Wednesday, 2 July 2014

Capital II, Chapter 17 - Part 10

In Volume I, it was demonstrated how the process of primary accumulation of capital occurred. But, this is something different. This is not a question about the source of capital, but the source of the money that circulates within the economy. Understanding that involves going back to Marx’s explanation of what money is, and how it develops.

Suppose A and B both work for 1,000 hours. They can exchange the product of this labour. If they do additional work, working 2,000 hours instead, it is obvious that they can still fully exchange the product of this labour. The difference is that both now obtain twice as many use values as they did before.

Now, money itself is a commodity. Its peculiar nature is that it is the commodity which acts as the universal equivalent form of value. The value of all other commodities can be expressed as a certain quantity of it. Suppose then that the money-commodity is gold, and that above, A produces potatoes and B gold. A's 1,000 hours produces 1,000 kilos of potatoes, and B's 1,000 hours produces 1,000 grams of gold. Then 1 kilo of potatoes will exchange for 1 gram of gold. Now, suppose that for subsistence 1,000 kilos of potatoes are required. A is okay, they can produce enough for their own subsistence. But, by working 2,000 hours, they can produce enough for their subsistence and an equal amount of surplus, which can be sold to B.

If B works only 1,000 hours, they will produce enough gold to buy this surplus 1,000 kilos of potatoes, and thereby cover their own subsistence needs. At the end of all this, all of the potatoes produced have been consumed. The necessary labour-time, the time needed to ensure the producers could live amounted to 2,000 hours, but 3,000 hours were worked, 1,000 hours being surplus labour. That surplus labour now exists in the form of a social surplus. The social surplus is in the form both of a commodity and of money, because the commodity gold, is money!

If the gold producers worked 2,000 hours then this means that 2,000 hours of surplus labour-time have been worked. It assumes the form of 2,000 grams of gold.

As more labour-time is expended by society i.e. more value is created, then in any society that produces commodities, and circulates them using money, a portion of that expenditure of social labour-time has to go to the production of the money commodity itself. Commodity producers exchange their commodities for gold directly with the gold producers, because the former want gold to be able to buy other commodities, and the latter want commodities to consume productively and unproductively. By this means, gold enters circulation as money, because the commodity producers then use the gold they have obtained, to buy other commodities.

In the example above, the gold exchanged on a one to one basis with the potatoes. However, as we know, the money does not actually do this, but continues to circulate and perform many transactions. That is perhaps as well. If not, and the gold was worn out each year, the gold produced and thrown into circulation would have to equal half of total social production. For example, above 1,000 kilos of potatoes and 1,000 grams of gold, each with a value of 1,000 hours.

But, in fact, the gold as money is not consumed whereas the commodities it buys are. The gold used to buy the potatoes can be used again to buy other commodities worth 1,000 hours, and the new recipients of the gold can use it in turn to make their own purchases.

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