At its most basic level, therefore, money is this universal social labour-time, which represents the equivalent value to all of these commodities to be circulated, which, in the above example, we might conclude amounts to only 1 million hours of universal labour. This amount is not negotiable, but is objectively determined on the above basis.
The universal equivalent form of 1 million hours of labour, represented by commodities, cannot be 1.1 million hours, nor 0.9 million hours. Money, as the universal equivalent, must also be 1 million hours of equivalent value, because that is tautologically true. As Marx describes, the historic development of this comes in the form of a specific commodity, such as cattle, whose own value is well-known, and which is regularly traded, so that it becomes the physical manifestation of money. Similarly, the concrete labour required for the production of this money commodity then becomes the proxy for abstract, universal labour itself. If the value of commodities to be circulated is 1 million hours of universal labour, and the amount of labour required to produce a head of cattle is 100 hours, then the equivalent form of value of commodities to be circulated is 10,000 head of cattle.
So, when Martin Thomas says,
“Most money is created not by minting coins, or by a central bank printing IOUs (bank notes), but by commercial banks”,
this shows he simply does not understand what money is, as defined by Marx, and its distinction from money tokens and credit as currency. He makes the same mistake as Bray, and Proudhon. As Marx demonstrates, as set out above, money cannot be “created”, because it arises naturally as the universal equivalent form of the value of the commodities produced and to be circulated in the economy. It is increased or diminished in accordance with the value of those commodities themselves, which is itself a function of the quantity of commodities produced, and their own value, which is a function of the level of social productivity. What can be “created”, in the way Martin Thomas describes, is money tokens and credit, as currency and means of payment, but that is not money. In that respect, he makes the same error as Ricardo.
As Marx puts it,
“But a thing cannot be its own symbol. Painted grapes are no symbol of real grapes, but are imaginary grapes. Even less is it possible for a light-weight sovereign to be the symbol of a standard-weight sovereign, just as an emaciated horse cannot be the symbol of a fat horse.”
(A Contribution To The Critique of Political Economy)
Martin Thomas makes the same mistake as John Law and the Pereire Brothers, and the proponents of Modern Monetary Theory, in confusing money with these money tokens, and so thinking that, by simply printing more of these tokens, or by banks creating additional credit, this is the same as creating more money. Instead, because the amount of money itself is objectively determined by the value of commodities, for which it is simply the universal equivalent, printing more of these tokens, or creating additional credit, simply devalues each token, because their total value cannot exceed the total value of money they represent.
If the total value of commodities to be circulated is 1 million hours of universal labour, that is necessarily the value of money as their universal equivalent form. If 10 hours of universal labour – whether represented by a 1 ounce gold coin or a paper note – is given the name £1, then the money form of this is £100,000. If this money takes the form of paper notes, each designated as £1, and each of which circulates 10 times in a year, then as currency, £10,000 in such notes is required for commodities to be circulated.
If, however, 20,000 such notes are put in circulation – or, as Marx says, if instead 4,000 £5 notes are put in circulation – it is clear that this does not amount to £20,000 of money. The notes, whatever their face value says, cannot exceed a total amount of value equal to 1 million labour hours, or the £10,000 of money equivalent. Simply printing more notes does not change the total value of commodities, and so also cannot change the equivalent form of that value! Each note, would, thereby, be halved in value. Twice as many of these depreciated notes is then required as the equivalent in exchange for commodities.
However, the face value of each note remains £1, and so, if twice as many have to be handed over to buy commodities, this inevitably takes the form of an inflation of commodity prices. This has nothing to do whatsoever with changes in the value of commodities themselves, which is a function of social productivity, nor with their market price, which is a function of ephemeral changes in demand and supply. It is solely a consequence of changes in the value of the standard of prices due to an excess of money tokens/credit being produced.
As Marx puts it,
“The token of value, say a piece of paper, which functions as a coin, represents the quantity of gold indicated by the name of the coin, and is thus a token of gold. A definite quantity of gold as such does not express a value relation, nor does the token which takes its place. The gold token represents value in so far as a definite quantity of gold, because it is materialised labour-time, possesses a definite value. But the amount of value which the token represents depends in each case upon the value of the quantity of gold represented by it...
How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given...
The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.”
And, when society moves beyond gold as money commodity and indirect measure of value, to the use of fiat currency, these laws are not fundamentally changed. Each note/amount of credit, continues to represent a quantum of social labour-time, i.e. of universal labour, and so the more of these tokens/credit produced, the smaller this quantum per note/unit of account. The more of these tokens must be given for any value of commodities, and so is manifest in higher money prices – inflation.
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