The Critique of Political Economy- Chapter 2 part 1 notes

the second installment of my notes on the book:

Chapter 2: Money or Simple Circulation.

Marx tells us that the confusion about money will disappear once we look at the evolution of money. Does he mean the historical evolution or a logical evolution? Marx says that it is crucial to understand the particular forms of Money and their interrelations. This is difficult because all bourgeois relations are money relations. In order to get to the heart of money, and its relation to the mode of production, Marx will only deal, in this book, with the forms of money that arise directly from commodity production. He will not deal with credit money. This is also his approach in Capital.

1. Measure of Value.

Gold becomes the measure of value because all commodities measure their value in gold. These exchange values with gold are prices. Price is the form of appearance of exchange value in circulation.  There is an equalization between the labor in gold and the labor in all other commodities. Of course, like any other commodity, the labor that goes into gold can vary with changes in the productivity of gold producers.

Prices are commodities transformed into gold in imagination. Prices measure the abstract labor contained in commodities, while their use-values correspond to the specific concrete labors that formed them.

The difference between exchange value and price (notice he doesn’t say “value and exchange value”… though I assume this is what he means) is super-important. This is the kernel of the storms that rock capitalist production… the source of uncertainty and crisis. Whether or not exchange value equals price is a matter of chance. The flip side of the necessity for alienating the commodity from the worker is the possibility of the non-alienation of the commodity.

Standard of price: The standard of price is the particular unit of gold that is used to measure value. Measure of value and standard of price are not the same!!! The measure of value is a measure of the abstract labor time contained in a commodity. The standard of price is a unit of weight (pound, etc.). It is similar to the difference between distance and a foot. A foot is a unit of measurement. Distance is the thing to be measured in feet.

Historically there was a process by which the same unit of measurement (the pound for instance) came to represent a smaller and smaller amount of gold. This seems insane but it happened all the time. A piece of gold was stamped as a pound. In circulation it lost some of its weight (through people shaving off parts and through wear and tear.) Now we see the importance of the state in establishing the value of the money of account. Money of account is the specific legal unit of account (pound, franc, etc.)

In order for money of account to exist, gold only needs to exist in the mind. Tokens of the money of account can circulate.

Now’s the part that fucks up your brain: The mint price of gold is the price of gold measured in the unit of account. But money has no price!

B. Theories of the unit of measure of Money

The purpose of this section is to critique previous theories of the unit of measure. Marx makes important points about the logical and practical relation between the unit of measure and the measure of value. He also discusses the problem with utopian labor-money schemes.

Marx first begins with the theory of the ideal unit of measure of money. This theory holds that since the unit names of money (pound, dollar, franc, etc.) are what is used to measure value that these units don’t represent quantities of gold, but instead directly measure ideal “atoms” of value. Thus value seems to have an abstract, independent, ideal form. (But this is impossible since we only can see value through exchange value. Value does have some independent abstract essence to measure without reference to an exchange value.)

Marx’s critique might seem like a nitpicky one but he immediately moves to a real-world example. During the reign of England’s William III silver coins were becoming debased. This meant that the market price for silver rose above its mint price. Why? The mint price is the amount of silver a coin says it represents. The market price is the actual amount of coins one receives for selling an ounce of silver bullion. Since the coins were debased it took more coins to buy an ounce of silver. In Marx’s example an ounce of silver bullion was minted into 5s 2d (5 shillings 2 pennies) but after debasement an ounce of silver bullion could be sold for 6s 3d! Eventually there was a re-coining of silver coins so that each silver coin was worth less silver than originally.

Now comes the interesting part: Lowndes, Biritish secretary to the treasury, declared that the reason for the rise in market price above mint price was not the debasement of the currency. Rather the rise in market price was a sign that silver had become more valuable (because it was measured in more units of the unit of measure!) The unit of measure represented ideal atoms of value and hence the rise in market price could only mean a rise in value! The upshot os this bullshit theory was that the British state could argue that it should pay back its debts in devalued currency!

This sort of problematic thinking directly relates to questions of inconvertible paper money. Marx says that regardless of civil law, the economic law is that paper gets its value from gold. Or, perhaps to put it better, paper’s ability to measure value is derived from gold’s place as a measure of value. The theorists of inconvertible paper money, Marx says, take refuge in this notion of an ‘ideal unit of measure’, as if worthless scraps of paper can represent ideal atoms of value directly, without measuring value through commodity exchange.

The same problem applies to Gray’s utopian labor money schemes. Gray advocated a system whereby all inequalities in exchange could be eliminated through a system whereby each commodity was automatically stamped with a price directly corresponding to the labor that went into it. Gray thought that the labor in all commodities could be directly social, without having to move through the process of exchanging against a money commodity, and all of the divergences of price and value and corresponding adjustments that take place in capitalism. Marx critiques this idea at length in other places, but here he points out that labor will not become directly social just because a bank or state declares it. The indirectly social nature of capitalist labor comes from commodity production not from a problem with the measure of value. If labor were directly social then there would be no need for gold or commodity production. But this is not the society that Gray is imagining.

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12 Responses to The Critique of Political Economy- Chapter 2 part 1 notes

  1. skywanderer says:

    I am wondering what you think, as I am not sure if this point has been explicitly made by Marx (it was long ago when I read Capital)

    The way how I understood his critique on the capitalist use of money is that money, by virtue of its intended function to be merely a representative equivalent of a useful commodity, should NOT have a value of its own – it should merely represent an objective exchange value of certain amount of social labour contained in a commodity, yet money in the capitalist system does not satisfy these criteria either, (in addition to its failure on all other counts.)

    Marx was so right in so many aspects of his critique of capitalism that his genius never stops amazing me.

  2. Dr.Kividos says:

    “The difference between exchange value and price (notice he doesn’t say “value and exchange value”… though I assume this is what he means) is super-important.”

    No, Marx did not have this distinction yet. This is important to know.

  3. allan harris says:

    So what determines the value of $1 today? The major economies have been off the gold standard for decades now.

  4. A sort of related/unrelated question:

    On inflation:

    If we increased the supply of money it would obviously have to drop in value if it indeed is a measure of value.

    But that assumes a perfect world were like, money has a computer chip in it that reflects its value according to money supply?
    So I would assume not everyone is aware of inflation.

    So then if we just printed money and put it into the economy we could make it better. If we print and employ people we could create some demand and possibly that demand might raise prices.

    But that leads me to believe that a general growing demand ie. an healthy economy, it would raise prices itself and cause the effect of inflation on itself.

    So that seems likely to me. Any objections or additions?

  5. CB says:

    It doesn’t seem as if money needs a computer chip in it, when huge sectors of the media, government, and wall-street (capitalist), along with global capitalist, are constantly keeping the world informed of money being printed, and changes in the federal reserves interest rate. I don’t think the fed could just “put it into the economy” without the value of the dollar dropping….

    • But if I have a large sum of cold hard cash. And I find out by watching the news 10% inflation just happened.

      Will everyone simultaneously raise their prices by 10%?

      I’m not sure about that. Competition still exists.

  6. CB says:

    The amount of money you own, and the prices people set are different things. I don’t see why you’re trying to connect the two? If you have $100 before 10% inflation, and after, you still have the same $100, it just won’t buy as much as it used to. As far as prices going up, even if they don’t overnight, or over 48 hours, they will eventually. If your money is worth less, capitalist that sell luxuries (like boats and jewelry) may be slower to raise prices, since they know you’ll be getting squeezed in paying more for essentials (food/rent).

  7. Hmmmm

    I feel dogmatic just saying it in the way you do

    The only way if money can be worth less. Is if it cant buy as much. Which means prices have to rise for currency to loose power, no?

    I just don’t feel safe saying all of the economy is watching inflation and adjusting their prices.

    So far I believe they actually create more demand, which raises prices, which makes currency less powerful.

    ( by the way I am not debating you these are genuine questions on my mind, I cant seem to find a better explanation on inflation to answer my questions.)

  8. Orestis says:

    I have a request that has nothing to do with this post, but since i couldn’t find an email or a contact form i will use this method.

    I can’t find the videos/posts that where uploaded about commodities at the url

    Maybe they have become obsolete since there is a remix about commodities. But because as far as i remember they where pretty ok and i have made the subtitles in greek for them, i would like to ask you to repost them or send me the videos.

    The greek subs of “what is capital” have just been uploaded through

    Thanx in advance,

  9. GrkStav says:

    If inflation increases by 10%, the overall price of commodities must have already increased 10%, right? Therefore, it’s not the case that FIRST inflation takes place and THEN prices of commodities go up.
    Do I have this right?

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