Capital III, Chapter 28 - Part 4

Whether money assumes the form of means of circulation, i.e. actual notes and coins, handed over in exchange for goods and services, or as means of payment, i.e. credit in the form of a Bill of Exchange, a cheque etc., where the money changes hands at some different point to the transfer of goods and services, also does not change the fact that money here has acted as currency not as capital.

It may appear that there is a connection because the majority of revenue is expended in the form of notes and coins, and this was particularly true in Marx’s time, when as he says, workers had little opportunity to buy on credit. On the other hand, most business transactions. i.e. the transfer of capital, are conducted on the basis of credit rather than cash payment.

“But the distinction between money as a means of payment and money as a means of purchase (means of circulation) is a distinction that refers to the money itself. It is not a distinction between money and capital. More copper and silver circulate in the retail business, and more gold in the wholesale business. Yet the distinction between silver and copper on the one hand, and gold on the other, is not the distinction between circulation and capital.” (p 445)

The second confusion in Tooke's formulation arises by his introducing the question of the quantity of money circulating in both functions. The laws determining the quantity of money required in circulation were set out in Capital I, Chapter 3. It does not matter whether this is to circulate revenue, or to transfer capital.

“The velocity of circulation, hence the number of repetitions of the same function as means of purchase and means of payment by the same pieces of money in a given term, the mass of simultaneous purchases and sales, or payments, the sum of the prices of the circulating commodities, and finally the balances of payments to be settled in the same period, determine in either case the mass of circulating money, of currency. Whether money so employed represents capital or revenue for the payer or receiver, is immaterial, and in no way alters the matter. Its mass is simply determined by its function as a medium of purchase and payment.” (p 445-6)

The third confusion in Tooke's approach is his introduction of “the relative proportions of the quantities of currency circulating in the two functions, and thus in the two spheres of the process of reproduction.” (p 443)

There is an internal connection between the circulation of currency in the two spheres, circulation of revenue and transfer of capital. Revenue is spent on consumption, but for consumption to occur, consumer goods must be produced, and so there must take place transfer of capital, as merchants buy from producers, and producers of consumer goods buy inputs from the producers of capital goods.

The more consumption rises, the more these transfers of capital must increase. But, this fact does not mean that more money as currency must circulate in both spheres. The opposite might occur. In times of prosperity, more workers will be employed , and wages will rise. The price of commodities may also rise. More money, as currency, will be required to pay these wages. But, this additional money, as it is then used by workers, and other recipients of revenue, to buy consumer goods, and pay for services, will find its way back into the banks. However, this process may not result in an increase in money required for the transfer of capital. In periods of prosperity, firms are more likely to be prepared to sell goods on credit, and to extend credit for longer periods.

“As concerns the circulation required for the transfer of capital, hence required exclusively between capitalists, a period of brisk business is simultaneously a period of the most elastic and easy credit. The velocity of circulation between capitalist and capitalist is regulated directly by credit, and the mass of circulating medium required to settle payments, and even in cash purchases, decreases accordingly. It may increase in absolute terms, but decreases relatively under all circumstances compared to the expansion of the reproduction process. On the one hand, greater mass payments are settled without the mediation of money; on the other, owing to the vigour of the process, there is a quicker movement of the same amounts of money, both as means of purchase and of payment. The same quantity of money promotes the reflux of a greater number of individual capitals.” (p 447)

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