Chapter Two – Money or Simple Circulation

In Chapter 2, Marx describes how the process of the gradual transformation of products into commodities, of the reduction of concrete labour to universal labour, and of individual value into market value, as the basis of exchange-value, creates money as the universal equivalent form of value, i.e. as universal social labour-time, and its necessary manifestation in the form of a money commodity. In the same way, the concrete labour that produces this money commodity, now, becomes the proxy for universal labour itself.

“The principal difficulty in the analysis of money is surmounted as soon as it is understood that the commodity is the origin of money. After that it is only a question of clearly comprehending the specific form peculiar to it. This is not so easy because all bourgeois relations appear to be gilded, i.e., they appear to be money relations, and the money form, therefore, seems to possess an infinitely varied content, which is quite alien to this form.” (p 64)

In other words, if there were only two commodities, there would be no basis for money, because the price of each commodity would be given in terms of a quantity of the other, i.e. their exchange-values. Price is only the exchange-value of a commodity expressed as a quantity of the money commodity. As seen in the previous chapter, this money commodity emerges naturally from the process of commodity production and exchange, as the means of measuring, indirectly, the value of every other commodity. In doing so, it also determines the proportional relation of all those other commodities to one another.

In fact, this proportional relation of each commodity to every other is disguised by their money prices, but the fact is that this proportional relation is itself a consequence of the value of each commodity, irrespective of its relation to the money commodity. If the value of a metre of linen is 10 hours, and of a litre of wine 20 hours, and of a gram of gold 5 hours, then the price of linen will be 2 grams of gold, and of wine 4 grams. So, the price of each is as 2:4 or 1:2, as is their value relation. If the value of gold rises to 10 hours, then the price of linen falls to 1 gram, and that of wine to 2 grams, but the proportional relation of their prices remains 1:2 as before.

This is also why inflation, a general rise in prices, as against a rise in price/value of one or more commodities, is a monetary phenomenon.

Marx explains that his analysis, here, is only in relation to “those forms of money which arise directly from the exchange of commodities, but not with forms of money, such as credit money, which belong to a higher stage of production.” (p 64)

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