Ricardo failed to understand the difference between gold as money commodity, and gold as currency. So, he equates the total quantity of gold in the economy with the total value of commodities. He applies his Labour Theory of Value to the determination of the value of commodities, but not to gold, whose value becomes determined on a purely quantitative basis, as a use value, relative to the mass of commodities, for which it acts as equivalent.
But, as soon as the value of gold is determined, as with any other commodity, it becomes apparent that it cannot all act as money. There may be 1 million ounces of gold in an economy, but, if the value of an ounce of gold is 100 hours of labour, and the aggregate value of commodities is 1 million hours of labour, then its clear that only 10,000 ounces of gold is money, and, if each ounce, as coin, circulates ten times a year, only 1,000 ounces can circulate as currency. It is the aggregate value of commodities, relative to the value of gold that determines the quantity of money, not vice-versa, and, similarly, it is the velocity of circulation which determines how much of this money must circulate as currency.
That is not the case with fiat currencies, precisely because, unlike gold or silver, they have no material value. Their value stems entirely from representing a claim to a quantity of social labour-time, backed by the state, and also, their own value does, indeed, depend on the quantity of them put into circulation, relative to that aggregate social labour-time. If the latter is 1 million hours, and 1,000 £1 notes are put in circulation, each performing 10 transactions, then each note represents 100 hours of labour, whereas, if 2,000 notes are put in circulation, each represents only 50 hours of social labour. Because each note continues to be called £1, the only way this can be manifest is in a doubling of the prices of commodities - inflation.
And, Ricardo extended his error into his analysis of the role of precious metals in international trade.
“So completely did Ricardo misunderstand the function that precious metals perform as international means of payment that in his evidence before the Committee of the House of Lords (1819) he could declare:
“that drains for exportation would cease altogether so soon as cash payments should be resumed, and the currency restored to its metallic level.”
His death occurred in time before the onset of the crisis of 1825 demonstrated the falsehood of his forecast.” (p 179)
The crisis of 1825 was the first crisis of overproduction. Marx, then, moves on to examine the views of Ricardo's contemporary, James Mill. Mill attempted to put forward Ricardo's monetary theory, but without the complications of international trade and payments. Marx quotes Mill's concepts at length. He repeats the argument that all the gold in an economy represents money, and that its value is, then, determined by its quantitative relation to the aggregate value of commodities. His argument amounts to simply assuming what had to be proved.
Mill attempts to reconcile the contradictions in his argument by relying on variations in the velocity of circulation. So, an increased amount of money might not result in its devaluation, and an inflation of prices, if the velocity of circulation was reduced. But, its then necessary to explain why such a reduction might arise, whereas Marx shows that this velocity of circulation is itself a function of both the pace of economic activity, and development of the banking system. Versions of Mill's argument in respect of the velocity of circulation can be found in Keynes, and in the arguments of Michael Roberts.
Keynesians make this same argument, notably in Keynes' argument about pushing on a string. But, whilst this comment is valid in terms of explaining why monetary stimulus may not result in increased economic activity, it does not contradict the idea that the same level of economic activity might occur, but with higher prices. Indeed the experience of Weimar and the 1970's stagflation shows exactly that.
No comments:
Post a Comment