[OPE-L:1113] LVB2:Money matters

Alan Freeman (100042.617@compuserve.com)
Mon, 19 Feb 1996 04:53:22 -0800

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Why money matters, what money is

The most disputed issue, in the discussion between the
nondualist account and its critics, lies in our claim that
both constant and variable capital are represented in
exchange, not by the value of the goods they purchase but by
the value of the money that purchases them.

The debate so far has tended to focus on citations. This
post and the next give a more rounded explanation above all
of the role of money in Marx's analysis and in capitalism.

Two citations, however, should help establish that what
follows is no idle fancy:

We have seen that the example of money as an application of
value which has attained constitution was chosen by M.
Proudhon only to smuggle through his whole doctrine of
exchangeability, that is to say, to prove that every
commodity assessed by its cost of production must attain the
status of money. All this would be very fine, were it not
for the awkward fact that precisely gold and silver, as
money, are of all commodities the only ones *not* determined
by their cost of production; and this is so true that in
circulation they can be replaced by paper. So long as there
is a certain proportion observed between the requirements of
circulation and the amount of money issued, be it paper,
gold, platinum of copper money, there can be no question of
a proportion to be observed between the intrinsic value
(cost of production) and the nominal value of money.

Doubtless, in international trade, money is determined, like
any other commodity, by labour time. But it is also true
that gold and silver in international trade are means of
exchange as products and not as money. In other words they
lost this characteristic of "fixity and authenticity" of
"sovereign consecration" which, for M. Proudhon, forms their
specific characteristic. Ricardo understood this truth so
well that, after basing his whole system on value determined
by labour time, and after saying

'gold and silver, like all other commodities, are valuable
only in proportion to the quantity of labour necessary to
produce them and bring them to market'

he adds, nevertheless, that the value of *money* is not
determined by the labour time its substance embodies, but by
the law of supply and demand only...

This is from the Philosophy of Poverty. It is a view Marx
never abandoned, thus:

Gold becomes the universal equivalent, or money, only
because it thus functions as the measure of value and as
such its own value is measured directly in all commodity
equivalents (Towards a Critique of Political Economy p66)

and so on. Note these are both *published* works, not drafts.

Origins of the Ricardian framework

In a strict Ricardian framework the answer to my question 1
- can surplus value arise in pure exchange - is obviously
no. If everything exchanges for its value, no surplus value
can arise other than from the purchase of the commodity
labour-power for less value than it creates.

However it helps to note why: because price-value deviations
are excluded a priori. Therefore, the capitalists can only
alter the *quantities* traded; part with more or less wine,
more or less corn, or buy more or less labour-power. The
reason they cannot gain or lose value as a class is because
they cannot do so as individuals. The only choice open to a
capitalist worth $50 is whether to have $50 of this or $50
of that. The only choice which circulation offers the class
as a whole - indeed the nation - is who owns this and who
owns that.

This is unexceptionable in its own terms, but the very
simplicity of the view obscures a vital distinction which
Marx laboured hard to make clear, in his insistence on the
importance of the *form* of value.

The Ricardian equalities of total profit and total surplus
value, of total sales and total product, apply both to price
and value, since both are by definition equal. If the
capitalist owns $40 in wine, or 8 hours in linen, this is both
its value and its price.

But once money equates 8 hours in linen to 4 hours in cotton,
a new problem arises which does not appear in the Ricardian
framework: a choice arises when assessing what is 'appropriated'
in exchange. If I obtain a hat worth $40 in exchange for a coat
worth $50, is my wealth $40 or $50?

As posed, it sounds obvious that the answer is $40.

But: I may not have paid $40 for it. That is the issue which
has to be faced; and it is the issue which Marx faces.

Once a distinct commodity, money, interposes itself between
the sale of the coat and the purchase of the linen, it is no
longer clear or transparent that the value I acquire is
simply the value of the article in my hands. In a system of
universal exchange, if I feel disgruntled with my cheap hat
I can always walk out to the market and change it right back
again for the expensive coat, or indeed any other more
valuable article that happens to be cheap today. What I
cannot do is turn the price of either of them into a bigger

But that is exactly what the capitalists do. How?

Once there is unequal exchange, each of the different articles
I can acquire for the same money price puts in my hands
a different value. There is no universal, single value that
I 'acquire' in exchange. Apparently, the only uniquely-
defined magnitude associated with the results of circulation,
is the value of the commodity I possess when the music stops.
This is the natural attraction of this magnitude. It has led
three generations of marxists to assume that once price
diverges from value, Marx can and does treat the appropriation
of value as if nothing had changed.

It is nevertheless the wrong magnitude, and Marx does not
treat the appropriation of value as if nothing had changed.
He shifts the ground, far more radically than has been
understood, by defining capitalism from the *outset* as
a *money* economy and by focussing all his attention on
money, the universal equivalent and sole public representative
of value in exchange.

As long as we remain in the framework of the Smith-Ricardo
deer-beaver economy, every producer has always got the
option to make something for her or himself instead of
bartering for it, and it is natural (though possibly false)
to assume that if someone has to work for 5 hours to obtain
something made in 4, a tendency will arise for this person
to make it her or himself in 4 and save the hour.

But once an economy emerges in which money serves as a
universal equivalent, this cannot be - if it ever was - a
regulatory factor. The facts do not support the idea of any
tendency towards exchange at values. On this I completely
agree with Gil.

A little reflection, however, reveals that the problems do
not end here. If there is no tendency for exchange to be
regulated by labour-time, then the labour embodied in a
commodity is by no means a necessary or natural measure
of the benefits it brings to an individual. What an
individual acquires in exchange is no longer a concrete
labour, the labour in a particular object, but general
purchasing power, the ability to acquire *any* labour.

The Smith-Ricardo argument no longer informs us how much
value an individual 'appropriates' in unequal exchange.
A more thorough break with the mentality is demanded.

Of course one way out is to dissolve altogether the
barriers between price and value, and simply proclaim
price to be directly the measure of value even in its
monetary form. But this destroys all understanding not
only of where value comes from, but what determines its
magnitude *even* in the price form. The question really
is, how value is *transformed* into price, and this
is a precise quantitative question, not a general
qualitative question.

For the worker, the deer-beaver analogy has a strict
analogue. For, if s/he must work for 2 hours to receive
sufficient money to acquire a given bundle of goods, and if
the bundle of goods doubles in (relative) price, s/he indeed
has to work for a further 2 hours to obtain the same goods.
But for the capitalist the analogy has no equivalent. The
capitalist's share of the product of society is of necessity
measured neither in wine nor in cotton nor in labour, but in

The petty-bourgeois perhaps occupies an intermediate
position and this may be what Gil is exploring in more
depth. She is simultaneously the proprietor and seller of
her own labour and is always faced with a direct choice
between working or paying, a choice lost to the capitalist
who can only pay and the worker who can only work.

But as far as the proper capitalist is concerned it is no
use whatsoever, and has no measurable effect on her or his
fortune, to change the *form*, the use-values, in which this
fortune is expressed. This is for a simple reason: the
capitalist does not use them. As Marx says, the use-values
are not a use-value to the capitalist, but to another, the
person to whom the capitalist sells.

The capitalist therefore does not have the option to buy
wine instead of cotton because wine is cheap and cotton is
dear, and so increase her or his profit. The *only* way the
capitalist can increase profit, is to make more money. The
capitalist, in a word, is *compelled* to realise and to
assess her or his surplus-value (=profit) in money.

But this is exactly why, for the capitalist, all costs and
all receipts are represented in the same value form, namely
the form of money. It makes no difference to the capitalist
if anything other than money is cheap or dear - otherwise
the rational policy at close of business would be to go
out and transform all money into whatever commodity contained
the most labour embodied for the least money.

The capitalist cannot even translate money profits into
labour. Capitalists who converts their entire fortune into a
stock of idle labourers to beat the market, are not
capitalists but either eccentric philanthropists or military

It is therefore useful and in fact essential to establish
*exactly* what the value of money is, since this, and not
hats, cats, coats or linen, is what capitalist profits are
measured in.

What property of money is it, on which the capitalist
relies, in order to raise profits or surplus value? If it
were its intrinsic value , then to start with we would
have an inexplicable empirical fact to deal with, namely
the capitalists don't give a damn about the intrinsic
value of money unless there is a complete breakdown of
credit relations. Indeed they prefer it *not* to have
intrinsic value because it decreases the risk of robbery.

The value of money to the capitalist is hence *not* its
worth as such, and the capitalist is no more interested in
amassing gold than in amassing corn, wine, or any other
particular commodity.

What interests the capitalist is not the money but the power
of the money.

The substance of capital is not money, but what money can
buy; in a word, the products of labour, or, value.

This fact, the fact of value-form, the 'qualitative' fact
that value under capitalism must necessarily be expressed in
a distinct commodity, money, is what Marx constantly chides
Ricardo with failing to recognise. Again and again he says
that Ricardo places his entire attention on the magnitude of
value and never pays the requisite attention to how this
value must be expressed. In the rare cases Ricardo does
make a half-hearted recognition, Marx lauds him to the skies,
only to lapse into furious denunciation when Ricardo promptly
fails to apply his own theories to the practical question
of the quantity of money.

Value, in the specific case of money, is as Marx says not
measured by the embodied value of money, but by the value of
all the *other* commodities for which money exchanges. What
the capitalist acquires with each pound is that share in the
total exchangeable labour of society which one pound

The discussion with Gil has served to bring to light the
following: this cannot be known independently of the total
exchangeable labour to which the value of money refers. Thus, for
example, if all the wine in society is worth $40 and costs $45,
and all the corn in society is worth $50 and also costs $45,
then there are already two different magnitudes of labour expressed
in $45, namely $40 and $50. Does the expression of Marx that money's
value 'is represented in the values of all other commodities
for which it exchanges' mean that it has as many values as
commodities? I don't think so. I think it means what it says,
that money has a *single* nominal value. Thus represents the
value of all the commodities against which it exchanges,
namely all commodities engaged in circulation. This is, after all,
the magnitude which Marx repeatedly refers to whenever the equality
of prices and values is under discussion, for example Volume
III, marginal Notes on Wagner, Towards a Critique of Political
Economy, Theories of Surplus Value and so on.

The mysterious equality of total prices and total values,
which Gil takes to be an arbitrary definition chosen to make
the figures work, is no other than Marx's definition of the
monetary expression of labour.

How exactly does one pound come to represent a definite magnitude
of labour, and what is that definite magnitude of labour?

Gil says this is not explicitly stated in Chapter 5. In the
succeeding posts I will try to show that it does not need to be.
The only postulate needed to draw Marx's conclusions at this point
is that there is a *single* nominal value of money, that is a
*single* monetary expression of labour, throughout simple circulation.
The central argument in this respect is a very simple proposition,
which my thought-experiment is designed to illustrate: that a
*nominal* increase in prices cannot raise value. I repeat that
if this is denied - if Gil wants to maintain that value can be
created by raising the price of every good by the same proportion,
and doing absolutely *nothing* else - then it is he who has some
explaining to do, because the result is going to be a very weird
economics. If it is accepted, I think the Chapter 5 argument flows
from this, and the proposition that money at any given moment
has a *single* nominal value (there is a single monetary expression
of labour).

But whether or not this argument is accepted, what has to be
grasped in my view is that once we step outside the Ricardian
framework of value, we must also step outside the Ricardian
framework of money. Any reluctance about this will start an
extensive detour which leads inexorably back into the Ricardian
fold; as the twentieth century has shown.