[OPE-L:1119] Marx, Ricardo and money

Allin Cottrell (cottrell@wfu.edu)
Mon, 19 Feb 1996 08:50:36 -0800

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Alan [1112 et seq] has opened up the very interesting topic of Marx's theory
of money. I'd particularly like to thank him for producing the remarkable
quotation from the Poverty of Philosophy [1113], in which Marx argues that
the values of "gold and silver, as money, are of all commodities the only
ones *not* determined by their cost of production"; and that "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"; and
that Ricardo was perfectly correct is saying that although gold and silver,
qua metals, "are valuable only in proportion to the quantity of labour
necessary to produce them and bring them to market" (Ricardo's own words),
the value of money as such "is not determined by the labour time its
substance embodies, but by the law of supply and demand only" (Marx
approvingly paraphrasing Ricardo).

I found this so remarkable that I immediately went to check the context: Was
there some subtle irony at play? No, I can confirm that Marx gives every
impression of meaning exactly what he says.

Let me briefly explain why I found this passage so startling. Alan goes on
to say that the passage represents "a view Marx never abandoned", but my
surprise was due to the fact that, as I read him, Marx later completely
reversed this judgment (of 1847), most notably in A Contribution to the
Critique of Political Economy (1859) and Capital, I (1867) -- without, so far
as I am aware, ever acknowledging that he had changed his mind on the
subject. I recently wrote a working paper with the title "Monetary
Endogeneity and the Quantity Theory: The Case of Commodity Money", and in the
course of researching this I read very closely all that Marx says about
Ricardo and money in the latter two works. I can report that Marx positively
excoriates Ricardo for abandoning the labour theory of value (in the standard
sense) in the case of money. In short, Marx's argument is that (commodity)
money has a value prior to circulation (the labour-time required for its
production), and that the endogenous variable in the system is not the
exchange-value of money (or its inverse, the general level of money-prices of
commodities) but rather the quantity of money in circulation (which adjusts
in line with the quantity _required_, given the value of money on the one
hand and the value of the goods to be circulated on the other). It is clear
that this argument makes sense only if we are able to assign a value to money
entirely independently of the prices of commodities.

If there is any doubt over this, look at A Contribution... (International,
ed. M. Dobb, 1970) pp. 162-187 and Capital, I (Penguin) pp. 217-221.

Now the argument between Marx and Ricardo is -- I argue in the aforementioned
paper -- rather more complex than it might seem at first glance.
Specifically, Ricardo did not (as Marx alleges) abandon the labour theory of
value for the Quantity Theory. Properly understood, Ricardo used a
Quantity-Theoretic argument to determine the exchange-value of money in the
short run, but held to the labour-content of the money-commodity as
determining its exchange-value in the long run. And -- in a commodity-money
economy -- I think he was exactly right (and Marx's critique was misplaced).

I'm not sure yet just what significance all this may have for the larger
argument that Alan is constructing, but to me it's an interesting ("history
of thought") issue in its own right.

Allin Cottrell