However, this is where the distinction between money as social-labour-time, and money commodity, as physical manifestation of money, and money token becomes important. Money, is social-labour-time. If the total value of commodities is equal to 1 million hours of social labour then money with a value of 1 million hours is its equivalent. If gold is the money commodity, i.e. money incarnate, then this million hours is measured in terms of gold producing labour, which is its proxy, and if a gram of gold represents 10 hours of labour, then 100,000 grams of gold is the universal equivalent form of all other commodities. If a money token now represents each gram of gold, then, assuming that each token performs only one transaction, 100,000 of these tokens is required as currency. But, what happens if, instead, 200,000 of these tokens are put into circulation?
It is clear that there is no change in the amount of money, i.e. the amount of social labour-time which is the equivalent of the value of commodities, because these are tautologically identical. Nor, therefore, so long as gold remains the money commodity, is there any change in the amount of gold that is the equivalent form of these commodities. But, 200,000 tokens now in circulation, nominally represent 200,000 grams of gold, and consequently 2 million hours of social labour-time. This can only be resolved by each token being halved in value. Whatever it might say on its face, about the quantity of gold it represents, the amount of social labour-time it represents, the reality is that it will now only represent half that amount. The manifestation of that is that money prices for all commodities will double, i.e. inflation.
All commodities will continue to be equal in value to 100,000 grams of gold. If a 1 gram coin has the name £1, then, originally, the total exchange-value of all these commodities, their total money-prices would be equal to £100,000. However, now, because each £1 coin represents only 0.5 grams of gold, or 5 hours of social-labour-time, the total of money prices rises to £200,000. Indeed, previously, a gram of gold, as a commodity, would be equal to £1, but to buy it, now, would require £2. So, anyone in possession of a full weight gold coin would have an incentive to melt it down into gold, because as gold commodity, it would exchange for 2 gold coins! When money tokens take the form of base metals or paper notes, this is no longer possible, because the tokens have no value in terms of their own material content.
As Marx says, in terms of a money commodity the quantity of it required in circulation is determined by its own value, whereas, for a money token, its value is determined by the quantity of tokens in circulation, and that is true whether that token is comprised of the money commodity itself, or of some worthless material. However, a surplus quantity of precious metal coins is automatically taken out of circulation, whereas a surplus of mere money tokens is not. As they stay in circulation, their individual value declines, and is manifest in higher prices.
States having a monopoly over the currency, recognised that they could mint coins with a total nominal value way in excess of the money required for circulation, and could, likewise, reduce the material content of precious metal contained in the coin. In other words, they could create inflation, and this was a common means by which the state would clear its debts. Debts contracted in coins at one value, are repaid with coins containing only half as much value, but with the same nominal value.
For a long time, a link between the face value of money tokens and a money commodity, usually gold was retained, even though, as Marx describes this link was manifest in a continual devaluation of the tokens. Bank notes produced by central banks, for instance, had printed on them words to the effect that they could be redeemed for gold. But, as an increasing quantity of notes was printed relative to the actual money they represented, i.e. the amount of social labour-time/gold they nominally represented, the manifestation of this was rising money prices of commodities.
In A Contribution To The Critique of Political Economy, Marx lists the degree to which the actual value of various precious metal coins had fallen over time, as their metal content was reduced, and the quantity of them put into circulation correspondingly increased. With base metal coins, and paper notes, the actual value content of the material of the token is more or less irrelevant, compared to the amount of social labour-time each token nominally represents. Their actual value, as currency, is entirely a function of the quantity of them put into circulation, relative to the money/social labour-time they actually represent.
The role of money commodity has long since ceased to be relevant, because money tokens have completely usurped its function. Money remains value completely alienated from use value, as universal labour-time, but is now represented directly in the form of worthless money tokens whose individual value is equal to the money/social labour-time they represent, divided by the quantity of such tokens in circulation multiplied by the velocity of circulation of each token. In other words, if the total value of commodities to be circulated is 1 million hours, and the money tokens are comprised entirely of paper £1 notes, with a velocity of circulation of 10, then, if 100,000 of these notes are in circulation, each note represents 1 hour of social labour-time. If 200,000 such notes are put in circulation, each note represents only 0.5 hours of social labour-time, and the prices of commodities measured by it would double. There is no need to first relate to a money commodity such as gold, as proxy for social labour, because social labour becomes simply the average of all labour performed.
Instead of, now, the value of the money token being a function of a money-commodity, such as gold, the opposite is true. The price of gold, as with any other commodity, is now a function of the value of the money tokens, increasing when the supply of tokens increases to an extent as to reduce their individual value, and vice versa. Speculation in gold occurs, because it continues to be a store of value, as a commodity, whereas the value of money tokens such as the Dollar, or the Pound, is simply a function of the quantity of them placed in circulation relative to the money/social labour-time they represent. So, when an excess of tokens is put into circulation, as with QE, so that their individual value falls, this prompts speculation in gold or other commodities that can be held as assets, as well as speculation in financial and property assets, whose prices are directly inflated as the goal of such QE.
Gold, as world money, was used to make payments between countries, because the money token used in one country was not currency in another. But, again, this long since ceased to be true. Britain's economic hegemony meant that the Pound acted as world reserve currency, and, after WWII was replaced by the Dollar. Most globally traded commodities are priced in Dollars, and Dollars can be used to pay for imports of goods, in many cases. But, countries also pay for imports in the currency of the exporting country, and simply acquire these currencies via the global banking system, and money markets. Since the system of fixed exchange rates of the 1970's collapsed, a system of floating exchange rates between national currencies has existed. Now, the ratios of these currencies is determined by two basic factors. Firstly, as stated above, the individual value of, say, a Dollar is determined by the amount of social labour-time/money it represents, but secondly, this amount of social labour-time is also a function of the productivity of US labour relative to the productivity in other countries.
For, example, suppose that in the US, the total value of commodities to be circulated is 1 million hours, and its equivalent is 1 million $1 bills. However, suppose that the US is trading with Egypt, where the productivity of labour is only half that in the US. Put another way, an hour of Egyptian labour creates only 0.5 hours of value, compared to an hour of US labour. Where a Dollar buys commodities with a value of 1 hour of US labour, therefore, it will buy commodities with a value of 2 hours of Egyptian labour. If an Egyptian Pound is equal to 1 hour of Egyptian social labour-time, then $1 will exchange for 2 Egyptian Pounds.
This development of money tokens as a replacement for a money commodity, and the representation of money/social labour-time directly in the form of such tokens, is a further evolution of Capitalism towards Socialism. As Marx describes, under Socialism, the same fundamental relation that exists under commodity production and exchange will continue, but without money. In other words, the total value of the social product, will be determined directly by the amount of social labour-time required for its production, and similarly, the value of each type of product will be determined by its proportional share of social labour-time. Everyone will then get a token that is equal to the amount of social-labour-time they have contributed, so as to be able to obtain an equivalent amount of value in products. That is essentially the function that money tokens already perform. The difference under socialism is that these tokens will no longer be able to be hoarded, and, thereby, used as capital.
There is one final aspect to consider, and that is credit. As was stated at the start, credit is trust, and at the start of commodity exchange, where there was trust between participants in exchange, they would accept some more or less worthless token, as representative of the value they were actually to obtain, in exchange, at some later date. As Marx describes, credit develops alongside capitalist production. This takes the form of commercial credit between companies. Initially, the commercial credit takes the form of Bills of Exchange, and these Bills of Exchange themselves circulate as currency, until such time as they are withdrawn as payment is made. As Marx describes in Capital III, this commercial credit restricts the ability of the central bank to slow economic activity, or to reduce prices/inflation via monetary policy. In a time of strong economic growth, every firm can simply sell its output by offering commercial credit to commercial customers, who then pay later, and the additional commercial credit then acts as additional currency, irrespective of whether the central bank reduces the supply of notes and coin.
Thank you Boffy for this rich post, despite the hectic times you are having. It could really help me grasp one of the most difficult, and at the same time controversial, categories in Capital at last.
ReplyDeleteYou mentioned in passing that Bitcoin, among many other crypto-currencies, is only a money token, not Money. For the reason that it has no use value other than to be a means of speculation and has no value, because even the labor expended on it is not a socially-necessary labor. so, it is essentially different to Gold.
It seems to me that it is even far from an ideal money token, as compared with other types of money tokens. Besides its high cost of production (“mining”), it has not been generally accepted in transactions, let alone by states, and so is not fulfilling its function as a medium of circulation, payment or unit of account. Its high volatility also means that it can never be a reliable store of value. Moreover, the maximum total supply of Bitcoin is technically 21 million. While an effective money token must serve all these functions of money and secondly have no limit in terms of the number that could be put into circulation. If I am wrong here, please correct me.
As for labor-tokens under Socialism, you explain that they will do the function that money tokens already perform, with the difference that they will no longer be able to be hoarded and used as capital. Marx in a passage I quote below adds one more reason: “The producers may, for all matters, receive paper vouchers enabling theme to withdraw from the social supplies of consumer goods a quantity corresponding to their labor-time. These vouchers are not money. They do not circulate.”
In the end, you went through the dollar, as hegemonic world reserve currency, and importing countries. Here the question I had previously about inflation would become relevant again. In the example of US-Egypt, a fall in the value of the importing currency (Egyptian pound) relative to the US dollar would lead to inflation. How? for example Egyptian economy as a whole needs 1000$ of raw materials, if 1$ is equal to 1000 E£, the total cost on raw materials would be 1000,000 E£; within a month, the value of E£ against the dollar falls by half, so now each1$=2000 E£ and this pushes costs to 2000,0000 E£ and finally reflects them in the total prices. As I understand it, this is only what “appears” to us and this explanation is still following the cost-push theory. So, instead, keeping in mind that inflation is a monetary phenomenon, how would this be explained? I argued that this inflation would be possible only if an additional amount of money tokens has been already put into circulation. This additional amount must be equivalent with the difference between the previous and current exchange rates, multiplied by the amount Egypt has spent on importing in dollar (1000 * 1000). My question, therefore, was if this would be a correct explanation of inflation in this case as a monetary phenomenon?
Warm regards
Thanks Elijah.
ReplyDeleteI haven't had time to read your whole comment yet, but saw your reference to Bitcoin, and thought I should respond. What I said was that Bitcoin/crypto is not money (which is social-labour-time as the equivalent value of commodities to be circulated) or a money commodity, like gold, (money incarnate), because it is not a commodity, has no value. Nor is it like say land or capital, which are sold as commodities even though they are not products and have no value, but are use values, required (under capitalism) for production, and whose price is a consequence of monopoly ownership of them.
I didn't say that Bitcoin was a money token, and that was an omission on my part. It isn't a money token either, but is merely an asset whose market price is determined by speculation. If no one speculated in them, their price would fall to zero, because they have no function as a commodity/use value other than for that. Supporters would say, ah but they are used as currency, which would indeed qualify as being a money token, but unlike other money tokens their is nothing that stands behind them, i.e. the state. Moreover, the real basis of any such currency is blockchain technology not any given crypto, and that can be utilised with existing currencies. Additionally, in terms of currency, although the quantity of any given crypto may be limited, which is said to be its advantage over fiat currencies that can be inflated be printed ad infinitum by central banks, there is no limit to the number of different cryptos that can be created, so that in terms of total crypto in circulation as currency it is just as limitless, and so prone to devaluation.
I'll try to read the rest of your comment as soon as possible.
I have time to respond in relation to tokens under Socialism. Marx deals with tokens given to workers to take out of the communal store products to an equal value to what they have contributed - less the various deductions described in COGP. But, I think he needed to think this through a bit more. he's talking about conditions under Socialism, or as he puts it the first stage of communism, i.e. before there is abundance and the principle of from each according to ability to each according to need.
ReplyDeleteBut, under this first stage what about the situation where I have some self-employed painter and decorator come to paint my house? He will require payment for his services, the same with a gardener, cleaner and so on. I will need to pay for these services by handing to the providers some token. Even if these services are provided by a company rather than individuals, what happens when I hand these tokens to them, and indeed, the same applies to if I buy a chair from a store? Those providing the goods and services, must themselves have some means of redeeming the value/labour-time represented by the token, whose equivalent is embodied in the goods and services they have sold to me, and which now is required to reproduce the goods and services sold.
Its inevitable that there must be some element of currency and fungibility in these tokens, or else the whole process would become cumbersome an bureaucratic. The painter, must by paint to replace the paint used in painting my house, and that is additional value to any new value he has created by his painting labour, for which he might have received tokens, for instance. In other words, we have the problem of the reproduction of the constant capital component of value in current production, which is not reproduced from current labour.
Suppose, I give tokens with a value of 100 hours to the painter, what this covers is say, 20 hours for their painting and decorating labour, 70 hours for the value of the paint they have used, and 10 hours for wear and tear of their tools and equipment. The painter, themselves would get tokens of just 20 hours for the labour they have provided, leaving them 80 hours short of being able to reproduce the actual value of the service they have provided, i.e. to reproduce the materials and wear and tear. Unless, there is some element of convertibility of the tokens they receive from me, this would break down, or else they must be able to hand the tokens they get to some central clearing house that converts them to some other form, which seems bureaucratic and cumbersome.
In fact, today, there is no need for all of this, because basically credit and electronic banking systems make the idea of tokens redundant. Each producer, simply gets credits into their bank account, and we would probably still continue to use existing currency denominations for it, and uses a bank card to make purchases, thereby, as now, each purchase being deducted from their credit balance in the account, and businesses would simply by and sell materials and equipment to each other in pretty much the same way they do now using commercial credit.
On currencies and imported inflation. I'm assuming that changes in currency pairs are not affected by short-term measures, such as raising interest rates to attract hot money, or by central bank or speculator large scale buying and selling of a given currency. I am going to follow Marx, from The Contribution, and from TOSV by starting with gold as money commodity, and then relate it to money tokens. I also assume that gold is produced in both countries.
ReplyDeleteNow, the reason that an Egyptian £ would fall as against the US Dollar cannot be because too many of the former are put into circulation, because as Marx describes, the excess gold coins are taken out and melted down. It can only be a reflection of the fact that Egyptian productivity has fallen. Now, either we assume that this fall applies more or less uniformly across its economy, or there is some variation in relation to its gold production. If the former, the value of the gold in an Egyptian £ rises proportionate to the rise in the values of other Egyptian commodities. No additional £'s are required for circulation, and measured in these £'s, Egyptian prices would remain constant. Marx makes this clear in A Contribution, Chapter 1.
Egyptian prices could only change if the change in Egyptian productivity was not proportional in relation to gold production. Now, however, we consider its relation to the US. If Egyptian productivity falls uniformly so that the value of gold also rises, we now have to consider the function of gold as world money. Assuming no change in US productivity, the value of a gram of US gold will not have changed, but when it comes to comparing global social labour-time there cannot be two different values of gold.
If a gram of gold is equal to 10 hours in Egypt, and only 5 hours in the US, then as bullion, 50 hours of US labour will buy 100 hours of Egyptian labour, and vice versa. That doesn't mean that US consumers will flock to buy Egyptian commodities, however. Say a car in the US is equal to 1000 hours of labour, in Egypt the same car will be equal to 2000 hours of labour. What the consumer is interested in is the use value, not the value of what they buy. There is no gain from paying 2000 hours of labour to obtain the same use value that can be obtained for 1000 hours of labour.
Similarly, 200 Egyptian £'s are required to buy an Egyptian car, but would buy 2 US cars if the Egyptian £ was at parity with the $. But, both contain only the same gram of gold. Assuming the US sets the global value of gold, then the Egyptian £ must fall in relation to the $, being equal to 2 rather than 1. If payments for imports are made in bullion, then a US car with a value of 1000 hours, imported into Egypt will require payment in gold of 1000 US hours (100 grams), but in terms of Egyptian production that 100 grams is equal to 2000 of labour. As a money token, currency, the Egyptian Pound, even though it contains 1 gram (200 hours) of Egyptian gold would only buy 0.5 grams of gold on the world market. There would then be a tendency to take Egyptian £'s out of circulation, and turn them into bullion, so that 1 gram of Egyptian gold exchanges for 1 gram of world gold. Again 200 hours of Egyptian labour then exchanges for 100 hours of US/world labour.
Cont'd
Cont'd
ReplyDeleteAlternatively, as a money token, the gold content of an Egyptian £ could be reduced by half, so that its actual commodity value equalled its value as money token/currency. Now, in relation to the circulation of Egyptian commodities in the Egyptian market, twice as many of these tokens would have to be produced, to equal the value of commodities to be circulated. The value of an Egyptian £ would then halve in the domestic market as well as in the foreign market, and Egyptian prices would double. Again this inflation is then a consequence of this increase in the currency circulation.
Now, if the currency takes the form of paper notes, the appropriate adjustments can be made. Its again no longer possible to take currency out of circulation to convert to bullion, and so the value of a paper Egyptian £ becomes halved as a result of the above processes. What has to be considered, here, is the role of world money, universal labour-time, at a global rather than national level, and differential rates of productivity and so the value created by labour in each country per hour. Considering that from the perspective of a world money commodity such as gold lays bare those relations, prior to introducing the relation of national currencies to it.
I worded part of my response above badly, in a way that would lead to confusion and error. That s where I spoke of if the Egyptian £ having parity with the $ it would mean it would buy 2 US cars. Taken literally, that is obviously nonsense. What I meant was this.
ReplyDeleteThe Egyptian £, being equal to a gram of Egyptian gold, would be equal to 10 hours of Egyptian social labour. An Egyptian car is 200 hours of labour, and so 200 Egyptian £'s. What I meant was that if Egyptian social labour and US social labour were treated as at parity, so that Egyptian money and US money were at parity, then this 200 Egyptian £'s would buy 2 US cars, which are equal to 2000 hours of US labour.
But, clearly, an Egyptian £ containing a gram of gold, has no more actual value than a US $ containing a gram of gold, because, here, it is the actual gold material content that is determinant, not the £ or $ as money tokens. Gold, now, as world money has one single value determined by global universal labour. If the US determines this global value (it doesn't actually matter who determines it in the end, it just changes the figures) then a gram of gold has a value of 5 hours of global social labour, so 200 Egyptian £'s (200 grams of Egyptian gold) would be required to buy a US car.
That means that these 200 £'s contain 2000 hours of Egyptian labour, which is equal to only 1000 hours of US labour. The Egyptian £ as money token, as opposed to its gold content would have to be devalued, if the relative values of money tokens were compared. As money token it could only represent 5 hours of global social labour, as against 10 hours of Egyptian labour.
I hope this hasn't confused things.