William J. Blake: An American Looks at Karl Marx
For the sake of simplicity, Marx assumes until later, that only gold is money. Money’s first task is to translate hours of labor into quantities of gold.
No matter how commodities once expressed their value, now they do so only by way of gold. Money, as we have seen, also incorporates labor-time, and so has a value. But as the expression of values in money is called price, money has no price.
Price As an Ideal Form
The price of commodities is, of course, an ideal or mental form, quite distinct from their physical form. The value of any given commodities, say woolens and meats, is made perceptible by their equality to gold, but a perception of their relationship is still mental. Price is the ticket or advertisement of that equality. And for such a purpose, the use of a price is just as good as actually exchanging the commodities for gold. Hundreds of millions of dollars’ worth of goods are exchanged every day in the United States (and, in boom days, billions of dollars of securities) and, on an annual basis, this far exceeds the supply of gold.
Where money, then, acts only as a measure of value, it is used as imaginary or ideal money, since no gold is employed. This occurrence has been the reason why the earth is deluged with monetary theories. Every wiseacre and crackpot, every dreamer who thinks that the social contradictions of the human race can be solved by rearranging these tickets, picks on this imaginary measure of value and triumphantly annihilates specie, or gold. But the Marxian basis is as original in this analysis as in its unique theory as to why the precious metals were selected at all as money. And as it could not have identified that completely without a prior theory of abstract labor, so here prior theory is essential to get past this quagmire of political economy.
Price As Related to Value of Money
However much imaginary money may express of manifest or measure value by price, the quantity of that money that measures value will always depend on the actual stuff (here, gold) that is money. Even if the prices of goods exchanged are expressed ten times more, in countless transactions, than there is money in use, that money in use determines the price and not all the imaginary transactions based on that real money. Value must always be expressed through another commodity: this is the first law of the value-form. Here that commodity is gold, and no imaginary representation of it can replace the quantity of labor that goes into gold. Where a double standard of gold and silver is maintained, and the silver becomes less valuable than the gold, that is, is produced in less labor-time, the prices expressed in silver are higher than in gold, irrespective of all the welter of quotations that goes about both metals. Gold becomes the ultimate universal equivalent, the unique repository of value.
(For convenience, money is divided into divisible parts called coins. The unit from which these parts is reckoned is a certain weight of gold. In the United States an ounce of gold is called [since 1934] $35.00. Before that it was called $20.67.)
Gold As the Measure of Value
Gold is thus the measure of value and, as a fixed weight of metal, is the standard of price. As a product of labor, and therefore variable as to the amount of labor-time put into it, gold is a value-equivalent. The standard of price, being a conventional weight, is best fixed for long periods. A change in the value of gold, then, may affect its position as a measure of value (it will measure less value of goods whose labor-time has remained constant) but this will not affect it as a standard (not amount) of price. No matter, then, how much its value varies, gold may remain unaltered as the standard of price, even though its changed value is shown by the higher or lower prices of other goods in terms of gold.
(Gold costs, say 2,000 labor hours. Iron costs 400. We express the price of iron in gold as 1:5. Gold is more easily produced. It takes 1,600 hours. Iron is unchanged. The price of iron is now as 1:4 to gold. But gold is unaffected as the standard of price, for iron is still measured against so much gold.)
No matter how much gold changes in value, its function as a measure of value is unchanged, for it is still the universal equivalent.
Variation of the Price Equation
Prices vary with reference to gold on a simple basis. That is, either gold is produced in less time and commodities (or any given commodity), in the same, and then it takes more gold to obtain the same amount of commodities, that is, they are dearer; or in the reverse case, where gold is constant in labor-time, and commodities decline in labor-time, it takes less gold to obtain them and they become cheaper. All possible combinations of these two tendencies follow the same proportionate law. Where money is clipped, or debased with baser metals, or the units changed, then prices are changed simply because the standard itself is tampered with.
The coins receive names, and as a result prices are expressed in money of account, that is, not in so many ounces of gold but in so many special names, so that we do not say that a coat is worth an ounce of gold, or that a piano is worth a troy pound of gold but that a coat is worth $35 and a piano $420. That makes it still harder to remember what the universal equivalent is about, that it is a commodity like any other. So price is expressed, not in precious metals, but in names of certain weights which as coins have a special title: dollar, pound, franc, ducat, mark, ruble.
Hence, price is the money name of the laborer realized in a commodity. Here the ground becomes slippery. It might seern that price is just another name for value, since money is the universal equivalent of value and price is merely its money ticket expressed in coin-names. But once prices exist, apart from variations in the value of gold, or of commodities relative to gold, due to changes in productivity, price has an existence of its own.
The Independent Action of Price
In the first place these money-names express value and also express a divisional part of the standard of value. Thus a dollar is a thirty-fifth of an ounce of gold, or a 420th part of a troy pound, as well as being the standard of value, that is, one dollar, in whose terms all reckoning takes place. But the worst of it is that if, for any reasons (which we discuss later), the value of wheat and gold remain constant as quantities of labor, yet, owing to temporary speculation, or what one will, there is a dislocation of that value, it will express itself in price. The ratio between any given commodity (not the totality of commodities) and gold may deviate over and above the ratio that expresses labor equivalence.
This possibility of such an incongruity is inherent, Marx states, in the price-form itself. That does not mean to say that for the totality of commodities the labor quantity can be deviated from. But the price-form is a mode of exploration; a probing of the market for values is only possible through establishing prices.
The price form here is not defective as a picture of value, nor does it impugn the law of value; it is merely the blundering method of an anarchic society, blindly trying to find its way into the right values. Price is its white cane with which it feels the edge of the sidewalk. Hence, the price-form, with all its fluctuating deviations from value, is the capitalist system’s method of discovering that underlying value.
Price Used Metaphorically
Prices disguise the value relation in another, quaint manner. Price is the mode of the expression of money. Hence prices can express any relationship. Bribery is paid for in money; “every man has his price,” said Sir Robert Walpole. “A cynic is a man who knows the price of everything and the value of nothing,” was the scintillating summary of the worldling by Oscar Wilde. “The price of liberty is eternal vigilance,” is a metaphorical transfer. In London, a house was referred to as the abode of £ove. Thus these immaterial things like honor, etc., take on the same form as commodities. These objects have no value, but they do have price. The same with land—site-land, that is. No labor has gone into a building lot, but the surrounding activity of the population and the municipal services allow its owner to charge other people for what they have communally created. Here an object, not made by labor and having no value, commands a price.
Still, commodities must follow the form of value; that is, for any commodity, say iron, to become effectively exchangeable, it must take on the shape of gold, as the shirt took the shape of chocolates (in the elementary form), so as to effect their transubstantiation into exchange value. If the owner of the iron wants to convert it into a universal equivalent he must replace it for gold.
Under all the covers of the price aspect of the money-form of the universal equivalent commodity, as a measure of value, there rests the basic commodity, fashioned by labor, hard cash.
The Medium of Circulation
To begin with, Marx never uses the phrase “means of exchange” as applied to money. Commodities are a means of exchange,1 money a means of circulation. In considering the circulation of commodities, it must be remembered that the money-form in no way changes any relationships previously discussed. Subject to all the contradictions of value, it is necessary to study the change of form in commodities that accompanies and causes the social circulation of goods.
Simple Circulation
From now on there are two exchanges, that of goods or commodities, and the money-commodity. Commodities enter the process of exchange as they are. Commodities as use-values are now opposed to money as exchange-value, instead of to any other commodity. The difference is immense, for
The commodity is a use-value, whose value is now expressed in price, and the money is a value-form, but its use-value is ideally represented by all commodities.
Acting as the universal equivalent, money requires every commodity exchanged for it to seek another useful commodity by its (money’s) intervention in the exchange process.
A weaver has twenty yards of linen. We now call their value ten dollars. He sells the linen and gets for it not another commodity but the ten dollars. He then buys a great family Bible for the ten dollars. What has he done?
(a) The linen, a depository of labor-time, that is, value, he gets rid of for gold, which is the value-form of linen.
(b) This value-form he parts with for another commodity the Bible, which is a use-value to him.
(c) He has converted commodities into money in order to convert them into commodities again. He performed two acts: he sold in order to buy. He has got rid of a use-value he did not want for one he did. Effectively he could have bartered but that would have been one transaction; this is two.
Expressed in a formula, he exchanged Commodity—Money—Commodity, from now on termed C—M—C.
As far as the objects are concerned it could have been C—C. That is the end of this simple transaction.
The Nature of Sale
Now let us study C—M, Commodities into Money, or just a sale. Every commodity owner has a multitude of wants, since he is a human consumer. But he has not a multitude of goods (as a producer he is limited by the division of labor), so that the only way he can satisfy his wants is to get hold of the universal equivalent. To get that he must coax the money out of somebody’s pocket for his goods. That can be done only if someone wants the use-value of his goods. Owing to the division of labor, and constant changes in production, or new styles, and to the fact that production is planless, so that everyone may be fed up with the objects our unfortunate vendor has to sell, his labor in the production may be wasted, for these or a multitude of reasons. But suppose his use-value has a market, that it will coax some money. How much will it entice?
The lovesick commodities pine after money, but their Juliet is capricious. When the seller arrives, even if we assume that he is not overpriced as against other producers in his line, let us say that his commodity has been slightly overproduced. That means that a part of the social labor of the community was wasted in his case. All his wares (say they are shoes) count in the market as one article, shoes, offered against all others.
The quantitative division of labor acts now just as does the qualitative division. They are free independent producers (“competitors” is the commercial phrase), but the market is free of the will of these producers. They are not independent, they are dependent on the market for their products. They have converted products into commodities, true, but they must convert those into money.
At the same time the division of labor, by making quantities produced and qualities produced planless, makes the possibility of this sale accidental. It may or may not be realized, although, as social average, it must be realized. What then? It may command a price either above or below its value. The labor may be compensated or under- or overcompensated. No one is too sure in advance.
The seller by the sale replaces his commodity by gold, the buyer his gold by a commodity. The commodity is exchanged for a universal equivalent, the gold for a use-value, to be precise, a particular form of its own use-value. The realization of a commodity’s price is, on the part of the buyer, the realization of the ideal use-value of money. The sale means that the single process is really double, every sale is a purchase. This may look as obvious as the nose on one’s face, but the fact that M—C is also C—M leads to important consequences. It is clear that the owner of money is usually someone who has previously effected a sale to get the money. Money strips all labor. No piece of money tells us for what commodities it has been an equivalent. Only at the mines, where gold is bartered or shipped, does it have a clear origin.
The point of the foregoing is that:
(a) We no longer have the exchange of commodity owners with commodity owners, but with money-owners, and these money-owners, having acquired their money out of a long series of previous exchanges, prove that the money represents any commodities whatever. Social circulation replaces accidental barter. The sale for money differs from the sale with which to acquire a commodity, for the first was still within the old reference of commodity for commodity.
(b) The economic reason why sales are difficult and selling the end-all and be-all of commercial life, is that the particular commodities, which are partial aspects of production, have to seek their exchange with the universal equivalent, which needs no market. What appears to bourgeois economists to be an even situation, commodity for money, is nothing of the kind. The nature of exchange is changed when partial productions compete against an indispensable equivalent.
How Money Acts as a Means of Circulation
The producer of any commodity has that article to sell. But with the money he acquires, he can buy innumerable articles, for money, unlike any other commodity, can be split up to serve for many purchases. A single sale therefore may release a number of purchases. C—M is turned into M—C. Every buyer is a seller at some time, but these positions are not permanent, they are attached in turns to persons engaged in the circulation of commodities.
NOTE: Marx summarizes the complete circuit of a commodity and money as follows: The commodity’s value-form is in money. But so soon as the commodity is exchanged for money, money is an equivalent form, true, but it has to seek the use-values of other commodities so as to become a realized equivalent instead of only a transient possibility of acting as an equivalent. The idealist philosopher who described the universe as the permanent possibility of sensation was near to this description. It may be said, how has money changed? In the first case it was the equivalent form, and it awaited a commodity in which to fulfill that equivalent form. Now it is in the same position except that it is in the hands of the seller of the commodity, its former owner having exchanged it against that commodity. But Marx is dealing with its function. It began, for the purposes of analysis, as the equivalent form of one commodity. The moment we consider it as in the pockets of the seller we assume it is free to act as the equivalent form of any commodity. So soon as the former seller becomes a buyer of commodities he converts the money in his pocket from a possibility of acting as an equivalent form to its actually acting as that equivalent form. So much for the money.
But the commodity is not the same. At the beginning it is not a use-value, its object is to be exchanged; at the end the commodity, to be consumed, is a use-value. Money, in the first stage, was a crystal of value, in which all commodities are to be solidified, but in the second stage it dissolves, as Marx puts it, into a transient equivalent form which is destined to be replaced by a use-value.
Money Overcomes Barter Limitations
But the circulation process is not so simple. We spoke before of the fact that money points to a long series of past exchanges, and that the numerous wants served by money make it the point of departure for future transactions. Each seller becomes the buyer of many objects, and so the original C—M, which is M—C for the buyer, leads him to sell the C and is the starting point for C—M—C. That means that the circulations of commodities are in an endless chain, related by money. They appear as social labor, for they are freely exchangeable, without limit as to space or persons, for any other commodity whatever. Millions, nay, billions of acts of exchange become normal.
The forces of society grow, for no man is master of these billions of transactions. They are a social average, and men are in their vortex. In primitive barter the persons who produce still have some control over value. This is shown by the mad haggling of Arabs and the thousand per cent fluctuation of prices in a few minutes when trading beads with savages. But the larger the number of transactions, the more their equivalences are averaged, and the more nearly price forms tend to equate to labor-time. Everyone enters a market in which prices are given within narrow limits, so far as he is concerned.
As Marx says, it is because a weaver has sold linen that the pious merchant can sell him a Bible, and because he has sold that Bible, that water of life everlasting, the pious merchant can buy the water of temporary life, vichy. Everything becomes everything else. The virtuous supply the wicked, the wicked the good.
In barter, the objects cease circulating as soon as the use-value is obtained. The savage trades skins for beads and that is the end of it—he displays the beads. But in the circulation of commodities every commodity takes the vacant place of another in the circle, and the money is in the itching palm of somebody in the circuit. This difference from barter rests in that in the one case use-value ends the process, whereas in circulation nothing ever ends it, or ever will, world without end. It does away with the superficial story that money is merely a convenience to achieve the ends of barter more handily. That dictum overlooks the specific functions of money.
Money Runs from Hand to Hand
Another mistake repeated ad nauseam is that since purchase involves sale and sale purchase, the circulation of commodities necessarily is in equilibrium. Of course, purchases equal sales, when made. But that is identity; now let us look for significance.
To sell, you must have a buyer. But who says that the owner of money, the man who has just sold, that is, must buy again? There is no direct identity, as in barter. There one sees a complete equivalence. But with money which runs from hand to hand, going further than ever from any original transactions of exchange in which it began, who says that the process must be kept up? There are times when it does not, and then we have a panic, a crisis, or even a less aggravated case, slow trade, bad business etc. (in modern times). The circulation of commodities immensely facilitates exchanges true, but it also ends the equivalence of barter, an equivalence by definition. Marx crowns his study of the contradictions inherent in the division of labor into two modes, use-value and value, with this observation:
The contradictions of commodity economy, that private labor can only manifest itself as social labor, that concrete labor can only pass as abstract labor, that objects become personified and men are represented by things, all these contradictions which are immanent in production, assert themselves, and develop their modes of motion in the incomplete and contradictory process of circulation. In them is the immanence of crises.
Notes on the Marxian Theory of Value
The social function of the oscillations of price about value is that through those variations are expressed the division of social labor into various branches of production. Whether pants are overproduced against the amount socially necessary, is determined by the price rising or falling above or below the proportion of labor-time required for their production, as against total labor-time for all production.
It does not follow from this that the various branches, by these variations of price about value, effect an equilibrium in the long run. Rather the tendency of these several spheres of production to seek an equilibrium about value is a forced tendency due to the constant disturbance of that equilibrium. Pants producers, when prices are disastrous that is, are far below labor-time spent in production—will try to reduce production and so achieve an equilibrium with value; but no sooner do they do this than other factors enter that upset the equilibrium again.
Hence the idea that there is a constant groping of prices for value does not mean that the totality of production is represented by a series of branches of production that compose a total in equilibrium. It is rather that the total labor-time, in all production, is divided among branches of production, each of which is selling well away from labor-time, and being constantly driven away from perfect correspondence with it, despite their counter-tendency to approximate it. This counter-tendency expresses the fact that the totality of values and the totality of prices are the same, as representatives of labor-time. But a total can be made up of sections that are never in equilibrium, since it is a predetermined total in any case.
Hence Marx does not say that values exchange for equal values in commerce, even in the long run, but that the totality of values is social, whatever the anarchy of individual prices that rages within it. Hence average prices do not coincide with values either, only total prices. Nor is social labor—that is, work done in common—the same as socially necessary labor, for social labor may be wasted, but socially necessary labor is summed up in the total value of commodities.
Exchange value is not value expressed in relation to another commodity, but by way of the body of that commodity, both related to the labor-time in each of them (we were disregarding variations from value). The fact that one commodity is in the relative position in the form of value does not mean relative to the other commodity as value, but relative to it as the carrier of the value common to both, and precedent to the emergence of the exchange-value so expressed.
The Social Meaning of Value
Value is not the law of equilibrium of economics, in Marx, as it is in other systems. It is the fact that labor can never be manifested, except by exchange, and under a form that negatives the exchange of time for time, that characterizes value as the summing up of disequilibrium, of the sum of contradictions between labor-time and the private production which ascertains that labor-time, not directly but by way of other commodities. From value to form of value, from that to money, from money to profit, from profit to the purchase of labor-power, from that to contradictions of production and consumption and thence to crises and unemployment, this is an unbroken chain beginning with the theory of value as the socialist critique of capitalist production.
Money, the Buyer’s Medium
It is necessary to pass from the simple circulation of commodities to that complete form which we experience daily. For crises are only implicit in the simple circulation of commodities, whereas with us they are full-blown. Since money is no substitute for barter but has economic attributes and implications of its own, so also the circulation of commodities must be distinguished from its forms before capitalism, so that its specific action today may be related to the circumambient machine production. This interaction must produce new economic principles.
The commodity is always in the hands of the seller, but money is always in the hands of the buyer. Money’s motion is one-sided, although exchange is two-sided. Money is a buyer’s goods.
The circulation of commodities means, ultimately, the replacing of one commodity by another. But it takes on the appearance of having been effected, not by the commodities changing their form, which is ultimately what it amounts to, but rather by the money acting as the medium of circulation. The commodities have no motion in themselves. They are transferred from hands where they have no use-value to hands where they have. To all seeming this is effected by the action of money, especially as the direction of the trades is always opposed to the direction of the money. That is, money is steadily withdrawing commodities from circulation by moving them to the consumers. It steps into the place of the continuously withdrawn commodities. Hence, though this constant motion of money is nothing but a function of the transfer of nonuse-values by seller to use-values by buyer, it seems as though it is the movement of money that moves the commodities, that it is primary. Since the motion of all commodities takes the money form it is easy to see how this mistake takes place.
Money Moves Opposite to Commodities
To be concrete: the weaver exchanged linen for the Bible. He received a coin for the linen and gave a coin (the same) for a Bible. That coin was twice displaced, once for each movement of commodities, to sell and to buy. The coin moved opposite to the goods. When the commodity linen was sold, it went to the seller. In the seller’s hands it stands ready to buy; never the opposite. But if the weaver sold the linen and bought nothing, the money would have circulated once, reflected only one motion of commodities. (We are now talking of simple circulation from direct production to direct consumption. The more complex phases are treated later on.) But although every commodity ultimately steps out of circulation, so as to become used, money, the medium of circulation, keeps in the circuit. How much money is absorbed in this task?
Quantity of Money Required
If we take the number of commodities exchanged every day, counting every transfer of commodities as one, taking the value of gold as constant, and prices as given, we multiply the number of exchanges and quantities exchanged by the prices and in this way find the amount of money circulated. That does not mean the amount of coins, or paper notes, since one dollar bill or one quarter can go round several times in one day. It means the amount of money circulation; or, mathematically, the quantity of money acting as the circulating medium is equal to the sum of the prices of commodities divided by the number of moves made by the money that day. The total number of moves, on the average, once being known, we can soon distinguish the average number of moves of each coin or bill, and thus ascertain the average velocity of the currency of money, or, in simpler language, the rate of turnover of each coin or bill. But since the circulation can absorb only the average number of coins required, and these can be calculated, banknotes can replace coins within these limits without interfering with the price level.
Since the total quantity of money acting as the circulating medium is determined by the total prices and quantities of circulating commodities (not of those that are not exchanged), and by the number of purchases and sales, and these are variable, so is the velocity of their medium, money, equally variable so as to conform.
Obviously if the circulation of commodities increases and prices are constant, the velocity will increase or, if the prices diminish and the quantities exchanged diminish and the frequency of exchanges diminish, then there would be a diminution in the money-turnover and in the amount of money required. Any combination of these three factors can readily be calculated. Declining prices accompanied by a greater demand for more commodities, and brisker sales, might mean a gain in velocity of currency of money, for example, despite the drastic decline in prices. These three factors in commodities-price, quantity sold, number of transactions—so largely compensate each other in practice that the velocity of money, apart from panics, does not vary as much as might be thought from imagining the possible combinations of the three variables.
“Quantity Theory” of Money Disproved
To summarize, the quantity of the circulating medium is determined by the sum of the prices of all commodities circulating, and by the velocity of currency. And these being once known, the quantity of gold that is current as money (or functioning as money) depends on the value of that gold. It is commonly held that prices are determined by the quantity of the circulating medium (“the quantity theory of money”), or, rather, that prices depend on the amount of gold in a country, rising when the gold is abundant and declining when it is scarce.
This implies, as Marx humorously says, that commodities never have a price, that is, that price is not a confirmation of an underlying value, but that the price of commodities is a mere reflection of money. And it also implies that money has no value, for if it had, that would admit of comparison with other values or, in other words, the labor-time in commodities would be seen as preceding their manifestation in price.
Marx’s fundamental idea must be recapitulated. Labor-time is value. That value is manifested in exchange. That exchange requires a universal equivalent. This equivalent is another commodity with labor-time embodied therein. This commodity, gold, or money, is the medium of circulating other commodities.
Therefore the stagnation of trade—that is, reduction of the number of exchanges or lesser quantities exchanged, or their lesser prices—determines the amount of money required to circulate them; hence commodities determine the amount of money required, and not the reverse. The quantity of precious metal utilized, therefore, must ultimately be determined by the value of gold, given the service of money as determined by the three primary factors in the circulation of commodities. Gold as a commodity enters into the sum of values in the sphere of commodities. Commodities are primary, and the idea that prices depend on the supply of money stands on its head. It is another instance of fetichism; the money that is the servant of the exchange of commodities, and itself a commodity, is thought to have fetichistic, i.e., magic powers of compulsion by itself, and so it is believed that a shortage of money causes stagnation of trade.
The unbroken chain of reasoning of Marx, from the beginning, must be kept in mind, if one is to reject the common delusion that the difficulties of society are found in the sphere of circulation (that superficial aspect of the underlying production relations of commodities). (Superficial here means superimposed, but apparent.) The fundamental relations of production will remain the core of economic analysis.2
Later on, the important question will be dealt with, as to whether the use of money for commodities is as basic as it once seemed, and whether the turnover in stocks of the New York Stock Exchange—for example, of, say, $1,000,000,000 a day, as was seen in 1929—does not overwhelm in quantity the transfer of actual commodities. This, which is a confirmation of Marxism, and not its contradiction, is part of the financial implications of commodity production.3
Coins
The standard of prices (money) is fixed by the government, and this standard is divided into certain parts and given names, as coins. These coins wear away during use and so they really symbolize, after abrasion, a value greater than they have. The government can use baser metals than gold, also as limited symbols of value. Hence it coins silver quarters that are not worth twenty-five cents in gold and pennies that are worth virtually nothing. These token moneys are limited as to tender. You cannot offer a quarter in payments up to any amount but only up to a small limit, otherwise this partly fictitious money would rival gold, and then everyone would hoard the more valuable gold for himself and pass on the silver to the other man. Once governments were able to push out overvalued coins as good money, even for a very limited time, now they have learned to replace gold with nothing material at all, that is, with paper money.
The Theory of Paper Money
In so far as paper money actually circulates in place of gold, that is, acting as gold, and not beyond, it does not affect prices. If we know by experience the minimum amount of gold that must be current to effect trade, the issue of that amount of paper and the withdrawal of that amount of gold causes no harm.
Gold expresses all values and paper is the symbol of that equivalent. If the amount of paper money issued is twice that of the amount of gold required to circulate commodities, then that paper money is a symbol for only half the gold, and hence prices expressed in that paper money have to rise, because they are in effect expressions of exchanges of commodities against only half the value in gold. But this paper never has a life of its own as many people think. It never changes the nature of circulation so that gold would become superfuous as the commodity acting as universal equivalent. The General Form of Value taught us that. Paper always refers back to its material base—gold—of which it is never more than a symbol.
Paper money must not be considered as similar to checks or notes given by businessmen and discounted at the bank. Paper money is a symbol of the means of circulation, while checks represent only means of payment. Payments arise in consequence of the circulation of commodities as already expressed in their medium, gold. Hence paper money represents gold, whereas checks represent orders on the bank to pay out either these symbols or this gold.
Primitive Hoarding
These foundations of the treatment of money, however good as economic theory, must strike the ordinary man as unreal. For him money is not a means of circulation at all, but something to hang onto, to love, to amass, to hoard, to dream about, to cheat for, itself the one greatest object of economic life.
Since it is the one form in which all exchange value (as opposed to use-value) is congealed, it satisfies men’s abstract hunger for possession and power. With it you can buy not just this or that but anything. The miser or the plutocrat counts the actual coins with bony fingers, as in Molière’s plays; or there is Anatole France’s hero, Samuel Box, who never ate more than a wafer, never bought anything, but who died, a martyr to his bank account, when he was asked to surrender a dime at the point of a revolver. These caricatures express the idea that money has become abstracted from its circulating functions, become an end in itself.
In some countries, like India, hoarding is almost incalculably great. The hundreds of millions of pounds sterling worth of gold that India was able to ship to England after 1931 to buttress the crumbling reserves of the imperial center, showed that even industrial development there has not appreciably affected the age-old custom of hoarding.
Since among primitive societies wealth is expressed not by exchanges but by the accumulation of use-values, gold and silver hoards are extensions of the tribal habits. In exchange-societies men see that they have to purchase to satisfy their wants, but that to sell, on the other hand, is uncertain and takes time. In order to be able at any time to buy without selling, it is necessary to have retained the proceeds of previous sales and to have refrained from buying. So here we have commodities sold and no further purchases made by the recipients of gold.
The repetition of this results in the diffusion of money among large circles of sellers of commodities. The greed for gold grows with its practice. Just as money annihilates all qualitative differences in goods, making them all mere prices, so money levels all distinctions. It dissolves all hereditary ranks, privileges, and sanctities. Among the ancients the wise men saw that you could have a social order, or a money order, but not both.
Economic Foundations of Hoarding
The desire for money (the universal buyer that need never buy) is insatiable, not for literary but for economic reasons. Each piece of money is limited, but money as a whole is unlimited. It can command any goods but only, alas, to a certain amount. To command any goods to a larger amount is a necessary extension of the desire to command any goods, in place of desiring only some specific goods. The only way money can be sure of commanding everything is by its commanding nothing, that is, by being taken out of circulation. But no hoarder or saver can take more out of circulation than the amount of commodities be puts into circulation. He produces hard in order to sell in order to obtain the gold in order not to buy. Hard work, abstinence, avarice, these are his ideals. Glossed, they are the religion of rich men. The more elegant hoarders put their money into gold and silver objects, fashioned in the arts, and thus cover their avarice with the sauce of taste. Hence bullion is hoarded, coins are hoarded, gold and silver objects are another form of reserves. This reserve has its uses. It serves as reserves of coin that comes into circulation when commodities require a greater supply of the medium of circulation. It is necessary, then, that there be a hoard in every country or, in other words, that the supply of money be always somewhat greater than is required to function in circulation. Usually the central banks do this hoarding. That gives the system elasticity.
Means of Payment
It is necessary to recall to the student that even now we are dealing only with the simple process of circulation, which ignores time.
But commodities require differing times for their production. Before their prices can be realized the owners may have a long wait. The two equivalents, commodities and money, are no longer simultaneous (as has hitherto been our assumption). But now money becames a future equivalent, that is, the seller and buyer become creditor and debtor. (That relation can exist independent of commodity circulation, as in antiquity, but here it is produced by commodity relations.) Under this new aspect, money is not merely an equivalent, it is also a means of payment. It is, in Marx’s language, an “ideal” form of payment. By this he means that the money is not actually paid over, but exists only in a promise to pay, yet commodities are circulated thereby. This promise to pay is the “ideal” under which a real payment is anticipated by the vendor.
The seller is ready to ship before the buyer can pay. This relation of creditor and debtor, as well as buyer and seller, is a new antagonism in society, and one that has led to immense social disturbances.
Credit the Opposite of Hoarding
Credit is the opposite of hoarding. In money, as a means of payment, the commodity leaves circulation before money enters it. The buyer, who is in debt to the seller, has to sell again in order to get the money with which to pay, or he will be sold out; that is, a part of his assets will be seized to make good what he owes. Therefore money is not any longer the means whereby commodity circulation is brought into being, but the means whereby it is brought to a close.
The value-form of any commodity (money) now becomes the end, the object of a sale. The buyer has to convert his commodities into money again and to circulate commodities once more before he can pay for the first transaction. The seller’s commodity thus has passed into consumption before it has been converted into money. And this leads to more complications.
Clearings As a Money of Account
There is a chain of payments. A creditor, as soon as he receives money from a debtor, may himself have to hand it over to someone who is his creditor. There are differing lengths of intervals between sales and the due dates of their payments. Purchase and sale are no longer simultaneous. There is an interlaced series of notes of differing maturities representing interlaced claims in which nearly everyone is alternately creditor and debtor.
An economy in the use of the media of circulation is brought about. As soon as merchants meet in one place, the claims of A against B can be matched by B tendering his claim on C and C can in turn cancel his claims on A, so that all the claims could be extinguished without any movement of funds. (This is an idealized relation, of course. The circuit is rarely as perfect or as evenly matched. But to the extent of mutual interdependence and matched amounts it is a good illustration.)
Or, there may finally result a certain amount, $12,000 left over after all claims are extinguished, in favor of D. Only one amount is paid and four claims are ended.
The more the payments are concentrated, the less is the quantity of means of payment in circulation. In so far as the payments balance one another, money is merely money of account; in other words, a mere measure of values. But even when real payments have to be made, money does not serve as a circulating medium. It appears here, independently of specific transactions, in clearings, as though it is itself value, not a servant of commodities circulation.
Weakness of the Credit System
But as soon as there is an interruption to this method of settling a myriad claims against each other, this ideal form of money is abandoned. Everybody then wants real money, gold. That is what occurs in every crisis. During a boom the businessmen all prove that only goods are money, but in a crash, when the claims that so easily circulate are interrupted, and can no longer be collected, gold alone is desirable. No one wants any use-values, no one wants any ideal money. They want a commodity, an incarnation of labor-time, a repository of value that can buy any other commodity. Where the system of clearing means of payments had made money seemingly abundant, it now becomes scarce. At such times gold or its representative, paper money, commands fantastic premiums. Those who hold uncollectable claims are “ruined.”
The Quantity of Money Required in Credit Economy
How does this affect the previous theory of money? The equation of the currency of money is as follows in a society using means of payment (checks, bills of exchange, promissory notes):
Given the rapidity of movement of the circulating medium (money) and given the means of payment, then
the sum total of money current is equal to the sum of the prices to be realized, plus the sum of payments falling due, minus the payments that balance each other, minus, finally, the number of circuits in which the same coin serves in turn as means of circulation and payment.
That looks formidable, but the differences from earlier definitions are in this: the sum of payments due on balance are added to the older equation, but this is offset by the economization of the use of coins due to clearing arrangements. (By coins we include paper money that represents them.)
The simple exchange equations that we had before are no longer of service in computing the mass of commodities being circulated by the quantity of the circulating medium. For now money represents commodities that were used long ago. Commodities circulate that have never been paid for. Past and future in both commodities and money are no longer related quantity for quantity. Especially so as now credit notes from buyers to sellers begin to be enormous and coins, gold or silver, are used mostly in retail transactions.
Now it is that money appears as a means of payment for other items than commodities. Rents and taxes are no longer paid in kind. No longer can the farmer pay the king’s taxes in portions of the crop he has produced, nor the tenant his landlord in wheat. Once money passes from currency to means of payment, it is free of any physical limits, except the inexorable limits of economic law that bring it sharply into line with its metallic basis during panics. Hence hoarding takes the modern form of accumulating means of payment, bank accounts, notes, etc.
International Money
In the relations between states, that is, between the differing nations of the earth, only gold in the shape of bullion is international money. All local names are gone, dollar, pound, franc, mark, yen. All paper money, anywhere and everywhere, is valued against it. Even the other precious metal, silver, comes to be quoted in terms of gold. At this writing, silver, in London, in a free market sells for 35 cents an ounce and gold for $35, that is, 100 to 1. We are far indeed from William Jennings Bryan’s gallant attempt to value it compulsorily at 16 to 1 against gold. If the German mark is “blocked,” that means that German money has no unrestricted quotation in gold. It is a conventional money depending on the longevity of commercial devices to sustain it, and then only in a puny, restricted measure. In international trade money functions only as the natural form, that is, as a commodity that embodies labor-time, that has value. It is the direct social form in which abstract human labor is realized in markets. And there is no other.
NOTES ON THE THEORY OF MONEY
Money is the only purely social form of wealth, since it has no meaning except in circulation: it has no use in and of itself. (That is, as money, not considering the utility of its base, gold.)
It should be noticed that Marx does not mean by an inflation that the amount of paper money to be issued shall be defined as inflationary if it is excessive with reference to the coin which it represents, but only if it exceeds the price functions accomplished by that gold.
Hence while Marx holds to the labor-time in gold as the measure of its function as universal equivaient of values, he does not hold that the totality of prices is measured against it in the crude fashion of so many labor-hours in total production against so many in gold. The Marxian theory of money arises out of the theory of value, but the price differentiation in it indicates that the social content of the division of production privately, as expressed by the need for prices, plays a part in the efficiency of money. In the section on present-day implications of finance, this question is treated more fully.
It is true that Marx’s money theory was magnificently begun, but it is one of those aspects of his theory that can be made more valuable by much greater detailed treatment.
1. Capital, Vol. I, p. 57 (C. H. Kerr & Co., Chicago, 1910).
2. Except that currency inflation may be used as a mode of insidiously reducing real wages.
3. For an entertaining picture of the importance of speculation see B. M. Anderson, Jr., Value of Money (New York, 1916).