Wednesday, 15 August 2012

Capital I Chapter 3 - Part 5

Coin and Symbols Of Value

The development of money as coin derives from its function as currency. The function of minting coins, as with the legal establishment of a standard or prices e.g. Pound, Dollar and so on, is appropriated by the State. The fact that Gold and Silver coins have different names, weights etc. in different countries is a reflection of the fact of the separation of the circulation of commodities into a national and an international sphere.

In international trade, payment is made in gold bullion rather than coin. This illustrates that the only difference between bullion and coin, as money, is the shape. The moment gold is minted into coin, it has already begun its journey back to be melted into bullion. As part of normal circulation, all coins are subject to wear and tear. Coins made of precious metals are also subject to clipping, i.e. slithers of gold are cut from coins, accumulated and then sold as gold. This means that the coins continue to circulate at their face value, although their actual value has been diminished. To try to prevent this, the process of milling the edges of coins was introduced.

But, coins still got worn down, so the actual value of the coin determined by the amount of gold it contained, inevitably and increasingly diverged from its nominal value based on how much gold it was supposed to contain. In other words, even gold coins became just symbols of the gold money they represented.

Marx points out that this caused considerable confusion over the centuries about the real nature of money. Laws were introduced to set the minimum weight of gold or silver that coins had to contain, below which they ceased to be legal tender, and had to be withdrawn from circulation. Even so, periodically the weight of gold in coins was officially reduced, reflecting the fact that this was the case in reality of the coins actually circulating. Marx gives extensive details on the extent to which the actual value of coins had fallen compared to their original value, so that they were often now just a small fraction of their original value.

The fact, however, that even gold coins only ever acted as mere symbols or tokens of the money they represented meant that it became obvious that other tokens could be used as coins. There were other reasons for that. Firstly, minting very small amounts of gold to represent tiny monetary amounts was not practical. Secondly, less precious metals such as silver and copper had been used earlier. As trade increases and more money is required in circulation, the more precious metal pushes out the lesser, for bigger transactions. This leaves the less precious metal to act as a fraction of the monetary standard, to be used for smaller payments. Thirdly, it is cheaper to use other metals as tokens, and there is less reason for clipping of these coins.

However, because these coins are used for the much larger number of small transactions, they are subject to greater wear and tear. Their nominal value has no relation to the physical value which is set by law as a given fraction of the standard monetary unit e.g. a Penny is 1/240 of a pound, a Shilling is 1/20 of a Pound and so on. The weight and value of the metal in the coin is again arbitrarily determined by law, so that it bears no resemblance to the money it represents. Replacing gold coins with paper money tokens is just an extension of this process.

However, Marx makes clear that he is speaking here of that stage of history when this paper money is that issued and backed by the State, not Credit Money, which is established later.

But we may affirm this much, that just as true paper money takes its rise in the function of money as the circulating medium, so money based upon credit takes root spontaneously in the function of money as the means of payment.” (p127)

The laws relating to this paper money are quite straightforward. As the requirements of circulation can only absorb a certain amount of gold money, so the paper money tokens put in circulation to represent it cannot exceed that total either. Where an excess of gold in circulation is automatically withdrawn (hoarded or melted into bullion etc.) the same cannot occur with paper money tokens (because they have no real value of their own as gold does). If more paper tokens are in circulation than is required (because an excess has been printed, or because economic activity has declined etc.) then these money tokens represent a smaller amount of money. Marx refers in many notes to his earlier analysis of money undertaken in A Contribution To The Critique of Political Economy. I have covered much of Marx's analysis of money and the relation between Gold and Paper Money Tokens, set out in the Contribution, in a blog I wrote many years ago which I have reproduced as - Marx Gold and Money

If the quantity of paper money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name not of 1/4 of an ounce, but of 1/8 of an ounce of gold. The effect would be the same as if an alteration had taken place in the function of gold as a standard of prices. Those values that were previously expressed by the price of £1 would now be expressed by the price of £2.
Paper money is a token representing gold or money. The relation between it and the values of commodities is this, that the latter are ideally expressed in the same quantities of gold that are symbolically represented by the paper. Only in so far as paper money represents gold, which like all other commodities has value, is it a symbol of value.” (p 128-9)

Paper money tokens can perform this function of currency in place of money, because all that is occurring is the intercession of money in the exchange of commodities, C-M-C. But, money has other functions besides currency. Paper cannot replace gold as universal equivalent of Value, and, therefore, measure of Value. Even as currency, paper can only act as a symbol of money with the power of the State behind it, which restricts its circulation within the realm of the State. Even then, as we have seen in the Weimar Republic, if the printing of money tokens exceeds certain limits relative to the gold it represents, not even the State can enforce its function. As Marx puts it,

If the paper money exceed its proper limit, which is the amount in gold coins of the like denomination that can actually be current, it would, apart from the danger of falling into general disrepute, represent only that quantity of gold, which, in accordance with the laws of the circulation of commodities, is required, and is alone capable of being represented by paper.” (p 128)

Section 3 – Money

a) Hoarding

The circulation of commodities is reflected in the continual currency of money. But, when the circuit of commodities ceases, when sale is not followed by purchase then this mobilisation of money ceases. It stops being coin or currency, and becomes money. From the beginning of commodity circulation, the desire arises to hold on to money. Money becomes hoarded, and sellers become hoarders.

The first commodities arise as accidental surpluses, and are converted into gold and silver, and so arises the view of gold and silver as themselves expressions of “superfluity or wealth”. Where production continues to be based on the supply of a restricted range of wares, this kind of hoarding of gold and silver continues. Marx refers to that tradition in Asia, and even today, a large quantity of gold demand comes from India.

As the production of commodities develops and every producer becomes more dependent, both on selling their own output, and on being able to buy the output of others, so the production and consumption can become more separated so that it becomes necessary to be able to buy without selling. In other words, a certain hoard of money is required. But, this implies that previously you have sold without buying. This seems to represent a contradiction when looked at as a whole.

But, the gold producers have money (gold) not from having previously sold, but by virtue of producing the money commodity itself. Their money is in the form of a hoard immediately. When they acquire commodities in direct exchange it is not on the basis of C-M-C (i.e. a sale of a commodity to acquire money), but directly of M-C. All down the line then it becomes possible to acquire money without the need to immediately make a purchase, resulting in the formation of hoards. The gold producer sees M-C. But, the seller of C to them sees C-M. M for them can then become a hoard, which can be used to make a purchase not immediately, but some time in the future i.e. M-C, and so on.

The possibility of storing exchange value in this commodity form also sees the development of the greed for gold.

Everything is convertible into gold, commodity or not, and with its possession, everything is possible. Everything can be bought and sold. Money is able to sweep away all distinctions, and in the possession of individuals, it also, therefore, brings social power.

In pre-capitalist formations, the accumulation of hoards is seen as equivalent to an increase in Value, and even though, in reality, the Value of the money varies according to differences of its own value, or that of other commodities. But, for the hoarder, 200 oz. gold is still more than 100 oz. and the gold is still “the immediate incarnation of all human labour.” So, the desire to increase these hoards is insatiable. Money can buy anything, but to buy more of it you need more money, a larger hoard.

In order that gold may be held as money, and made to form a hoard, it must be prevented from circulating, or from transforming itself into a means of enjoyment. The hoarder, therefore, makes a sacrifice of the lusts of the flesh to his gold fetish. He acts in earnest up to the Gospel of abstention. On the other hand, he can withdraw from circulation no more than what he has thrown into it in the shape of commodities. The more he produces, the more he is able to sell. Hard work, saving, and avarice are, therefore, his three cardinal virtues, and to sell much and buy little the sum of his political economy.” (p 133)

Alongside this form of hoard, as the wealth of society increases, we see gold and silver hoarded in the form of jewellery and other such objects. So, the market for them grows separate from their use as money, and particularly in times of crisis, this also forms a latent source of supply. At the same time, these hoards also help in the process of regulating the money supply, because it is always necessary that there is more gold and silver in the country than is, at any time, needed for coins, so that more can be minted if required, and when not required can return to the hoards.

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