[OPE-L:1134] Marx, Ricardo and money

Costas Lapavitsas (CL5@soas.ac.uk)
Tue, 20 Feb 1996 05:03:33 -0800

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Allin's [1119, 1120] comments on Marx and Ricardo are very
penetrating, and I, for one, would very much like to read the paper
to which he refers. However, I am afraid that I cannot agree with his
interpretation. It seems to me that there is no contradiction between
the Poverty and the Contribution for reasons which I will explain

1. I am not persuaded that a long-run/short-run distinction can be
read into Ricardo's monetary work. For Ricardo, starting at
equilibrium, if the quantity of commodity money increases, other
things equal, the exchange value of money will fall relative to the
intrinsic value, and to money's exchange value abroad.
Hence commodity money will be exported by merchants seeking a better
price for their gold. The export of gold will restore equilibrium by
reducing the domestic quantity of money and increasing the foreign
quantity of money. The domestic exchange value of money will rise,
the intrinsic value having acted as its reference point. There is no
short-run/long-run here, particularly since the distinction
encourages the idea that the increase in the quantity leads to
a stronger demand for goods which causes the rise in prices.
This was Hume's mechanism for the short-run and Ricardo never
accepted it. John Stuart Mill's attack on Hume (Principles, Bk III,
Ch XIII) on this point probably echoes his father's and Ricardo's

2. Marx accused Ricardo of abandoning the labour theory of value in
this respect (as Allin rightly points out). It is important to
understand why because that will shed light on Marx's view of the
relationship between value and money. The monetary 'requirements of
exchange' for Ricardo are determined by the value of commodities, the
intrinsic value of money, and velocity (High Price of Bullion,
and Proposals for an Economical and Secure Currency). This, if you
like, is the demand for money, the 'necessary amount of money', to be
found in Smith's 'channel of circulation'. Marx also employed this
approach (Contribution, Vol I, and this seems to me the meaning of
'demand' in the quotes from Poverty). Hence his monetary theory
rested on Ricardian foundations.

3. The problem is the supply of money and here Marx and
Ricardo diverge, though still sharing some common ground. This
common ground is precisely what Marx emphasises in the attack on
Proudhon. If changes in the quantity of money can make money's
exchange value change, intrinsic value remaining the same, Marx
concludes that for Ricardo the existing quantity of metallic money has
become a 'token' of the 'required' amount, its (exchange) value rising
above or falling below its real value. (Contribution, 172). This, it
seems to me, is the point made by Marx when he stresses demand and
supply in Poverty, quoting Ricardo (unattributed but at a guess from
Proposals), and which Allin found remarkable. In the Contribution,
however, Marx immediately accuses Ricardo of drawing this conclusion
about metallic money when, in fact, it applies to paper money with
forced currency. It is easy to recognise the Ricardian framework in
Marx's account of fiat money inflation in Capital Vol I. What makes
the point hold for fiat money is, of course, the arbitrariness of
supply determination, the 'limitation of quantity' whcih we also
find mentioned in the quote in Poverty. In short, if the
quantity of circulating money (any money) can be arbitrarily altered,
and the alteration made to stick, the actually circulating money
becomes a token for the 'requirements' of circulation, and the
exchange value of money need bear no 'proportion' to its
intrinsic value.

4. For Marx, however, this mode of monetary regulation does not hold
for metallic money. As I have already mentioned, he accuses Ricardo
of extrapolating the laws of metallic money from fiat money. Metallic
money supply is flexible and the actual quantity in circulation does
not diverge from the 'required'. Hoarding of metal (which does not
apply to fiat money) is fundamental in this respect, as Marx makes
clear in Capital Vol I. Hence his ultimate theoretical criticism of
Ricardo that he collapses all the functions of money into means of
circulation. Hence his laudatory remarks in the Contribution about
Steuart and the Banking School for their emphasis on hoarding. It is
hoarding which makes the quantity of metallic money endogenous to the
requirements of circulation. Hence, prices determine money and not
vice versa.

5. In the light of this it seems to me that Marx's statements in
Poverty are not as startling as Allin thinks. Let me repeat what I
think is the core:

'[g]old 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, there can be no question of a
proportion to be observed between the intrinsic value (cost of
production) and the nominal value of money.' (pg 80 in the Chinese

Indeed. If the 'amount of money issued' and the 'requirements of
circulation' already observe a proportion between them, it follows
that the proportion between the intrinsic and the exchange value of
money (resting on the rate at which actual money is a token for the
'required' money) is also determined. Consequently, 'there can be no
question' that this latter proportion could be independently
determined. Hence Proudhon's 'proportionalities' and rejection of
demand and supply are not right.

6. I have not argued all this because I believe that Marx's monetary
analysis was right. Simply because I think that it was consistent.
It seems to me, howevr, that Marx never resolved a key issue.
I have argued that, consistently throughout Marx's work, the exchange
value of money can diverge from its intrinsic value. Hence, the
actual price expression of the value of output can diverge from the
price expression implied by money's function as measure of value. The
equality between price and (transformed) value need not hold even in
the aggregate, and one should not place too much emphasis on any
resolution of the 'transformation problem'. Ricardo also acknowledged
as much but he then proposed a polished monetary mechanism (export of
metal etc) in order to bring the two into equivalence again. Marx
rejected this and made a lot of play of hoarding and, more broadly,
'money as money'. But he never outlined the precise mechanism which
makes the intrinsic value of money the anchor of the exchange value
of money in a commodity money world. The question is: is this a
weakness in Marx's monetary theory, or is it the case that the
question cannot be resolved in the monetary realm alone? Do we need a
'real' theory of price fluctuations? And what is the significance of
this for a capitalist world in which valueless credit money

I know this has been long but the issue was complex, and, I think,
has relevance for modern capitalism.

I would greatly appreciate it if Allin could send me his discussion