[OPE] State theory of money

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Sun Jun 07 2009 - 07:48:24 EDT

What argument, asks Jerry? I stated it quite clearly many times, and you
should pay more attention to what people are saying yourself. To repeat

(1) "Marxism" is a non-scientific, often quasi-religious ideology;
(2) Marxism "can function as" and it "has functioned as" the ideology of a
new exploiting class seeking to transform the world after their own image.
Yes, it is possible for a well-organised movement to change the world very
radically, but the change may not be very progressive to the extent that
their understanding of humanity is very deficient, so that they destroy the
very things that are conducive to real progress.

I distinguished Marxism from bona fide research by Marxian scholars shared
Marx's goals and interested in the same sorts of things that Marx was. I
furthermore distinguished between a scientist seeking to form a consistent
theory and verifying what exactly Marx did say, and an ideologist
elaborating an ideology which he spices up by suitable extracted quotes from
Marx, and looking to Marx for "scriptural guidance for what to do". Jerry
Levy applies the time-honoured practice of the ideologist and claims an
identity where there is a difference, and a difference where there is an
identity, and thus, these things I am talking about are "all the same thing"
according to him. Point is, they are not.

Jerry almost never has a reply when I prove he is simply mistaken - he just
starts talking about something else. He almost never provides any evidence
for his accusations against me, it is just name-calling. He cannot provide
any evidence, because there is no evidence. I am more aware than he is of
the difference between the parts and the whole, in fact one of my current
lines of inquiry is in that area, but theoretically, this is neither here
nor there. Jerry will say something like "the more common fallacy for
Marxists is the fallacy of division: i.e. the fallacy of believing that what
is true for the whole is true for the parts". But he provides no proof, and
provides no names. In fact it cannot be proved, because it is only an
interpretation with a certain connotation. I assume what Jerry is really
talking about is liberal ad hominem arguments in an American context. He
would be better off studying the concept of a hologram.

I haven't written this up in a paper, Dave, but I have never said that the
state theory of money is totally wrong, or that it is wrong "because" it
does not reflect what Marx said in Capital Vol. 1. That is just a smear.

I often defend Marx against the Marxists, because at least Marx thought
through the argument, and really attempted to research things, whereas among
Marxists, historical materialism is typically "an excuse for not studying
history" as Engels already said. Sometimes this gets amusing. For example, a
veteran Marxist once told me that "reification" was a concept invented by
Lukacs, and that his revolutionary tendency was intellectually based on that
concept. I pointed out politely, with five examples, that the concept of
reification (Verdinglichung, Versachlichung etc.) was used by Marx himself.
He was highly surprised because, he said, he always believed that Lukacs had
invented this.

I have argued, that the state theory of money is deficient, in the first
instance, because as a matter of fact the circulation of commodities and
money-tokens (exchange-processes utilising a general equivalent)
historically "did not necessitate, presuppose, or require", a state power as
issuer of valid money tokens.

It is a simple empirical fact, verifiable from the historical,
archaeological and anthropological evidence, and therefore, I think Marx was
very justified in his belief, that there is a "natural", immanent tendency
for a general equivalent in exchange to evolve out of the increasing
sophistication of the exchange processes itself, and that it begins to
function as money.

This insight is of importance to understand processes of market formation.
The American theories of money are strongly influenced by American history,
even so, originally the settlers were trading in Spanish, French, Dutch,
British and Portuguese etc. currency and the dollar itself was actually
valued differently in different territories.

Many Marxists pontificate about "the concept of the commodity theory of
money" and "the concept of simple commodity production", but as far as I can
see they haven't grasped what it is really about. Why? Because they don't
study history.

I vividly recall how my Grandfather who worked for a colonial import-export
company in Indonesia, gave me some coins minted by the Dutch East India
Company (according to Raymond Aron, discussing the "costs of empire", the
revenues from Indonesia constituted approximately one-sixth of the Dutch
national income before WW2).

The Dutch East India Company in the 17th and 18th century was a very large
chartered corporation, eventually running its own schools, shops, hospitals,
military and security staff, warships etc., but it wasn't a state, rather it
was a limited liability company, although it often "functioned" as if it was
a state power because it was an organization which used force to exert
power. The Dutch government however retained sovereign control, and at the
end of the 18th century intervened to nationalize the company. Jerry will
complain that I am "personalizing" this example but it is a perfectly valid

In the history of merchant capitalism and colonial empires, in fact all
kinds of currencies were being issued by all kinds of agencies, which
operated side by side and were traded internationally, without states having
any real control over this process at all. If we moreover examine the
history of early states and ancient civilizations across 5,000 years, we
find many examples where sophisticated trading processes occurred using
general equivalents and money-tokens, without the state issuing legal tender
and being in control of it.

In the Pacific, for example, kauri shells functioned as money in several
places although there was no state issuing kauri shells or controlling the
supply of kauri shells. That type of phenomenon I think proves the validity
of Marx's view, and I am not going to follow the Marxists in abandoning
historical fact. Why should I abandon Marx's perfectly valid idea, in favour
of a baseless Marxist philosophy? It doesn't make sense, it's irrational.

The fact, that the state power eventually does begin to issue currency and
assume control over currency, has to do with the fact, that the ruling
polity aims to gain more control over the trading process, and regulate it -
positively: to extract wealth from it and delimit rent-seeking, and
negatively: because it is realized practically that bottlenecks in the
trading process can cause very serious social and economic havoc,
jeopardizing the social order.

But, this was a "contingent adaptation" to an increasingly sophisticated
trading process "which was already occurring" parallel to an increasingly
complex division of labour, that's the point I have been making all along.
It means that monetary policy, once trade is thoroughly monetized, is
increasingly viewed as a "highly political" matter, and in this sense the
state theory of money is certainly well-taken.

In Holland, the (international) issuance of debt securities by local
authorities and governments, already evident in the 1300s, played an
important role in the original formation of private capital holdings. But
actually several different currencies were being used side by side at the
time, without the state being able to control that. It took many centuries
before money-tokens could substitute for real gold, real silver or other
kinds of exchange medium which has real value.

If the bourgeois reformists and the Marxists now join hands in the banale
chorus that "money is a product of the state", they are however merely
engaging in apologetics for an exploiting class which indeed does seek to be
in control of the exchange process in order to extract wealth from it. The
consequence however of this "theory" is that the historical past is
falsified, that the future is not understood, and it is believed that the
state can exercise a degree of control over the trading and circulation
process which the state in reality doesn't really have, qualitatively or

According to the more vulgar value-form theorists, value is money and money
is value, in which case value theory is really redundant, other than as a
phenomenology of exchange, and we might as well just talk about money
without referring to value. The next step after that, is to say that money
is a product of the state, and then we can discourse philosophically about
"money as a power relationship" like they did in the Geisteswissenschaften
in fin-de-siecle Germany a century ago. It is not accidental that
Nitzan/Bichler talk about "capital as power" because this is the logical
outcome of the whole derailed discourse of the 1960s and 1970s. All this
culminates in Jerry reaching the conclusion from his throne, towering high
above the hustle and bustle of Marxist activity, that "something is not
true, simply because Marx said it". This however is just facile if you ask
me, and misses the point.

Paul Cockshott and Ian Wright are on much stronger ground, because they
realise that products have value, because it took social labour to make
them, and consequently, that value relations exist as
labour-proportionalities "quite independently of the circulation process".
And that was precisely Marx's point: the competitive process of accumulating
capital is constrained by the "physical reality" that it takes labour to
produce products and services, and the "social reality" that you have to be
able to appropriate the fruits of that labour to accumulate capital. And
that's exactly what shapes the whole trajectory of real capitalist

It would be totally meaningless to say that the law of value is a regulator
of the circulation process of commodities, if it is itself an effect of that
circulation process. In that case, all we are saying is that the circulation
process regulates the circulation process, which boils down to the "value
form" platitude that the market (whatever that is) regulates the market.
Marx's argument is precisely that the market doesn't regulate the market,
and therefore, that general equilibrium theory is based on an illusory
ideology, an ideology which emerges only when most products have already
been commoditized. Only then, the theorists confidently move on from the
belief that there exists a set of prices that will clear all markets, to the
theorem that all markets will clear because those clearing prices will be
reached. This obviously becomes a bit more difficult to sustain nowadays,
when something like $50 trillion of asset-value disappears into thin air
across six months of global trading activity.

The ordinary bourgeois enthusiastically hustles in the marketplace,
believing that value is created by exchange, until the whole trading process
collapses around his ears and he realised that there is something beyond
exchange influencing the trading process, whereupon he begins to discourse
about "extra-economic factors". But that is just to say, that as soon as his
"economics" really has to explain something, he cannot do it without
stepping outside the confines of his "science", which however turns out not
to be a science at all, just a technology for money-making that periodically
goes bust. The big advance of classical political economy was to consider
the explanation of the trading process as a social science. I am not
prepared to abandon that insight, just because Jerry has now happened to
discover that orthodoxy (as distinct from theoretical consistency) is
problematic, and not really a scientific concept but something which belongs
to religion and fashion. Nor am I prepared to argue that the quest for
theoretical consistency and the quest for orthodoxy are the same thing. They
are not.

If people had taken the trouble to understand:

- what Marx really meant and intended in his own terms, instead of reading
him through the lens of alien theories
- what the concept of price means and implies,
- the meaning and construction of macro-economic and accounting aggregates
- the history of production, trade and finance
- the co-existence of many different forms of capital

 then the Marxian political economy discourse would never have derailed into
vulgar platitudes, and we wouldn't be debating now under what conditions it
is intellectually credible to refer to Marx. It's I think just that, there
are a lot of leftists around with varying motivations who like "to wear the
mantle of Marx's erudition" while completely gutting his theory of any
meaningful content. Once they have done this, they are just left with a
seemingly radical vocabulary and a jargon which, upon critical inspection,
is really not saying anything different from what you can read in the
newspaper every day, just calling it by a different name. They think of
themselves as being really profound and meaningful with their special
language, they initiate people into it with rituals, but it doesn't tell us
anything new, and it doesn't advance the scientific argument one iota.
Needless to say, their special language is actually an obstacle for people
in their attempt to free themselves from oppressive conditions, because it
disorients them, and excludes them. It has nothing to do with their own
needs and aspirations, but with the needs of the theorists to prove how
intellectually erudite they are. It is not surprising to find that when
these so-called intellectuals get real power, either they turn out to be
useless, or actively strangle the lives of other people with their cranky
ideas. Their road to power began, by defining "insiders and outsiders". It
ends, by reproducing the class system.


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