Greece and the Money Myth - Part 2

In reality, as I said earlier, about how it would not really bother me if every £1 coin and notes disappeared, so here is does not matter whether any gold existed in the vaults of Bank A or B, described in Part 1, because, in the end, no physical gold was required to resolve the balance of payments between the two banks. Gold only acted, in the relations between the two banks, as a nominal unit of account.

It is not a question, therefore, of whether any or sufficient currency is in existence, but whether actual funds exist in bank accounts to cover the required payments. For example, suppose Greece ran out of Euro notes and coins completely (I'll look at the process by which that could occur later). Does this mean that individuals and businesses then cannot make payments?

Obviously not, for the reasons I gave earlier. A Greek worker who has their wages paid directly into their bank account would continue to be paid, just as they are now. Their employer does not have to hand over physical Euros to the bank for this purpose. It simply makes an electronic transfer of funds from its own accounts, into the accounts of its employees.

The issue at stake here is not whether there are sufficient notes and coins in the country, but only whether the employer has sufficient funds in their own bank account to cover the transfer of funds to cover the wages of its employees. That can be seen if we consider this in the same terms that Marx used in examining how the Physiocrats had actually got to the heart of how surplus value is created in the production process.

For simplicity we will consider a situation where there is simple reproduction. That is all surplus value is consumed rather than part being accumulated. We could consider things in the limited terms of the Physiocratic world, whereby virtually all production and consumption was of commodities produced in agriculture, but instead we can consider it in terms of an industrial economy, but considering all employers on one side, and all workers on the other. In line with Marx's method in Capital I, we will set the value of constant capital to zero, as though none is actually required for production, or withdrawn from production, because it is replaced on a like for like basis, so that the value it adds to current production, it likewise withdraws from current production.

On this basis, suppose that the employers have €1 billion in their bank account. This money exists in purely electronic form. In other words, there is not one single Euro note or coin, not one gram of gold in circulation or held in any hoard. The workers work for 5 days, producing commodities with a value equal to €1 billion. The employers in total transfer €800 million directly into the accounts of these workers as wages.

The workers need to live, and so they buy some of the commodities they have produced in the previous week. These commodities include all those things the worker require to live, not just the food to eat, but also the clothes to wear, the provision of services of various kinds. They buy these commodities from the employers for whom they collectively work. Having been paid €800 million in wages, they can only buy €800 million of the €1 billion worth of commodities they produced. In other words, although they worked for five days, they can only buy the commodities they produced in four days.

They do not need any Euro notes or coins to make these purchases. Their employers have collectively deposited €800 million into their bank accounts. Similarly, the workers now collectively transfer €800 million back into the accounts of the employers, in exchange for the €800 million of commodities they buy. Even if these payments are not made by electronic means, for example, telephone or internet banking, payment by direct debit, credit or debit card, ApplePay, or other such means, there is no need for this money to exist in the form of gold coins, or Euro notes and coins.

The workers could simply pay by old fashioned cheque. All that any of these different methods of payment are illustrating is that what is actually being exchanged is equal amounts of value, equal amounts of labour-time. Value is labour, and its measure is time. The workers sold a commodity – labour-power – to the employers. The value of that commodity, as with any other is determined by the labour-time required for its production, which here is equal to the value of the commodities required for the workers reproduction.

Each worker gets commodities that require 4 days labour to produce. If there are 20 million workers, the total value of commodities sold to workers is equal to 80 million days. So, workers sold labour-power with a value of 80 million days, and obtained in exchange commodities with a value equal to 80 million days. The fact that this value of 80 million days is expressed in its equivalent form as €800 million is irrelevant. It could just as easily be expressed as £500 million.

The only reason that it is presented as €800 million is that in the development of human society, value itself took on a physical form in the shape of a certain quantity of some money commodity. In other words, if 1 gram of gold required 10 hours of labour to produce, then every other commodity that required 10 hours of labour, to produce, could be expressed as 1 gram of gold, and if 0.1 grams of gold is given the name Euro, we can express the value of all commodities, not as a certain amount of labour-time, but as a certain number of Euros.

It does not change the fact that the underlying relation, is the amount of labour required for the production of the commodity, or commodities. For example, here the 80 million days value of labour-power could be expressed as 80 million grams of gold, if there are 10 hours during a working day, and this would be the equivalent of €800 million. The issue as to whether any economy such as Greece is viable, is not what unit of money these relations are made in, or whether there are physical representations of this money in the economy, but whether the value created by the labour employed is greater than the value of the labour-power employed to produce it! In other words, does capital actually function as capital, by producing a surplus value.

As set out earlier, there are all sort of means of payment of these amounts of value that take a money form. Many of them take the form of some form of credit, or token representing a quantity of the money commodity, typically gold. So, for example, individual banks began to issue bank notes, as set out in Part 1, prior to that function being brought under the monopoly of the state's central bank. But, businesses used Bills of Exchange, for commercial credit, as means of payment between themselves, which were nothing more than an IOU, specifying that one party owed a certain amount of money to another. As with the bank notes issued by individual banks, these Bills of Exchange, as well as circulating as currency within business circles, could also be set off against each other, so that only the outstanding balances had to be made good using money.

Similarly, banks issued cheques, which were used both by business and individuals as a means of payment, which was once again a form of credit, and once again these cheques were cleared via the Banks' Central Clearing House, so that only the outstanding balances were resolved. Moreover, the resolution of these outstanding balances increasingly became merely a book transfer rather than an actual transfer of gold between banks, because all that was required was for the deposit of one bank with the Bank of England to be reduced and the other to be increased. That was more so the case, as the Bank of England became the repository for all of the country's gold reserves.

By all of these assorted methods, €800 million of value is transferred out of the accounts of workers and into the accounts of employers. In exchange, €800 million of commodities produced by the workers, but owned by the employers, has been handed over by the employers and consumed by the workers. But, €200 million of commodities produced by the workers remain unsold. That is not a problem, because the employers still have €200 million of funds in their bank accounts. They now use that €200 million to buy this surplus product, which also constitutes their surplus value.

€800 million went out of their account as wages, but returned as workers spent those wages to buy commodities from the employers. €200 million went out of employers' accounts to buy the commodities they themselves required for their own reproduction. But, as each capitalist buys these commodities from some other capitalist, the money that goes out of the account of one goes into the account of another, so that in total it all returns.

At the end of the process, €1 billion of new value (1 billion hours) had been created. €800 million, 80% of the product and new value, was required for the reproduction of the workers (necessary product/labour) and was handed back to them as wages. The other €200 million, 20% of the product and new value created, constituted surplus value and was appropriated by the employers. Similarly, at the end of the week, the employers once more have €1 billion of funds in their accounts, their subsistence and luxury needs have been met, by their consumption of the €200 billion of surplus product, whilst the labour-power of the workers has been similarly reproduced, and they once more must sell their labour-power to the employers for another week, in order to live.

But, none of this required the existence of a single gram of gold, or Euro coin or note. In reality, all that the denomination of these various transactions in money terms, i.e. prices, does is to obscure the fact that what has occurred here is simply a series of relations between human beings, who exchanged equal amounts of labour-time.

I will examine these relations further in Part 3.