The
Currency Of Money
Whereas, commodities complete this circuit via their metamorphosis from one commodity into another C-M-M-C, that is not true of the
money. It continually moves away from its possessor. The linen
seller receives money, but the money moves away as they buy the
bible, it moves away from the bible seller as they buy the brandy and
so on. Each can obtain more money, but only by opening a new
circuit, by selling more commodities. This passage of money into
ever new hands, Marx describes as its “currency”, referring to
its original usage - “cours de la monnaie”, or course of money.
Just as "commodity fetishism" turns things on their heads, so
that what is in reality a relation between Men(an exchange of the
labour-time of one for that of another) appears as a relation between
things (20 yards of linen = 1 coat), so the same here. What is
really a process of circulation of commodities appears as being a
movement of money.
“Again,
money functions as a means of circulation only because in it the
values of commodities have independent reality. Hence its movement,
as the medium of circulation, is, in fact, merely the movement of
commodities while changing their forms.” (p 117)
Although commodities take part in this circulation, they continually
fall out of it, as they are consumed. Money, on the other hand,
remains within the sphere of circulation, which begs the question of
how much money is absorbed by it. Marx once again elaborates this
not just as a logical but as an historical process.
We are still at the stage, he says, where we are considering commodity
exchange in its initial stages – petty commodity production. The
process is described like this.
The money commodity (gold) acts as the general equivalent form of value. So, it is the unit of measurement of the value of
commodities, which takes the form of their money price. In other
words, the Value of say 20 yards of linen can be considered in a
purely imaginary way (i.e. I do not have to actually exchange it to
put a price on it, I do not have to physically set an amount of gold
against it) as being equal to 2 oz. gold, now given the name £2.
Now, at this stage of history (before the development of banking,
credit etc.) in order to sell the 20 yards of linen, will require
that this imaginary price of £2, brings forth an actual amount of
gold i.e. £2 equal to it. The gold money has acted first as a
measure of Value in determining the price, and secondly as currency.
The gold money has acted as means of circulation, so that the linen
could be sold by one person and bought by another. So, the amount of
gold money in circulation must be equal to the gold money prices of
the commodities to be sold.
But, we have seen that the Value of the gold, as with every other
commodity, is determined by the labour-time required for its
production. And, the prices of commodities are a function, not just
of their own Values, but also the Value of the Gold. Exchange Value or Price is a relative not an absolute measure.
So, if the value of commodities remains constant, but the Value of
gold falls (because say the California Gold Rush means less
labour-time is required to produce a given amount of gold) then the
Exchange Value and prices of commodities will rise. If an oz. of
gold can now be produced in half the time, then 20 yards of linen
will equal 4 oz. gold its price will be doubled to £4, and vice
versa.
But, things do not end there. If the fall in the Value of gold by
half causes prices to double then by the same token, the amount of
currency in circulation will also need to double in order that there
is enough to buy all the commodities at their new higher prices.
To stress once more, the VALUE of these commodities has not changed.
Only their Exchange Value vis a vis gold has changed. If previously
1000 yards of linen were in the market, with an exchange value of
£100 = 100 oz. gold, now this 1000 yards of linen will have an
Exchange Value of £200, requiring 200 oz. gold money. In other
words, the fall in the Value of the gold money has caused an
inflation of all commodity prices except gold.
The same is true, as Marx sets out, if silver is replaced by gold as
the money commodity, as it was in Britain. If Exchange Values are
measured against silver they will be higher than measured against
gold (because silver has a lower value than gold). Prices will be
higher measured in units of silver. But, if gold pushes out silver,
then its higher value means that prices will fall even though the
actual values of the commodities have remained constant. For
example, if 20 yards of linen are priced at £30, where £30 = 30 oz.
silver, then if gold pushes out silver, and 1 oz. gold equals 15 oz.
silver, then if £1 = 1 oz gold, now not 1 oz. silver, then 20 yards
of linen = 2 oz. gold, which equals £2. You can see the
significance for this in relation to the Eurozone. Suppose Spain
leaves the Euro, and restores the Peseta. A Peseta might be really
only worth a tenth of a Euro. If the Euros in your bank account,
however, were redeemed at par i.e. 1 Peseta per Euro, then
essentially you would have lost 90% of your savings! That is why
people are rushing to take their Euros out of Greek, Spanish,
Portuguese and other Eurozone banks!
Marx also sets out how this process plays out historically. At this
stage of petty commodity production, barter continues as far as the
gold producers are concerned, because their commodity is money
itself! They exchange their gold directly for the commodities they
require.
If the Value of gold falls because less labour-time is required for
its production, then competition amongst gold producers means they
will have to hand over more gold to obtain those commodities than
they did previously. In the rest of the economy, where commodity
producers are not exchanging directly with the gold producers, this
change may not be seen or known about. As a consequence, prices for
these other commodities may remain unaltered.
However, because those commodity producers who exchange directly with
the gold producers will obtain more gold, competition between them
for the commodities they buy will gradually push up these prices
until such time as all commodities prices reflect the new exchange
relation to gold. In orthodox economic theory, the Austrian School
have adopted a version of this argument to suggest that those closest
to the source of an inflated money supply i.e. the banks and finance
houses, together with very large businesses, are able to obtain an
advantage compared to other market participants further down the
chain.
It is not the increased supply of gold which causes its Value to fall
and prices of other commodities to rise. It is the fall in its Value
which causes the supply of it as money to rise.
“If now
its value fall, this fact is first evidenced by a change in the
prices of those commodities that are directly bartered for the
precious metals at the sources of their production. The greater part
of all other commodities, especially in the imperfectly developed
stages of civil society, will continue for a long time to be
estimated by the former antiquated and illusory value of the measure
of value. Nevertheless, one commodity infects another through their
common value-relation, so that their prices, expressed in gold or in
silver, gradually settle down into the proportions determined by
their comparative values, until finally the values of all commodities
are estimated in terms of the new value of the metal that constitutes
money. This process is accompanied by the continued increase in the
quantity of the precious metals, an increase caused by their
streaming in to replace the articles directly bartered for them at
their sources of production. In proportion therefore as commodities
in general acquire their true prices, in proportion as their values
become estimated according to the fallen value of the precious metal,
in the same proportion the quantity of that metal necessary for
realising those new prices is provided beforehand.” (p 119)
For the ease of argument, Marx assumes a constant Value of gold. In
that case the amount of money needed for circulation is determined by
the sum of all prices. If the values of other commodities remain
constant, then an increase in the number to be sold will require more
money. If the number sold remains constant an increase in their
prices will require more money and vice versa. Similarly, if only
some commodities increase in price it will require more money. And,
if some prices fall and others rise, it will depend on whether the
sum of the rises is greater or lesser than the sum of the falls.
Marx then takes this analysis on both logically and historically.
The more trade advances so that these exchanges are more numerous and
more frequent, the more it is clear that these transactions occur
sequentially. So, over a given time period, the same piece of money
can perform several operations. The same £2 can be used to purchase
20 yards of linen, then to buy a bible, then 4 gallons of brandy.
So, the £2 has been enough to facilitate £6 of exchanges. The
number of times a given amount of money moves in a given period of
time is called the Velocity of Circulation.
“the
quantity of money functioning as the circulating medium is equal to
the sum of the prices of the commodities divided by the number of
moves made by coins of the same denomination. This law holds
generally.” (p 121)
The different types of transactions increase or decrease this
velocity. Some transactions consist of just a sale and a purchase,
the money then standing idle. Others result in a whole series of
transactions. The higher the velocity the less money actually needed
in circulation and vice versa.
With money based on precious metals, circulation can only tolerate as
much money as is required. If more money is put into circulation
than is required, its velocity slows down, and ultimately the metal
is withdrawn. In the Contribution to a Critique of Political
Economy, Marx refers to the historical facts in this regard. Where
coins were simply accumulating, so that the Value of the coins fell
below the value of the metal, the metal was melted down, and sold.
The velocity of circulation is a reflection of the speed with which
commodities are themselves being exchanged, and, therefore, of the
state of economic activity. But, Marx also elaborates,
“Herrenschwand’s
fanciful notions amount merely to this, that the antagonism, which
has its origin in the nature of commodities, and is reproduced in
their circulation, can be removed by increasing the circulating
medium. But if, on the one hand, it is a popular delusion to ascribe
stagnation in production and circulation to insufficiency of the
circulating medium, it by no means follows, on the other hand, that
an actual paucity of the medium in consequence, e.g.,
of bungling legislative interference with the regulation of currency,
may not give rise to such stagnation.” (Note 1 p 122)
Marx here is levelling his criticism at the 1844 Bank Acts which were
based on an incorrect view of money held by Ricardo. As Marx says,
“The
erroneous opinion that it is, on the contrary, prices that are
determined by the quantity of the circulating medium, and that the
latter depends on the quantity of the precious metals in a country;
this opinion was based by those who first held it, on the absurd
hypothesis that commodities are without a price, and money without a
value, when they first enter into circulation, and that, once in the
circulation, an aliquot part of the medley of commodities is
exchanged for an aliquot part of the heap of precious metals.” (p
125-5)
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