A Contribution To The Critique of Political Economy, Chapter 2.3 Money, c. World Money - Part 2 of 2

The UK could get away with lower interest rates, and rather than holding foreign currency in its own reserves, tended to hold gold. On the back of it, they could increase their currency, stimulating the national economy, and, on the basis of an inflated currency value, could import foreign commodities at prices below that they would otherwise have been. In reality, it was Sterling that acted as world money, not gold, with an historic, but essentially only nominal relation to the value of gold, which simply fixed the currencies of other countries to the Pound through it.

In the 1920's, with Europe already in a period of crisis, and growing stagnation, the US was booming, on the back of the technological revolution that Fordism and Taylorism had brought. Its exports grew markedly, and saw a large increase in its gold reserves, as its trade balance rose. On the back of it, its currency supply increased, and its interest rates fell. That created the conditions for a speculative bubble that led to the stock market crash of October 1929. After WWII, the US, as new world hegemon, took over the position previously held by Britain, and the Dollar became global reserve currency, and, thereby, world money.

After 1971, this arrangement collapsed, and just as gold and silver ceased being world money, so the Dollar lost most of its position as world money, as a system of freely floating exchange rates was introduced. In place of the previous system of fixed rates, with a fictional link to gold, the value of each national currency is determined on the basis of supply and demand on global money markets.

In the same way that each national money token represents a given quantum of social labour-time, the quantum rising or falling in proportion to the quantity of tokens thrown into circulation, and, thereby, determining the level of prices within its economy, so each national currency represents a quantum of global social labour-time, and this quantum is again determined by the quantity of tokens, but also the relative value of the national labour it represents as against global labour, i.e. its relative productivity.

The external values of currencies – exchange-rate – then tends to fall where currency supply is increased, and to rise, where its productivity rises, compared to its international competitors. But, this still favours the Dollar, because, as global reserve currency, globally traded commodities continue to be priced in Dollars, and countries hold Dollar reserves for these same purposes. Its just that, now, floating exchange rates mean that increased printing of $'s, or falling US productivity results in a falling $, and so higher prices for US imports. However, the continued demand for Dollars, as world reserve currency, means its value is higher than it would otherwise be, and its interest rates lower.

Marx explains the way the value of gold and silver is determined for the gold and silver producing countries. And those countries use these commodities immediately as money in their dealings with other countries. He sets this out in detail in Capital II. Normally, we have C – M – C, but, in the case of a gold producer, their C is already immediately M, because it is the money commodity. The gold producer does not produce a commodity which they exchange for money, and then buy another commodity with that money. They produce gold, which is money, and then exchange this money for the commodities they require, be they gold mining equipment and materials, or wage goods, luxury commodities and so on.

The same is true of a gold producing country that exports its gold to pay for its imports.

“In addition to particular movements of world money which flows backwards and forwards between national spheres of circulation, there is a general movement of world money; the points of departure being the sources of production, from which gold and silver flow in various directions to all the markets of the world. Thus gold and silver as commodities enter the sphere of world circulation and in proportion to the labour-time contained in them they are exchanged for commodity equivalents before reaching the area of domestic circulation.” (p 151)

In fact, the extent to which gold ceased to perform this function is shown by the fact that gold is simply priced in Dollars, like other internationally traded goods, is bought and sold in Dollars, rather than being directly exchanged for imported commodities, and gold producing and exporting countries pay for their own imports largely in Dollars.

Back To Part 1

Forward To Chapter 2.4 Precious Metals