A Contribution To The Critique of Political Economy, Chapter 2.3 Money, b. Means of Payment - Part 2 of 8

In the simple exchange of commodities, C – M – C, the seller alienates the use value of the commodity they sell, but realises its value, as money. But, this money, the price of the commodity, is only ideal, because, to actually realise its price, they must exchange the money for the commodities they actually need, M – C. As Marx sets out in Theories of Surplus Value, and in Capital II, there are numerous reasons why this may not occur, causing this process of circulation to break down.

The seller may not be able to obtain the ideal price for the commodities they sell, so that they lack the money required either for their own consumption needs, or to replace the consumed means of production. Alternatively, they may sell at this price, but then find that the prices of the commodities required for their own consumption, and to replace means of production have risen, or else, they may not physically be available to buy, either at all, or within the required time. (See my book – Marx and Engels Theories of Crisis)

The money, in this simple commodity exchange, is merely a means to an end, not an end in itself. It is the means of achieving C – C, and the real price of the commodities they sell is expressed in this relation, their exchange-value, represented by the commodities they seek to buy. Unless they can achieve this the price they obtain, in money, for the commodities they sell, is only theoretical. Unless they can exchange this money for the equal value of commodities they seek to buy, the money they obtain is merely useless metal, or scraps of paper.

These credit relations between commodity owners are developed early on, where they regularly trade with each other. This form of commercial credit is also to be distinguished from bank credit, whereby financial institutions loan money at interest. As Marx describes, in Capital III, under capitalism, commercial credit becomes central to the dealings of capitals with each other, for example, via Bills of Exchange, which circulate as debt instruments, and are cleared via central clearing houses, but which can also be realised as money early, via discount houses.

In modern commerce, firms simply invoice each other, and the commercial credit takes the form of the grace periods that buyers are allowed within which to pay the invoice. Previously, payment would be made by cheque, and rather like the clearing of Bills of Exchange, the cheques of many different firms, as payment of invoices, would be cleared by the central bank clearing house. Again, all of these payments would be netted off, and so the actual settlement of the net amounts of money, compared to the total value of commodities circulated is small.

Today, this happens via electronic payments, rather than the clearing of cheques, and it is only digital transfers in bank ledgers that are required. Whilst crypto-currencies are worthless, speculative assets, the block chain technology that makes them possible, is likely to have a role in this regard. This vastly reduced the amount of money/money tokens required in circulation to circulate any given value of commodities, but also, therefore, complicates the problem of central banks in trying to control excess currency circulation, in times of rising inflation, because this extension of commercial credit, between capitals is largely outside its control, unless it tightens monetary policy to a degree as to cause a credit crunch, as happened in 1847.

The central bank can reduce note and coin issuance, but that mostly impacts consumers rather than the transactions between capitals, and, in highly banked economies, where consumers also receive and make payments electronically, the issuance of physical notes and coins becomes increasingly irrelevant.

Back To Part 1

Forward To Part 3