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.


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

  1. mreverpresent says:

    I really like this post.
    Yesterday I was watching a TV program where people can win two million euros (after 10 questions). I was really amused and appalled at the same time by the ecstasy and cheering of the crowd in each successive round of questions when the contesters won a sum of money. They were all worshipping a specific thing that they do not understand: money (and its social power). They do not understand that they were in essence worshipping human labour, other peoples labour. They are actually worshipping society. They acquire this money and also feel separated from their fellow beings.

  2. mreverpresent says:

    “In his online lectures on Capital David Harvey gives this defense:”

    True, but he did not include this statement in his print version of the lectures so I would not give this criticism.
    I think he himself was not fully happy with this statement + later on his lectures on the footnote of chapter 15 he gives a completely different statement on Marx his method.

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