Value, Price and Profit, III – Wages and Currency - Part 1 of 4

III – Wages and Currency

Weston also framed his argument that output and wages are fixed, in a second form, in which, if money wages are raised, because these money wages could only buy this fixed quantum of wage goods, the money price of those commodities would rise.

“He said: Consequent upon a general rise in money wages, more currency will be wanted to pay the same wages. The currency being fixed, how can you pay with this fixed currency increased money wages? First the difficulty arose from the fixed amount of commodities accruing to the working man despite his increase of money wages; now it arises from the increased money wages, despite the fixed amount of commodities. Of course, if you reject his original dogma, his secondary grievance will disappear.” (p 27-8)

But, even at the time Marx was writing, and despite The Gold Standard, and Bank Act, it was not true that the currency supply was fixed. The convertibility of bank notes into gold was repeatedly suspended, meaning that, effectively it was a fiat currency, and the Bank Act itself had to be suspended, in 1847 and 1857. Even convertibility was restricted, when it was not suspended. Under the Gold Exchange Standard, only gold coins are offered, and the value of these coins, as currency, is the same as the banknotes exchanged for them, as against the value of the gold they purportedly represent. Only if the coins are full weight can they even be melted down into bullion, which requires a considerable amount of them to make such an operation worthwhile, to obtain the higher value of gold relative to the coin.

At the start of the 20th century, as economies became dominated by large-scale, socialised capital, in the form of monopolies and oligopolies (imperialism), they required longer-term, economic planning and regulation by a social-democratic state, including over the general level of prices. The latter became the function of newly created central banks, such as the Federal Reserve, established in 1913. The Bank of England, took on the same functions.

In the 19th century, the Bank of England modified the currency supply in accordance with the requirements of circulation, but, aside from that, a large part of the circulation of commodities took place, not via the use of currency, but the use of commercial credit, the use of Bills of Exchange, cheques and so on. As Marx and Engels set out, in Capital III, in times of economic expansion, this commercial credit expands naturally, and largely outside the control of the Bank of England, which can only restrict it by the most drastic action.

“In your country the mechanism of payments is much more perfected than in any other country of Europe. Thanks to the extent and concentration of the banking system, much less currency is wanted to circulate the same amount of values, and to transact the same or a greater amount of business.” (p 28)

In fact, as I have considered elsewhere, it is an interesting point, as a thought experiment, that, in a fully banked economy, using only electronic transfers, money would cease to exist as currency, its role as means of exchange, and means of payment would come to an end, leaving it only as unit of account, and store of value, with commodities, effectively being bought with other commodities, on the basis of credit transactions.

“For example, as far as wages are concerned, the English factory operative pays his wages weekly to the shopkeeper, who sends them weekly to the banker, who returns them weekly to the manufacturer, who again pays them away to his working men, and so forth. By this contrivance the yearly wages of an operative, say of 52 Pounds, may be paid by one single Sovereign turning round every week in the same circle.” (p 28)

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