A Contribution To The Critique of Political Economy, Chapter 2.3 Money, b. Means of Payment - Part 7 of 8

Capitalism proceeds on the basis of this continual expansion of credit payments, with gold and cash considered a barbarous relic, up to the point that these credit payments fail. Then, there is a clamour for cash.

“This sudden transformation of the credit system into a monetary system adds theoretical dismay to the actually existing panic, and the agents of the circulation process are overawed by the impenetrable mystery surrounding their own relations.” (p 146)

The global financial meltdown of 2008 was an illustration. In Capital II, Marx explains how capitalist production required the creation of stocks of both commodities and money, to ensure continuous production and circulation. As output increases, the absolute levels of both increase, but their relative size, compared to output, diminishes. As capital turns over more quickly, the amount held in stock, as productive-supply, declines, because it is replenished more frequently. With much increased levels of output, the production time diminishes. An independent weaver might have required a week to produce enough cloth to make it worthwhile taking to market, but a capitalist producer produces more, even in a day, and sends it to market daily, with money flowing back from it accordingly.

The capitalist weaver needs more material in stock, and more money in stock, to pay for it, but, in proportion to their output, it is much less, and, as the capitalist weaver buys material on commercial credit, the amount of money stocks required are reduced. They pay suppliers only a month later, by which time money has flowed back into their bank account from merchants etc., which, now, is simply transferred to their suppliers, having deducted wages and profits. In more recent times, the introduction of Just In Time systems reduces the amount of these stocks further, as does the development of electronic payments systems.

“The law regarding the quantity of money in circulation as it emerged from the examination of simple circulation of money is significantly modified by the circulation of means of payment. If the velocity of money, both as means of circulation and as means of payment, is given, then the aggregate amount of money in circulation during a particular period is determined by the total amount of commodity-prices to be realised [plus] the total amount of payments falling due during this period minus the payments that balance one another.” (p 147)

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