[OPE-L:1253] Credit money

Alan Freeman (100042.617@compuserve.com)
Wed, 28 Feb 1996 13:32:27 -0800

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Re Allin's OPE:1230 of 26/02

No major disagreements here.

"the "Value-P" of credit-money is essentially zero. "

I think this has to be looked at more carefully.

I think Marx attempts to make a further distinction, between
on the one hand token money or perhaps also fiat money, whose
convertibility for something with intrinsic value is guaranteed by
the state; and pure credit money which represents unsecured
advances of credit and becomes monetised at certain points.

Now, as long as at least one world currency is convertible,
and as long as all currencies are convertible for this world
currency (which this century has been the rule rather than
the exception, if measured by number of years of
convertibility), state monies are essentially token money
which stand for gold. Like all tokens they can be inflated
by printing more than the current exchange rate warrants,
but they nevertheless *represent* intrinsic value just as
much as the title deeds to a house represent the house
or a theatre ticket represents a visit to the theatre.

'Pure empty credit' money, to coin a phrase, is, I would
argue - and I think this is Marx's view - confined to unsecured
credit. Whether the dollar today represents pure empty credit, or
whether the state can in some degree guarantee its convertibility,
if not for gold at least for reserves of various kinds that represent
real hoards of scarce goods with real intrinsic value, is a difficult
and moot point.

I think Marx's argument is that 'pure' credit money can function
at certain points in the cycle as means of *circulation*, as long
as the wheels of credit are turning. But the question which hangs
over it, is to what extent it can function as means of *payment*,
at the point where creditors because of the financial stage which
the cycle has reached, are no longer willing to accept payment
which might cease to be a universal equivalent (i.e. might cease
to be money). At this point everyone reigns in their credit, and
the 'real' monetary situation has to stand up; monetary instruments
of a more stable character are demanded and we find out what is
actually capable of serving as money.

The small question I would raise is: to what extent is the money
which is acceptable as means of payment in a credit crunch, pure
credit money? This also is a topic for research :-)

"it will take more than this to argue for the necessity of
socialism -- the operation of the business cycle, malign as its effects
are on the working classes, shows little sign of bringing capitalism to
its knees."

I agree entirely. The last thing I we need is another 'inevitable
collapse of capitalism' theory. My point was that the malign effects
cannot be overcome by juggling with the market, not that capitalism
cannot overcome them. To put it another way, the malign effects
are the consequences of overcoming them within capitalism.

I should also add as a necessary acknowledgement that this
idea, that the general price level fluctuates cyclically, is not
at all mine. The first person I read who argued this in a
systematic way was Mandel in the 'Second Slump' and I am
sure it has been aired before. More recently I am grateful
to Makoto for drawing this again to my attention in a
conversation we had at the EEA Boston conference.

He has probably forgotten this, but I haven't!
Needless to say any errors made in my use of the idea,
are my responsibility.