capital value to the final product. However, such an interpretation is not as logical as it sounds. On one hand, the question is just one of perspective. If, say, we grew 2000 plants over the life of the grow-lights and fertilizer then we could say that each plant contained .50 cents of fixed capital value ($1000 divided by 2000) or we could say that the first 1000 plants contained $1 and the next 1000 plants contained no fixed capital value. When looked at in the aggregate, over the lifetime of the fixed capital, it is the same regardless of how choose to look at the division.

On the other hand, if we want to really be specific, it would be wrong to say that some plants created with the fixed capital contain this value while others do not. If the grower is a reasonable capitalist he does not raise his prices when he buys a new grow-light and then drop the prices as soon as the grow-light is “paid off”. He keeps his prices consistent with the market price. This is obvious evidence that the value of fixed capital transfers over the life of the machine, and not all at once.

This brings us to a second conversation principle, one related to production: constant capital transfers its value into the value of the final product but it does not create surplus-value. This accords with Marx’s basic concept of value, that value is abstract labor. While labor is done on constant capital, while human labor transforms constant capital into new products, it is not the constant capital that is doing the labor and therefore constant capital cannot increase in value during production.

This law of conservation even applies to fully-automated production such as in “lights-out manufacturing” where production is carried out in the dark because there are no humans present in the factory. From Marx’s perspective a totally automated factory produces no value but that does not mean that its owners receive no profit from their investment or that the commodities produced by robots cannot have prices. This is explained through the transfer of value in exchange. We will explore this concept in more detail later, however for now we can at least shed a little light on the subject by analogy with a laundromat. A laundromat is an investment that requires little or no human labor yet the owner of the laundromat makes a profit every time their machines are used by customers. The machines, in Marx’s system, are not creating value but they are certainly filling up with quarters. Rather than being value creation, these machines function more like rent. In the same way you might rent a house or a car, you rent the use of a washer/dryer for an hour. Rent doesn’t involve value creation at all. It just involves extracting money from consumers in exchange for the use of something. There are many ways in which profit can be made without creating value. But these are not methods that increase aggregate value in society. This is the fundamental distinction to be made between surplus-value through production (which we will get to in a moment) and the transfer of value in exchange which happens any time something is rented or when a labor-less product is sold. These forms of making money are parasitic upon the dominant mode of production in society, capitalist production, which produces value. Without capitalist value production there could be no automated factories, laundromats or landlords siphoning off value.

The only commodity that is capable of producing surplus-value is labor-power. This is because of the distinction, which Marx was the first to theorize, between labor-power and labor. Labor, the act of working, is what creates value and this is measured in hours of socially necessary labor time. Labor-power is the ability to work, our working time, which the capitalist buys from the worker for a period of time in return for a wage. Labor-power is a commodity and like every other commodity it has a use-value and an exchange value. It’s exchange value is the wage, which is set by the prices of commodities that the worker needs for her subsistence. The use-value of labor-power is that labor is used to create value. There is no necessary relation between the wages paid to workers and the amount of value that they create. There is no law of conservation that requires the hourly wage to equal the value produced in an hour, either on the individual level or in the aggregate. In fact, the difference between these two quantities, the wage and the value produced, is the source of surplus-value. Without it capital could not not self-expand and there would be no capitalist production. There is therefore an incentive to increase value produced relative to wages.

The total working day is divided into two portions, necessary and surplus labor. The necessary labor is the amount of time the worker spends creating value equal to the value of their wage. The remainder of the working day is surplus labor time in which the worker creates surplus-value that forms the profit of the capital. Whereas the value transfer of constant capital is constant, calculated simply by dividing the cost of constant capital by the number of commodities it is turned into, the value transferred by the wage is of a different nature. How much surplus labor will workers do relative to necessary labor? This is a variable factor which is why Marx calls wages “variable capital.” The ratio of surplus-value to variable-capital (the ratio of surplus labor to necessary labor) Marx calls the “rate of exploitation.”

Value Conservation and Expansion in Production

The final value of a commodity is equal to the cost of constant capital inputs plus the labor time involved in its production (value=c+L; where c is constant capital and L is living labor). Since constant capital is the product of past labor (or “dead labor” as Marx calls it) the value of the commodity is dead labor plus living labor. Living labor is divided into two portions, necessary and surplus labor, or variable-capital and surplus-value (L=v+s, where v is variable capital and s is surplus value). The rate of exploitation (s/v) does not change the total amount of of living labor and thus doesn’t change the price of the commodity. The rate of exploitation only defines an internal division within the total labor time that goes into a commodity. Thus the final value of the commodity is also constant capital plus variable capital plus surplus value (value=c+v+s). The cost of production to the capitalist is constant capital plus variable capital (c+v).

This introduces an important conceptual nuance into our conservation principle. Surplus-value is created in production thus setting in motion the self-expansion of value that forms forms basis of capital. Increasing the rate of exploitation will increase the amount of surplus-value capital exploits from workers. But increasing the rate of exploitation does not change the amount of value created. It merely changes the proportions in which the social product is divided between capitalists and workers. The total amount of value is still equal to the total amount of labor performed. Increasing exploitation creates more surplus-value but not more value.

Surplus-Value and Circulation

In order for a capitalist to reinvest in production each day they must have at least earned back the value of their initial investment from the previous day (v+c). They also expect a reasonable rate of return on their investment. However when their products are sold in the market capitalists can receive less or more surplus value than is actually contained in the commodities. In other words, if prices are above values than capitalists receive a greater sum of surplus-value than the value contained in the commodity. If prices are below values then they lose value in exchange. Of course, prices could be so low that capitalists do not even make back the price of their original investment. If this continues they will go out of business.

Earlier we observed that while value changes hands in circulation it cannot be created in circulation. Since surplus-value is a component part of value the same holds for surplus-value. It is quite common for firms to realize more or less of the surplus-value contained in their products. But one firm’s gain is another’s loss. There is no aggregate increase in surplus-value through this process. The conservation of value in circulation remains.

In earlier chapters we discussed the difference between price and value. We said that price is the expression of value, the way value is expressed when a commodity is equated with the money commodity. The difference between value and price allows us to explain the temporal, non-equilibrium dynamism of a capitalist economy. Total value equals total price while the deviations in individual prices and values are the mechanism of rewarding and punishing producers. There is a parallel distinction between surplus-value and profit. Surplus-value is the component part of total value that comes from the surplus-labor that the capitalist class has extracted from the working class. Surplus-value is expressed in profit, the money part of total price that individual capitalists receive after selling their commodities. Total surplus-value equals total profits. The deviations between individual firms’ surplus-value production and profits are the mechanism of rewarding and punishing firms. However, as we will see in the chapter on the Tendency of the Rate of Profit to Fall, this mechanism, rather than encouraging healthy investments that create balanced growth, encourages investments that contribute to the long term instability of the system.

The Role of Surplus-Value in Marx’s System

The theory of surplus-value takes a central place in Marx’s theory of capitalism. It claims that wherever profit exists exploitation also exists. The backbone of capitalism is the exploitation of workers. Of course prior economic systems also relied on exploitation. Feudal peasants worked the land to produce surplus product for their landlords. But this exploitation was easy to see. The peasants worked part of the year on their own land and part of the year on the landlord’s land. There was no mystery about the exploitative relationship. In capitalism the class relation between workers and capitalists is obscured by the fact that both parties agree to the terms of work as legally consenting equals in the market. The commodity labor-power exchanges at it’s value. There is no inequality in exchange between workers and capitalists. The real inequality is only revealed in production, in the relation between necessary and surplus labor in the workplace. This makes exploitation impossible to see unless we examine production and the particularly unique use-value of labor-power.

Capitalist exploitation is also a matter of value expansion and not a matter of physical surpluses. The feudal peasant produced a surplus of product. The modern worker produces a surplus of value. These are different matters, as we will examine below.

The Fundamental Marxian Theorem and Equilibrium Theory

In the introduction to this book we discussed the tendencies of some “Marxist” writers to dismiss Marx’s value theory and instead advance their own reformulations. What allows these writers to still call themselves “Marxist” after abandoning Marx’s theory of value? Often the answer is that these writers claim to be able to deduce Marx’s conclusions via alternative logic and methods. Because of the central place that capitalist exploitation holds in Marx’s theory and in his moral critique of capitalism, these authors often try to deduce the existence of exploitation through alternative methodologies, most often, equilibrium methods. Despite throwing out the concept of value these authors still make the claim that surplus labor is the source of profit. It has become commonplace to refer to this theory, that surplus labor is the source of all profit, as the “Fundamental Marxian Theorem” or “FMT”.7

We can probably assume that Marx would not be happy to know that his complex, multi-faceted theory of capitalism had been reduced to one fundamental theorem. As we have seen in this chapter, the theory of exploitation is directly linked to the conservation of value in circulation. It is therefore closely linked to the concept of value, abstract labor, and, as we will read in chapter 11, the theory of crisis. It is very hard to extract one piece of this interlocking jigsaw puzzle while throwing out the rest, yet this is precisely what is done by writers who seek to reject value theory while rescuing the FMT.

We have previously discussed many of the problems of equilibrium analysis. Here we will look at a demonstration that proves the impossibility of holding the FMT in an equilibrium condition. It is precisely because of Walrasian equilibrium methods that many Marxists have been led to jettison part or all of Marx’s value theory while still trying to maintain the FMT. Yet, as we will soon see, this is impossible. This is a problem not for Marx but for the equilibrium method.

Let us say we have an industry, say a potato farm, that requires potato as inputs. At the beginning of production the farm purchases 10 pounds (units) of potatoes at $10 a pound. This makes the total expenditure of constant capital (C) $10. Workers must work 10 hours to pay back the value of their wage (V) and another ten hours of surplus labor to produce capitalist profit (S). We assume labor produces $1 of value per hour worked.

Table 1

# of units of input Unit price of input C V S W # of units of output Unit price of output
10 $1 $10 10 10 $30 50 $0.6

At the end of production $30 of value (W8) have been produced and 50 pounds of potatoes. The unit price per pound of potatoes is now $0.6.

This is how Marx’s theory of value sees the relation of input values to output values. But this is not how the equilibrium theorist sees the world. For the equilibrium theorist there is a problem with the above example: it is not in equilibrium! The input prices and output prices do no match. Such an example does not have a single equilibrium price. Therefore the equilibrium theorist must impose an equilibrium condition on the example, determining input and output prices simultaneously. Because this method is a central part of equilibrium analysis the method is often referred to as simultaneism.9

The simultaneist/equilibrium approach determines input and output prices as follows:10

10x + 20 =50x

10 units of potatoes at the equilibrium price (X) plus 20 hours of labor are equal to 50 units of potatoes at the equilibrium price (x). The equation solves for x=.50. Now that we know that 50 cents is the simultaneist price we can look at the table again with this new price:

Table 2

# of units of input

Unit price

C

V

S

W

# of units of output

Output unit Price

10

.50

5

5

20

25

50

0.5

With the new unit price we find C (10x.50=5) and W (50x.50=25). There is a surplus of 40 units which allows us to find what the surplus value is (40x.50=20). Subtracting S and C from W we get V, 5. The numbers are different than the first example and the rate of exploitation is different, but there is still a correlation between surplus labor time and profit. It seems that the FMT is still intact.

Now let us examine a different example, one in which the same system of production produces surplus labor but not a surplus product.11 The system is still self-reproducing because enough output is generated to restart production, but no surplus product is created. Here would be the common-sense way of looking at the picture:

Table 3

# of units of input Price of input C V S W # of units of output Output unit price
10 $1 $10 10 10 $30 20 $1.50

Again, this is a problem for the simultaneist because input and output prices are not equal. To impose an equilibrium price on the model we perform the same procedure as before.

10x+20=20x

This tells us that the equilibrium price is $2. Plugging this back into our table we find:

Table 4

# of units of input Price of input C V S W # of units of output Output unit price

10

$2

$20

$20

$0

$40

20

$2

This tells us something quite interesting. Even though we know that surplus labor has been performed there is no profit in the simultaneist version. The simultaneist logic cannot produce surplus value without a surplus product. In fact, if we were to create an opposing example (and I encourage readers to try tabulating such an example themselves) where there was no surplus labor but there was a surplus product then we would find that the simultaneist logic concludes that there is profit without surplus labor! This means that simultaneist methods are not capable of proving the FMT. This is just another example of the complete incompatibility of equilibrium methodology with Marx’s value theory.

There is also another crucial aspect of the simultaneist method that is revealed by this example. Simultaneist logic ties value magnitudes directly to physical magnitudes, to use-values. We found that with zero physical surplus there could be no value surplus even though we know that surplus labor has been performed. The surplus value calculation was directly tied to the amount of potatoes produced and had nothing to do with the labor-time involved. If we just look at the basic equation for simultaneous valuation (10x+20=20x) we can see that the value, x, is being determined in relation to physical quantities. Remember that we derived the values of V and S via subtractions from W. No adding up of labor-times was involved in the calculation.

Theoretical approaches wherein value systems are entirely dependent on the use-value structure of the system are called “physicalist” approaches.12 Simultaneism leads to physicalism.13 They are two sides of the same coin. Both are anathema to Marx’s theory and methods. Marx clearly distinguishes between use-value and value. We can know nothing about a commodity’s value by looking at its physical form or its quantity. Instead commodity values are the result of relations between laborers. Physicalism erases all of these social relations and portrays an economy as merely a quantitative arrangement between objects. It is the ultimate fetishism.

The critique of simultaneism and physicalism comes from the Temporal Single-System Interpretation (TSSI) of Marx’s value theory which is discussed often in this book. Temporal interpretations imitate the real world in that inputs enter production at once set of values and leave with another set of values. There is no requirement that we go back in time and change input prices. Interpreted temporally there is always a relation between surplus labor and profit and thus the FMT always holds. However, there is also no need to frame the analysis in terms of a “fundamental” theorem in the first place since a temporal interpretation allows us to continue to use all of Marx’s method and accept all of his important conclusions, not just one, arbitrarily chosen, “fundamental” one. TSSI authors have continually shown that interpreted in a temporal, non-equilibrium framework, Marx’s value theory is internally consistent.

The FMT is actually an attempt to achieve Marx’s conclusions via bourgeois methods (equilibrium, simultaneism, physicalism).14 This is a common phenomenon in the academy where intellectuals are under pressure to conform to the methods of the dominant bourgeois paradigm. However such attempts, as we have just seen, are actually unable to achieve their aim. What is really proven is that the results are in the method. What distinguishes a school of thought is not just its conclusions but the assumptions and methods by which it reaches those conclusions.15 Marx’s radical conclusions about capitalism flow naturally from his method, a temporal, non-equilibrium method.

1Marx, Grundrisse p.101

2An important work debunking the idea of ‘simple-commodity production’ is an essay by Christopher Arthur called “The Myth of Simple Commodity Production”

3In the chapter on Intrinsic Value we briefly discussed the way in which value relations still permeated pre-capitalist societies to a degree. These societies, however, were not simple-commodity-production societies. Rather, they were societies where production happened for subsistence inside the community and trade happened between communities.

4Again, see Arthur “The Myth of Simple Commodity Production”

5Hence, we see that behind all attempts to represent the circulation of commodities as a source of surplus value, there lurks an inadvertent substitution, a confusion of use-value and exchange-value.” Marx, Capital vol. 1 p. 261

6Quoting first Destutt de Tracy, then Mercier de la Riviére Marx says, “With reference, therefore, to use-value, there is good ground for saying that ‘exchange is a transaction by which both sides gain.’ It is otherwise with exchange-value. ‘A man who has plenty of wine and no corn treats with a man who has plenty of corn and no wine; an exchange takes place between them of corn to the value of 50, for wine of the same value. This act produces no increase of exchange-value either for the one or the other; for each of them already possessed, before the exchange, a value equal to that which he acquired by means of that operation.’” Marx, Capital vol. 1. p. 259-260

7“This theorem, first proved by Morishima (1973), states that the existence of exploitation and the possibility of positive profits cannot are equivalent to each other: without exploitation positive profits cannot exist, and conversely, if positive profits are possible then there must be exploitation.” Mayer, Tom “Analytical Marxism” p.74

8W stands for Wert, German for “value”. It is common to use W for “total value” tables such as this.

9Kliman, “Reclaiming Marx’s Capital” p. 75

10This method of finding the equilibrium price is common in simultaneist/Sraffian literature. See Vienneau, Robert “A Sraffian Interpretation of Marx.” As Vienneau explains, this approach is one of three possible ways of arriving at the same result. http://www.dreamscape.com/rvien/Economics/Essays/sraffa.html

11This method of proving that the FMT cannot always be proven via simultaneist methods comes from Kliman, “Reclaiming Marx’s Capital” chapter 10. What follows paraphrases, more or less, Kliman’s approach. See Kliman for a more rigorous critique.

12“Physicalism” is Kliman’s shorthand for Ian Steedman’s “physical quantities approach” (Steedman “Marx After Sraffa” p. 72) Kliman, “Reclaiming Marx’s Capital” p. 76

13This is one of the most important aspects of the TSSI critique of Sraffa, equilibrium, etc. All simultaneist methods are also physicalist and therefore incompatible with Marx’s conclusions.

14Kliman, “Reclaiming Marx’s Capital” p. 175

15This is another crucial aspect of the TSSI. It is easy to get bogged down in the algebra and forget to look at starting assumptions. Economics in particular has a fetish (not the Marxist fetish) for math. Math gives economists the illusion that they are doing science. And the faux-science allows them to claim that their arguments are neutral, unassailable and value-free. The TSSI critique of equilibrium theory challenges this entire approach to doing economics.

Posted in book-drafts, Uncategorized | Tagged , , , , , , , , , , , | 22 Comments

To Do in neW yoRk this weekend

Now that I am a New-Yorker I assume that everyone else lives here too. Here are some things you should check out this weekend:

1.Doug Lain

Doug Lain’s Think the Impossible Book Tour

at BlueStockings Bookstore
Sunday September 15, 2013 7PM-9PM,
172 Allen St, New York, NY

dougindark

Interviews with Margaret Kimberley from the Black Agenda Report, McKenzie Wark author of The Beach Beneath the Street, and Andrew Kliman author of The Failure of Capitalist Production.

Many of you may know Doug Lain from his Diet Soap Podcast . It’s an excellent podcast despite the fact that he frequently has me on as a featured guest. This is Doug’s “Think the Impossible” book tour for his new book “BillyMoon”. I haven’t read the book yet, but I plan to. Note that Andrew Kliman is speaking at the event.

 

 

2. Kliman,Wages,etc.

Can Income Distribution Rescue Capitalism?
A discussion of the new pamphlet by Andrew Kliman. Sponsored by the Marxist-Humanist Initiative.
Monday Sept 16th 7-9pm
Room 403 of Pearl Studios, 500 8th Avenue (between 35th and 36th Streets), Manhattan, New York City. People outside of New York City who wish to participate via videostream should write to MHI at mhi@marxisthumanistinitiative.org.

MR-pamph-cover-jpeg

The contents of this pamphlet by Kliman represent several years of work refining an analysis of what happened with wages during the ‘neoliberal period’, deconstructing the narrative of increasing inequality that permeates much of the left. It also contains his rather damning critique of the recent errors made by the Monthly Review in relation to these topics. I find this all quite fascinating. When I brought Kliman to Boston to speak on this topic the audience was quite impressed but challenged by what he had to say about wages. It really shook up a lot of people’s preconceptions and made for a lively debate. If you are in the area I highly recommend coming to check out the conversation.

 

 

 

 

 

3. Also I am still looking for a few more folks to join be for a Grundrisse reading group in New York. If we figure out a format we may take things online as well but I am hoping to have a good 5-10 folks for an in-person weekly group to form the core of the discussion.

Posted in Uncategorized | 20 Comments

Critique of Political Economy: C. Theories of the Medium of Circulation and Money – notes

C. Theories of the Medium of Circulation and Money
At the end of Chapter 1: Commodities we had “A:Notes on the History of the Theory of Value”. At the end of Chapter 2 part 1: The Measure of Value we had “B:Theories of the Unit of Measure of Money”. Now at the end of Chapter 2, after we’ve discussed the medium of circulation and money as money we get “C: Theories of the Medium of Circulation and Money.” It’s perhaps the densest part of the book but also the most useful for understanding contemporary debates on the role of Marx’s theory of money in our contemporary inconvertible system of money. Here we go….

Marx begins with an interesting discussion about Mercantilist theories of money. Mercantilist thought held that the goal of trade was the accumulation of money, and it understood this money to be commodity money such as gold and silver. The mercantilists singled out trade and certain branches of industry as the source of this monetary wealth. This wasn’t because they were blind to the profit-maximizing of capitalist production. It was because capitalist production wasn’t dominant enough to be the source of material wealth. Feudal production created products for subsistence. These products did not become commodities and therefore products were not turned into money. Feudal products were not embodiments of abstract labor. Money may have been the goal of trade but it was not the goal of production. In this primitive stage of trade the mercantilist focus was on circulation not production. They therefore confused money with capital leading to much confusion.

At the same time Marx snidely remarks that the long theoretical war of classical political economy against the “money and mercantile system is mostly due to the fact that this system blabs out in brutally naive fashion, the secret of bourgeois production, viz, its subjection to the dominance of exchange value.” In doing so Ricardo and Smith fail to see the ‘barbaric’ embryo of their own system in this subordination to money, to exchange value. Furthermore Marx points out the continued importance of commodity money in contemporary capitalism, as the final form of world money. Classical political economy focused on money’s capacity as medium of circulation rather than its role as money. This leads to a focus on the coin that circulate as tokens of value.  And this leads us to Marx’s critique of the Quantity Theory of Money….

Hume is the target. The context is the depreciation of precious metals in the 16th and 17th century, something Hume was focused on.  Hume believes that the quantity of money in circulation determines the value of money and the price level (the total value of commodity prices to be circulated in a period of time.) This is the Quantity Theory of Money (QTM). Marx hates the QTM. The rest of the chapter is a tirade against the QTM.

Marx believes that commodities have ideal money prices, prices measuring the relation of the labor embodied in the commodity to gold, and that they have these prices prior to entering circulation. Thus he believes that the amount of money in circulation is determined by the total level of prices and the value of money. Gold flows in and out of hoards (or is produced by mines) to adjust the level of gold to the needs of circulation. Of course in a system of token money, where symbols of gold circulate, tokens can’t be hoarded. Remember that Marx considers hoards of tokens to still be in circulation. This means that the quantity of tokens in circulation can rise and fall thus inflating or deflating the value of the tokens relative to the gold they represent. So how is Marx’s understanding of the role of token money different than the QTM? Let’s follow his critique of Hume for some clues.

Marx agrees that it sometimes appears that a change in the quantity of metallic money or tokens of money in circulation have a uniform effect on the price of commodities. The periods Hume considers are ones where there were sudden changes in the price level accompanied by corresponding changes in the quantity of tokens. But Hume’s problem is that the periods he considers were also periods where the value of money was also changing. There were openings of gold mines during this period which altered the value of money.

Hume treats gold as if it were the same as tokens of value. He thus makes all forms of money medium of circulation and ignores the role of measure of value. Hume has gold entering circulation without value and deriving its value from its quantity rather from its labor content. In fact he makes it seem as if gold enters circulation as “non-commodities; but as soon as they appear in the form of coin, he turns them, on the contrary, into commodities, which must be exchanged for other commodities by simple barter”. Hume imagines an “imaginary mechanical equalization process” whereby the quantity of gold and the volume of commodities balance.

In other words, for Hume the total volume of gold stands for the total value of all commodities and each commodity exchanges for just the right amount of gold in proportion to its value in relation to the total social product. For Marx this erases the antagonism between use-value and value which “manifests itself in the circulation of money.”

The difference between the QTM and Marx’s treatment of token money might seem like an abstract technical distinction. It’s not. For Marx, the quantity of coin, of tokens of value, in circulation change the unit of account but they don’t change the value of gold or commodities. They just change the unit names that these values are measured in.

There is an equilibrium assumption behind Hume’s QTM. If the amount of gold can de divided evenly to represent the corresponding magnitudes of the world of commodities, if total amount of money equals total commodity value to be exchanged, then we have erased the entire point of money in the first place: it’s ability to apportion and discipline labor through price-value divergences. In Hume’s theory there is a perfect balancing of labors and money is just a numeraire to facilitate the balancing of commodity values. There is no independent role for money as a representative of abstract labor. Though Hume is writing long before the imposition of general equilibrium analysis on bourgeois economics there seems to be an underlying hint of general equilibrium sentiment in his QTM. Marx accuses him of replacing a theory of commodities and money with an “imaginary mechanical equalization process”.

Sir James Stuart comes next. His ideas seem less problematic, if I am understanding the text. Despite some criticisms that Marx doesn’t develop, Stuart correctly develops the functions of money from the different aspects of commodity exchange. At a given time the “ready money demands” of society (the total amount of money needed to facilitate transactions) can only absorb so much gold. If there is too much gold it is hoarded. If there is not enough it can be replaced by tokens. Stuart argues that credit money can replace commodity money but not in the world market. This all seems to line up with Marx’s line of thinking. Marx hints at other disagreements with Stuart but he doesn’t develop them.

Ricardo gets a lot of attention from Marx. Marx gives us a cursory history of the historical phenomena that influenced 19th century discussions of money: the “suspension of specie payment by the Bank of England in 1797, the rise of prices of many commodities which followed it, the fall of the mint price of gold below its market price, the depreciation of bank notes…” These all led directly to political struggles in parliament and theoretical struggles outside of it. Of these theoretical struggles Marx notes that many thinkers confused bank notes with tokens of value or government-issued legal tender paper money. Bank-notes are not the same as tokens of value/state legal tender in Marx’s view. Furthermore Marx says that although these thinkers claim to deduce the laws of token money from the laws of metallic circulation they actually do the opposite, drawing conclusions about token money and then imposing these onto metallic money. They thus erase the function of money as measure of value and develop a theory based solely on money as means of circulation. This is similar to Hume.

Ricardo sees an increase in paper bills corresponding with a rise in prices. This causes him to focus on the effects of the quantity of money on the level of prices, over looking the function of money as measure of value.

However, Ricardo seems to start off in the right direction: The value of gold is determined by labor time. The volume of money is determined by the value of commodities and the value of money. Token money (tokens of gold) can replace gold without changing prices. Marx agrees with these positions.

The chapter can get confusing here because it seems, at first glance, that Marx next lays out a completely different version of Ricardo’s ideas, one the contradicts what he has just said. If I am reading the chapter correctly I believe that this is what is going on: Marx says that Ricardo’s mistakes begin when he looks at the international circulation of precious metals. This is where he starts to develop a QTM that contradicts his theory of labor-time determining the value of gold. Marx thinks that Ricardo’s argument just gets confused when he is dealing with the international sphere. So Marx abstracts away from international circulation for a few pages and presents the essence of Ricardo’s argument without the international circulation. What we get is a QTM:

Ricardo believes that if legal tender (tokens of money) are forced to stay in circulation then the money supply cannot adjust to changes in the value or quantity of commodities in circulation. Money then becomes a token of greater or lesser value depending on the total amount of tokens and the total amount of commodity value in circulation.The same happens with gold in circulation. It becomes a token of itself, representing greater or lesser amount of itself. Marx parenthetically points out that this concept of gold becoming a depreciated token of itself is an abstract deduction that comes from imposing the laws of legal tender on the laws of metallic money. We end up with a theory where the rise or fall of prices appears as effect of the increase or decrease in the amount of gold in circulation. When just the right amount of money is in circulation then money trades at its own value and prices are determined by the labor time embodied in commodities. But when the quantity of money is out of equilibrium with the total value in circulation then the quantity of money determines the price level. This movement of the value of gold and prices triggers changes in the production of gold mines which either increase or decrease gold production to bring the system back into balance. The same logic applies to tokens of value (which can be legal tender paper money) and to bank-notes, inconvertible or not convertible.

I have not read Ricardo on this topic so I can only surmise that Marx is developing this description in the way he does in order to make a specific point. Marx is starting from a theory of metal and then developing it to explain bank-notes. A reader may be more likely to intuitively accept that the quantity of bank-notes in circulation cannot be withdrawn from circulation and that therefore their quantity determines the price level. But we are less likely to believe that gold cannot leave circulation and that therefore the quantity of gold determines the price level. Marx is casting the argument mostly in terms of gold in order to bring out this problem.

At the same time we can see many similarities between Ricardo’s view and Marx. Earlier in the book Marx explained how gold coins can become debased therefore leading to a discrepancy between bullion value and nominal value. But because Marx understood gold to have the function of measure of value he did not see this process effecting the prices of commodities in the same way. Prices of commodities are ideal gold. However Marx does see gold being re-coined in response to debasement, which leads to tokens of value replacing gold. This leads to a change in nominal prices and the development of money as unit of account. In other words, the British “pound” ceases to be an actual pound of gold. The prices of commodities are measured in token units of account that are related to gold values. So for Marx, while the quantity of tokens has an effect on the price level measured in these units of account it does not effect the exchange value of commodities against gold. In other words if a banjo is worth a pound of gold this relation can be measured in various units of account. We could say a banjo is worth 600 dollars and 600 dollars is worth a pound of gold. Or if there is inflation we could say a banjos is worth 1000 dollars and a 1000 dollars is worth a pound gold. (Or this would be Marx’s argument if dollars were tokens of value rather than bank notes!) Because gold stands behind coin as the measure of value Marx is able to make this distinction between the medium of circulation and the measure of value.

Ricardo doesn’t make this distinction and so he counts the quantity of gold like he counts the quantity of tokens. This leads him to a theory of the equilibrium quantity of gold. This obsession with finding the perfect quantity of money dominates his understanding of international trade. For Ricardo there is equilibrium in international money supplies when all of the money in each country trades at its labor-value. This is a ‘normal’ volume of money. When the volume of money is ‘normal’ there is no need to export or import gold and prices are equal to values. The ‘normal’ level of a national currency is expressed as a balance of currencies in the international market.

How is this ‘normal’ level disturbed?- Marx asks. This is an important question. What Marx is getting at is that Ricardo believes the export and import of coin is not caused by trade imbalances, but vice versa, that the export of coin is caused by the cheapness of coin.  If there is too much coin and thus money is depreciated then commodities are expensive and can’t be exported. This causes a trade imbalance. Ricardo then thinks that trade imbalances will be solved not by addressing the underlying inequalities in production between nations but by addressing the quantity of money in circulation!

Marx points out this idea collides with facts. He gives several examples of Ricardo’s theory clashing with historical facts. Ricardo states that in years of poor harvest there was too much coin in relation to the quantity of crops to be sold. This led to a depreciation of money and a rise in commodity prices which led to a trade imbalance. Marx says that the empirical evidence is against Ricardo on this, that in such instances as bad harvests there is not a super-abundance of currency. He references Tooke on this point. I will not list all of Marx’s other examples here.

We can see that although there appeared to be a superficial similarity between Ricardo and Marx on some points that there are important differences between the QTM and Marx and that these differences lead to radically different understanding of things like international trade imbalances. It became fashionable after Schumpeter to classify Marx as a ‘metalicist’ because he derives the money form from the commodity. It is also common to hear it said that Marx had a commodity theory of money. These two terms could mean many things and could lead one down the path of thinking that Marx had a more narrow view on money than he actually did. It is not true that Marx didn’t have a theory of tokens of value, or legal paper currency. And although he doesn’t develop a theory of credit money (bank notes, etc.) anywhere many, including myself, think that such a theory can exist within his framework. What is unique and important about Marx, and what makes him more than a simple ‘metalicist’, is that he develops his theory of money from the commodity form. Thus his theory of money is not exogenous to his theory of capitalism but flows directly from it. He develops all of the forms of money directly from the commodity form. Thus there is always a need for money as measure of value at some place in the theory. This need can take different forms at different places in history. It is common today for some to think that there is no need for a theory of money as measure of value, especially since general equilibrium models so popular in economics leave no room for money as a measure of value and treat money only as a numeraire. However I believe that these theories are gravely mistaken and that the everyday reality of money  screams out the continued importance of money as a measure of value, especially in the arena of world money where the dollar is increasingly losing ground, the market price of gold is rising…. etc… ok I am getting off topic.

James Stuart Mill makes an appearance next. Mill continues Ricardo’s QTM but doesn’t bother with the international trade angle. Mill paints a picture of use-values circulating without prices, money circulating without value, everything to be determined in the market by the quantity of money. To get rid of the bothersome problem of hoarding to his theory Mill makes very liberal, and irresponsible, use of the concept of velocity. He basically slows down the measure of the velocity of money so that all money circulates in a time period.

The commercial crisis of the 1825 and 1836 led to further attempts to apply Ricardo’s theory to reality. Resolutions to these crisis were sought in the realm of monetary circulation. Ricardo’s so-called ‘laws’ of metallic currency were applied to credit and bank notes. The most general and noticeable phenomenon of a crisis, Marx tells us, is the sudden fall in prices after a prolonged period of rising prices. A fall in prices, by definition, means that the value of money rises (ie, money can purchase more commodities). Thus pointing to the fall in prices and saying this is because  of the rise in the value of money is a tautology. It doesn’t actually explain anything. One is the flip-side of the other. Our only recourse is to theorize changes in the value of commodities or money. Did the value of money rise or fall due to changes in the production of gold? Did commodity prices rise or fall because of changes in productivity? Only these questions can unpack the phenomena to be explained.

Ricardo’s ideas led to the “currency principle” which became law in England in 1844 and 1845 at the hands of Lord Overstone and others. It led to immediate disaster. The idea behind the “currency principle” was that bank notes should be forced in and out of circulation so that they were directly proportionate to the quantity of gold in the country. Gold exports and imports had to be mirrored by changes in the quantity of bank-notes so that the amount of money in circulation was in equilibrium. Marx ends his tirade with “Thus did Ricardo, who proclaimed paper money currency as the most perfect form of money, become the prophet of the bullionists.”

The chapter ends with a brief discussion of Tooke. Tooke began as a Ricardian but the glaring contradiction between empirical reality and Ricardo’s ideas led him to abandon Ricardo’s theory of money. Tooke came to the conclusion that the expansion or contraction of currency, when the value of gold is stable, is always a result not a cause of changes in the price level.

While Marx is influenced by Tooke and Fullarton, and while he commends their ability to theorize money in many forms besides just medium of circulation, he also lists a few criticisms. They don’t establish an organic connection between the forms of money in the way Marx does, developing each form of money from the unfolding of the commodity form. They don’t understand the category of Capital in relation to money and commodities. Capital can be money but it can also be commodities. Gold becomes means of payment not because it is capital but because it is money. They also don’t grasp money in abstract form, derived from simple circulation. The vacillate between abstract forms of money which distinguish it from commodities and advanced forms of money which conceal real social relations. Marx does expand on this last point. I assume that he means that advanced forms of money like credit conceal creditor-debtor relations while money in simple circulation only references buyer and seller. Tooke and Fullarton must not make distinctions between these levels of analysis.

Introduction:
The critique of political economy is often published with an introduction. The same introduction is always published with the Grundrisse. I will not be posting notes on this introduction in this series. However I am starting a Grundrisse reading group here in NYC this fall (2013) so I/we may post some notes on this text then.

Posted in the critique of political economy- notes, Uncategorized | Tagged , , , , , , , , , , | 2 Comments

Critique of Political Economy Chapter 2 part 3 and 4- notes

3. Money

In a text that is so obviously all about money it may seem funny to have the above section title here in the middle of the book. But up until now we have been considering money as a means of circulation. The social relations we dealt with were the social relations of simple circulation or C-M-C (commodity-money-commodity) where the goal of exchange is for the commodity to change hands. Here in part 3 Marx begins to consider forms of money where the goal of exchange is to acquire money. Here money is more than just a symbol. This requires real money, gold. Gold is the universal commodity, the bodily representative of material wealth.

Of course the quintessential form of this M-C-M is capitalist production where wage labor is exploited for the profit of capital. Marx is still not ready to get to an analysis of capitalist social relations. So instead he wets our appetite with a discussion of hoarding, means of payment and world money. These are all forms of money that require money as real money but exist logically prior to the discussion of capital. They are all still observable within C-M-C (simple circulation).

Gold becomes money not because society has consciously decided so but as a result of the natural evolution of the commodity form. As money gold is a unity of measure of value and medium of circulation. However as a unity it also has a separate existence in these functions. “As measure of value it is only ideal money and ideal gold. As a medium of circulation it is symbolic money and symbolic gold.” For instance, a price reflects an ideal amount of gold which a commodity exchanges for. This commodity can be purchased with token money, realizing the value of the commodity without gold ever changing hands. Gold is necessary for this function but only ideally.  
 
Since all commodities represent imaginary quantities of gold then money is the only real commodity! Commodities are particulars. They represent “independently existing exchange value”. But gold is “the material form of abstract labor”. Commodities are specific in their use-values while gold can be converted to any use-value. Money is the god of commodities.

a. Hoarding.
Coin becomes money when circulation is interrupted. When a sale is not immediately followed by a purchase then money freezes in it’s circuit. This isolation of gold/money is “a material expression of the disintegration of the process of circulation…” This reminds us of Marx’s critique of Say’s Law in other places.  Marx’s theory of money allows him to theorize the breakdown of circulation and later the breakdown of capitalist production in a way that other theories which lack a real understanding of the role of money in capitalism are unable to do. (By ‘other theories’ I mean not just JB Say but also all theories which rely on a general equilibrium framework. This encompasses all forms of neo-classical economics as well Sraffians and many post-Marx Marxists such as the New Interpretation school and the Simultaneous Single System school. None of these schools of thought can adequately account for the role of money in the organic way that Marx does.)

Marx spends some time discussing this idea of an interruption in C-M-C. Selling is determined by labor time but buying is determined by wants. In order to buy without selling one must have already sold without buying. In other words, in order to have any money to buy without selling I must have already sold something without buying. The break in C-M-C presupposes a previous or future break in C-M-C. This means that the flow of coin must constantly coagulate in reserves of money. Since we don’t always buy right away after selling, since we sometimes save for awhile before reentering the market, we need to consider the role of hoarding. These reserve hoards are constantly appearing and disappearing. Here the hoarding mechanism does not require us to convert coin to gold yet. Money merely becomes ‘suspended coin’. It exists just within this basic framework of simple-circulation as a “technical aspect of money circulation.” Still, it exists as money and not just medium of circulation. It is a baby-step towards money as Money proper.

Primitive exchange is based on surplus-product. People work for themselves first and then sell this surplus in the market. Surplus must be hoarded. Gold becomes the adequate form for the preservation of this surplus. Gold here takes the form of abstract social wealth. Because of the natural properties of gold and silver they are perfect for hoarding: they are indestructible incarnations of social wealth. This is hoarding for its own sake, for the love of social wealth. It is therefore different than the type of ‘suspended coin’ hoarding that we talked about in the previous paragraph. Here gold is money to the extent that it is NOT a medium of circulation.

Hoarding is motivated by greed. It belongs to simple circulation as opposed to forms of accumulation which belong to capitalist production. It is the barbaric form of production for production’s sake. It is a hallmark of ancient societies. In contrast capitalist production is about the reinvestment of money into the production process. Capitalist accumulation is not hoarding.

Hoarding also brings money in and out of circulation allowing the amount of currency in the market to adjust to the price level. This becomes a crucial part of Marx’s critique of the Quantity Theory of Money which argued that the amount of money in circulation determined prices and the value of money. For Marx the value of money and of commodities are already given in ‘ideal gold’ and ‘ideal value’. The quantity of money in circulation is determined by the quantity of money needed to facilitate these transactions (divided by the velocity of money). If more money is needed it flows out of hoards. If less money is needed it flows into hoards. The relationship of this theory to fiat and credit money will be taken up later.

Capitalism centralizes its hoards in banks. Banks also have coin reserves. These are not hoards. Coin reserves are part of the total amount of token money in circulation. This is an important addendum to the above paragraph. Token money cannot be hoarded. It remains in circulation even when in the bank. This means that it follows different rules than gold in terms of the considerations of the above paragraph. Marx does not pursue the issue further here so we will return to it later.

b. Means of Payment
So far we have two forms which distinguish money from mere circulating medium: 1. hoards proper and 2. suspended coin (a sort of mini-hoard). This leads us to a discussion of means of payment. As soon as money develops, via hoarding, into abstract social wealth it assumes special functions within circulation.

In the same way that paper can represent gold a buyer and seller can represent future buyers and future sellers. The payment for a commodity can be delayed in time (as when I buy something with my credit card.) Or the payment can be made first and the commodity can arrive later. This separation of purchase and sale in time means that money takes on a new function: means of payment. Means of payment is another example of how “All of the forms in which gold develops into money are but the unfolding of potentialities which the metamorphosis of commodities bears within itself.” This is important: if we are going to later develop a Marxist theory of credit we need to see how credit still bears the mark of its origin in the simple circulation of commodities. Credit is not something exogenous to commodity production.

Previously we saw how tokens came to symbolize money. Now we see how the personal symbolism of the buyer becomes money in the form of a promise to pay. What had seemed a merely imaginary difference between purchase and sale now becomes real. The seller-buyer relation becomes a creditor-debtor relation. Price is a measure of obligation.

When we buy something with credit no actual money is present. Money is only there ideally in the price of the commodity. The price is also a measure of obligation on the buyer. Only when the credit payment is due does money enter circulation. But it does not enter circulation as means of purchase. The purchase has already happened. It enters circulation “as the only adequate expression of the commodity, as the absolute form of existence of exchange value…. in short as money, and money in its distinct form of a universal means of payment.” Money appears as the god of commodities but not apart from circulation as in hoarding. It appears as god of commodities within circulation.

[Question: Does Marx reserve the term "credit" for capitalist credit systems, making credit a type of means of payment? Or are the terms credit and means of payment synonymous?]

If these payments are always paid in time then production and exchange are unaffected. But in a crisis we see the real difference between means of payment and means of purchase. Purchases are made but payments don’t follow. The chain of payments breaks down, etc.

Marx makes another interesting point here: in C-M-C we assume that the buyer has sold something previously to allow him to have money to buy the commodity. Selling commodities becomes a necessary prerequisite to buying them. In contrast to hoarding where C-M served merely the private greed of the hoarder here we have a different way in which accumulating money becomes an essential part of exchange. “The motive or essence of sale for the sake of payment becomes from a mere form of the process of circulation its self emanating substance.”

This is important because when, in Kapital, Marx analyzes capitalist social relations we learn that the compulsion to sell in order to buy is a function of the fact that the working class does not own its own means of production and thus must sell labor power. Marx is not making this argument here. He is merely showing how the compulsion to sell is inherent, formally, in simple circulation and that this formal aspect is developed further, takes on more concrete specificity, when we discuss credit. When considering the obligation to pay, the creditor-debtor relation, the need to sell in order to buy becomes the “self-emanating substance” of circulation.

The temporal differences between purchase and sale that bring out the need for credit/means of payment originate in simple circulation (though they are obviously much stronger in capitalism). The regular repetition of purchase and sale leads to goods being purchased in advance. Differences in seasons, productivity, etc result in the needs to delay payment.

It is interesting to me that Marx needs to develop this aspect of the value form within circulation itself and prior to an analysis of capitalist production. There may be several reasons. The dialectical structure of the presentation is such that the logical unfolding of categories starts with the most general (C-M-C which expands back historically to pre-capitalist society, and is logically more abstract/less-determined by more concrete determinations) and gradually expands the sequence of categories to take on more concrete determinations specific to capitalism (M-C-M, labor power, profit, class, etc.). This means that the compulsion to sell in order to buy, easy to see in capitalism where the worker must sell labor power in order to buy means of subsistence, also exists at a more general level of abstraction, within credit relations and, formally, within simple circulation. And it means that this compulsion is there in pre-capitalist societies, to the extent that credit and/or simple circulation is present.

Money as means of payment increases at the expense of means of purchase. Coin remains in retail use but means of payment takes over large commercial transactions. “As the universal means of payment money becomes the universal commodity of all contracts…” The extent to which money takes this exclusivity shows the extent to which exchange value has “taken hold of production.”

How much money enters circulation as means of payment? First we balance accounts. Then we take the remaining payments and total up their prices. We divide this by the velocity of money and this answers our question. The price level (of the commodities needing to be paid for with means of payment) and the value of money is determining the quantity of money needed for these payments. This seems to be the same method Marx uses for determining the quantity of gold in circulation in the abstract case where gold is the material used for circulation. It is different than the method used for token money used in circulation. The reason it is the same is because real money, not tokens or more credit, is needed at some point to bring the cycle of means of payment to a close. Means of payment cannot exist in perpetuity without a commodity basis. This becomes especially apparent during a crisis when the chain of payments breaks down and money as money, as gold, becomes essential.

This chain of payments (A owes B, B owes C, etc.) reveals a deeper social connection than the chain of metamorphosis of commodities. The metamorphosis of commodities is a slowly developing chain whereas the chain of payments represents hands that have “already clasped each other”, already existing social connections. This makes a break in the chain of payments felt by all.

If all payments happened at the same time no money would be required. Money would only be an ideal measure of value, as above. It would be ideal money of account. But money as money, gold, is latently present, waiting to assert itself in times of crisis. The need for payments is another factor requiring the establishment of reserve funds/hoards.

To find the total amount of money needed for circulation we take the above calculation of the amount of money needed for means of payment and add this to the total amount of money needed for all other transactions (total of all other prices divided by the velocity of money). Thus the presence of money as means of payment does not alter the law that the prices of commodities and the value of money determine the amount of money needed for circulation.

The value of money can change (due to changes in the productivity of gold or silver mines) before payments are due. Debts can be repaid in money that is of greater or lesser value and this, obviously, hurts or helps creditor and debtors depending on which way the value of money has changed. In such an instance the commodity function of money comes into conflict with its function as a measure of value.

It seems there is a tendency for contradictions in the commodity form to constantly be resolved by breaking the functions of use-value and value into separate objects: commodity and money, then money as measure of value vs money as medium of exchange. Then these aspects of money are further expanded to include hoarding and credit. But still the commodity basis of money comes into conflict with these higher forms.

C.World Money

To review, with hoarding gold becomes money proper and is distinguished from coin. This gold “enters” circulation but as a non-circulating medium! In other words, with the concept of hoarding: gold, as opposed to coin, enters the our picture of the component necessary parts of circulation. But it doesn’t actually circulate.

World Money is a new category. Here gold ‘breaks through the barriers of home circulation” to become the universal measure of value on the world market. While coin can replace gold for purposes of circulation within the home market, between countries accounts must be settles in gold. Why? Because, obviously, the rubles are useless to the French and francs are useless to the Russians. Previously we traced the path of gold measured in weight evolving into weight names that stand for different, lesser amounts of gold, etc. Here the opposite process takes place. The actual, real weight of the gold is all the matters for its value when it comes to world money.

As world money gold is not acting as a medium of circulation. It is a universal means of exchange. This takes two forms: Gold serves as means of payment in settling debts between countries and it serves as means of purchase when exchange is one-sided. In home circulation coin was means of purchase in a one-sided exchange. But in the international arena gold does this. Means of payment takes on the function of settling international balances.

Settling balances means taking into the account how many purchase and sales were made between various countries in a certain span of time and ‘settling-up’ on the difference through the payment of gold. This requires hoards of gold that can serve this purpose. This can be also a be a movement directly from gold mines to other countries. Gold can flow out of mines and enter international circulation as world money, trading at it’s socially necessary labor time with commodities of equal value, before it penetrates the national sphere. I don’t think Marx is saying here that all gold enters as world money first. I think he is just saying that it can do this in order to serve as means of payment. But he is saying that all gold can serve the function of universal money and so I guess, in this sense, newly produced gold is immediately world money. But it seems to me that it is not world money until it is used as world money. Maybe I don’t have this correct.

Regardless, Marx says that the value of the gold as world money falls and rises with its socially necessary labor time. This relation of the value of gold as world money to its production happens regardless of the manner in which gold enters the home market.

Lastly, gold helps create the world market. Countries trade looking for gold. In the same way that one must sell in order to buy in simple circulation, countries must sell in order to obtain gold to buy things they need to import. This forces nations into the world market.

4. Precious Metals
This subchapter discusses the qualities of the previous metals that make them ideal for their function as money. I don’t find it of particular interest. Perhaps there is a point being scored against Ricardo who had sought an unvarying standard of value. Marx remarks that gold is not by nature money but money is by nature gold and silver. However gold and silver are not able to “fulfill the requirements they are expected to meet in their capacity of money, viz. to remain values of unvarying magnitude.” He then discusses the history of the changes in relative value between gold and silver as the technique of their mining evolved. Marx is not interested in finding some abstract invariable measure of value. But he is not directly addressing Ricardo here as far as I can tell.

Posted in the critique of political economy- notes, Uncategorized | Tagged , , , , , , , , , , , | 1 Comment

Alan Freeman: Investing in Civilization

 

This is a lecture that Marxist economist Alana Freeman gave in China in 2012 on the topic of the Creative Industries. (It’s a practice talk Alan gave in his hotel the day before his actual presentation.) While the talk begins on a more narrow discussion of the creative industries it becomes a wide-ranging discussion of the role of creative labor in the changing nature of the modern capitalism, to crisis, to the role of the state in crisis, to a critique of stage-ist theories of history and mechanical marxism, and more. It’s a fascinating talk.

Alan Freeman now has his own Youtube channel where you can see more of his lectures. His papers can be read at:

http://econpapers.repec.org/RAS/pfr102.htm

Posted in Interviews, Uncategorized | Tagged , , , , , , | Leave a comment

Read a book with me

I have moved to New York City. I am looking to either join or start a reading group. I want to read the Grundrisse (and perhaps some supplementary texts) with this group. I want to start as soon as possible.

 

Contact me at: call me cooney at g mail (no spaces.)

Posted in Uncategorized | 19 Comments

Critique of Political Economy. Chapter 2 part 2- notes

2. Medium of Circulation

Interesting that Marx has discussed all of these properties of money as measure of value, unit of account and so on, without getting into circulation. Thus, in Marx’s system, money arises out of the nature of the commodity itself, out of the social relations of commodity production, not out of some abstracted notion of circulation. This roots Marx’s concept of money and circulation in a theory of production, firmly establishing the primacy of the social relations of production in our analysis.

Marx tells us that circulation will both present and solve the contradictions of exchange that are inherent in commodity production. Circulation is the change of form of commodities. Commodities enter exchange with an ideal price which their sellers hope to realize. If this price is realized they become use-values to the new owner and a sum of money to the seller. Thus the change of form corresponds to the two sides of the commodity: it’s use-value and exchange-value (or value, in Marx’s later formulations.)

Circulation implies a continual renewal of transactions and that commodities enter exchange with an ideal price.

a. Metamorphosis of commodities:

Marx is dealing here exclusively with C-M-C (the form of exchange where a commodity-C- is traded for money-M- and then this money is used to buy another commodity-C-.) He is setting aside M-C-M, the process whereby capitalist’s make profit. He is setting M-C-M aside because this entails more advanced relations of production, specifically capitalist relations of production (M-C-M implies M-C-M1, or production for profit which implies wage labor). Marx is here dealing merely with social relations of simple circulation. Later, in Capital, he will show that simple circulation masks capitalist social relations.

In C-M-C, the ideal price of a commodity becomes real social labor. Ideal money becomes actual money. Exchange values were ideal gold. Now they are actual gold.

Here gold’s value is a formal use-value, its ability to measure value, rather than an actual use-value (it’s ability to be jewelry or something). Thus the antithesis of exchange value (or value!) and use-value splits into the antithesis of commodities and money. The antagonisms within the commodity form is externalized to the antagonism between commodities and money. Each extreme (C and M) represents the other ideally. Commodities are ideally money and vice versa. And this solves the contradiction inherent in exchange.

…what was that contradiction again? It was that a commodity with an ideal price must exchange for money with an ideal use-value. By representing the commodity and gold as one-sided polar opposites we can finally see how this exchange becomes logically possible. We return to this point after noting…

When we discuss C-M-C we get into a viscous circle of assumptions where we assume purchases and sales at each end of the circuit. The presence of money implies the metamorphosis of other commodities elsewhere in the economy. It implies an infinity of interlinked circuits.

When we said that we can only solve the mystery of exchange if we consider commodities and money one-sidedly this means that though money is a commodity and the the commodity has an exchange-value, money must take the form of pure, one-sided exchange-value. Gold is not bartered as a simple commodity. It is money. And commodities are already estimated in ideal money prices. The exchange value of a commodity is determined by the price of the commodity and the value of gold, not vice versa. This is in contrast to the view that gold and commodities enter circulation as simple commodities to be bartered and that their values are determined in this process of bartering. For Marx, money and commodities have values before they enter circulation.

Parenthetically here Marx tells us that discussions of price-value divergence do not belong in the analysis at this point since we are only talking about simple circulation. Nonetheless it is still appropriate to discuss the separation of purchase and sale, though at this point it is merely a formal possibility. (The reason that price-value divergence do not belong in this analysis at this point is not because Marx has an equilibrium view of exchange as is sometimes argued. Rather, since he has abstracted from production relations and is merely treating relations of circulation his analysis at this level of abstraction lacks a discussion of the dynamism of capitalist productive relations and the way they manifest in price-value divergence.) Marx then discusses the isolated sides of each part of the metamorphosis.

When we look at C-M we see that there is no quantitative limit to the alienability of gold, but only a quantitative limit. In other words, anything can be sold for cash. Each isolated exchange is part of a vast intertwined web of exchanges.

Marx relates C-M-C to S-U-I or Species-Universality-Inidivuality. I can’t say the meaning of this is perfectly clear to me, but I assume me means that Money is the link that connects the individual laborer to the species. Money is the universal measure of value and hence the universal gateway which connects the two extremes.

The role of buyer and seller are not eternal to human nature but part of a specific organization of production. In C-M-C capitalist relations are expressed merely as formal relations of buying and selling. The origin of profit and the specific capitalist form of circulation (M-C-M) are obscured. The formal equality of markets and civil society is established.

In the antagonism of M-C we see the possible separation of purchase and sale. Just because one person turns C into M doesn’t mean that they will turn around and turn M back into C. The possibility for crisis is opened up. Say’s Law if refuted. Say’s Law is bullshit because it leaves out the role of money!

B. Circulation of M

As a means of circulation money always appears as a means of purchase. Commodities change form while money changes its place. The metamorphosis of commodities take the form of the circulation of money.Through its special function acquired in the sphere of circulation money acquires a new function which Marx must now examine.

The constant movement of money could appear chaotic unless we see the order imposed upon it by production (or by banks which we abstract from here.) The amount of gold required for circulation is determined by the sum of all prices and the velocity of money (and the value of gold.) The velocity of money refers the amount of transactions a unit of money can make in a day. The velocity of money can substitute for the amount of gold required for circulation only up to a limit. The volume of money required is set by the prices of commodities not vice versa, as in the quantity theory of money. The quantity of gold required depends on its own value. And Money must be capable of expanding and contracting is supply so that it can adjust its volume to the needed price level.

Since all of the determining factors here originate in production, the analysis of strict simple circulation is shallow and limited.

c. Coin and Symbol of Value

As medium of circulation gold becomes coin. It is coined according to money of account, or unit of account. In other words money takes the form of coins which are coined in specific unit names (shillings, pounds, pennies, whatever.) Coins are gold pieces stamped with weight names. This shows the obvious role of the state in money. The state gives money its local and political character. A new contradiction emerges, that between the national sphere of circulation of a coin and the universal sphere of commodity circulation (and gold circulation as world money…)The difference between coin and bullion is the difference between coin denomination and weight denomination. The technical conversion between the two forms consists of either stamping or melting.

When a coin is debased its ideal value is greater than its real value. It becomes fictitious gold. It is idealized in practice! (It is important that Marx always bases these theoretical moves in real practice, in historical development.This doesn’t mean that the logical succession of categories is the same as the history of concrete money relations. It just means that the logical ordering of these categories is not merely a matter of idealist philosophizing but rather that logical categories can and do take concrete form in specific historical examples.) This means that the mint value of money comes into conflict with the bullion value, or, in another way of putting it, the medium of circulation comes into conflict with the standard of price. Of course, both medium of circulation and standard of price are properties of money and so we are talking about a contradiction/antagonsim/conflict within the money form itself. We can expect that this contradiction will be too volatile to be contained in one form of money and that it will have to be resolved by splitting the various functions of money into different types of money in the same way that the contradiction in the commodity form between use-value and value is externalized into the separation of money and commodities.

As explained above, when the market price of gold rises above its mint price this means that the ‘reckoning name’ of coins begins to denote smaller and smaller quantities of gold. The standard of price changes. Future money must be coined to adjust to this change in the standard of price. Thus the same money name, the same standard of price, stands for a constantly diminishing quantity of gold. In other words we could have a coin that has “I am a pound of gold” written on it but it is not actually a pound of gold. The mint price/the reckoning name/unit of account has been devalued. If we are talking about gold coins then this devaluation is probably the result of clipping of coins. The ideal value of the coin (“I am a pound of gold”) has become less than the actual value of that coin (perhaps it is only .9 pounds of gold.) The gold coin is fictitious gold. It has become ‘idealized in practice’! This contradiction between mint value and bullion value is another name for the contradiction between medium of circulation and standard of price.

Thus the market value of gold rises above its mint price. The reckoning names of coins begin to represent a smaller and smaller quantity of gold. A ‘pound’ comes to mean less and less than an actual pound of gold. This means that the standard of money has changed. Future coins are minted to this new standard. Thus the same money name (one pound of franc or dollar, etc.) stands for a constantly diminishing quantity of gold! This is a contradiction between coind and standard of price. It is also a contradiction between coin and universal equivalent.

If it seems that we are drowning in a lot of different contradictions we could probably step back for a moment and realize that all of these contradictions in the money form seem to be variations on a theme. Money has a use-value and a value. It’s value is universal (the representation of abstract labor, universal wealth.) It’s use-value takes particular forms: coins, paper money, credit money, etc. Perhaps all of these contradictions are all variations of a universal-particular contradiction. (Alan Freemen makes this point in a paper called ‘GELD’).

This absurdity of measuring gold in gold coins of lesser value leads to the replacement of gold coins by symbols of value, tokens of value like copper coins or paper money. Thus coins become symbols of ideal money. While only gold can be the measure of value anything can be a means of circulation. Gold doesn’t actually have to be physically present in order to measure the value of a commodity or in order to realize this value in exchange. We already know that commodities have ideal prices. They don’t need gold to be present in order to form these prices. And we know that a symbol of value, like a copper coin, can serve the purpose of realizing the value of the commodity.

The state is important here because the state must guarantee the value of the symbolic money. Marx mentions that copper coins are legally kept within the sphere of circulation by not over minting (not producing too many of them). Over production of copper coins would lead to people hoarding them to melt down and sell for metal. In fact, because copper, silver, nickel, etc. coins still have values as metals this leads to the use of paper money. Thus the medium of circulation becomes purely symbolic. We have moved from a commodity with a use-value and value to money to coin to subsidiary metal to paper. The separation of commodities from the representation of their own value has become completely separated.

Still, despite this separation, the value of the symbol relies on the value of the gold it represents. Thus exchange value has an ideal expression in price and an imaginary, symbolic existence in money. The only real existence of value is in the commodity itself (the gold commodity and all other commodities.) The token appears to represent value directly but it does not. It only represents value indirectly through gold.

Credit money, Marx tells us here, operates under different laws which he does not take up in this volume, or elsewhere. This is because credit money assumes more advances relations of production, which we are abstracting away from at this level of analysis. Unfortunately, Marx did not get around to fleshing out a credit theory of money so it lies up to others to construct one based on his framework.

While Marx leaves a big role for the state in most of his value theory he likes to deduce the categories from each other without relying on some exogenous force like the state. While the state is often caught up in the regulation of token money Marx has shown us how token money evolves logically from the structure of simple circulation. Thus monetary politics which seek to change the role of token money in capitalism (say the movement to bring back the gold standard) will fail to change the fact that token money evolves ‘naturally’ in capitalism into purely symbolic money.

A change in the value of gold effects the value of paper money. The value of paper money depends on the quantity of paper money relative to the gold needed for circulation. In other words divide the quantity of paper by the value of all commodities to be circulated (measured in gold). This tells us the value of paper currency. This is an extremely important point and relevant to debates over the theory of paper money.

The state seems like it can escape the laws of money but it can’t. It seems like the state can just print more money to solve the problems of capitalism. But this just causes inflation. The state can only control the nomenclature of the standard of price. It can control how much money to print but the underlying values of commodities and gold determine the value of these tokens. Circulation forces these tokens to have a relation to gold.

For the measure of value the substance of money is important. Not so for medium of circulation. The measure of value depends on the quality of the money. The medium of circulation depends on the quantity of tokens. The quantity of gold present in the economy is determined by the total price level and the value of gold. The quantity of token money depends on the quantity of tokens and the value of the gold they represent. Thus all laws appear reversed in circulation. It appears that the quantity of money determines the value of money and that this determines the price level. This would be the Quantity Theory of Money. In actuality the process works the other way around.

Posted in the critique of political economy- notes, Uncategorized | Tagged , , , , , , , | 9 Comments