[OPE-L:2410] RE: commodity money in Marx's theory

Duncan K Foley (dkf2@columbia.edu)
Wed, 29 May 1996 11:16:15 -0700

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On Tue, 28 May 1996, Chai-on Lee wrote:
(among other things)

> Chai-on:
> -------
> Unless the unit of account is linked to a real commodity even if in
> imagination, how can the money represent abstract labor? A mere linking to
> the state does not seem enough to represent the abstract
> labor. I accept one dollar note because I surely know it is linked to
> what I am going to buy (not because the state issued it).

I think this is the center of our differences. In my view the state's
taxing power creates a liability of firms and households to it, which in
turn is an asset of the state. When the state issues debt (like dollar
bills), they have a value because they can be used to pay off the tax
liability. For a variety of reasons (convenience, and legal restrictions
on the issue of private monetary liabilities) people come to use these
state debts as means of payment and circulation. The taxing power of the
state is indirectly a way of claiming the products of labor, so one can
view the dollar bill as indirectly constituting a claim on the products of
labor, even though its value is mediated by the state rather than by
direct economic production, as in the case of gold. When the state debt is
linked to a commodity like gold through a credible policy of
convertibility, you have a system like the one Marx analyzed in the 1860s,
but the 20th century has seen a dramatic evolution in which state credit
is no longer convertible into commodities at a fixed exchange rate. But
the fiscal policies of the state still establish a speculative value for
its debt. One could argue, for example, that the market values the debt of
the state just equal to its estimate of the future taxing power of the

> Duncan:
> --------
> If one doesn't follow this path, then where do you locate the link between
> the national currencies and produced commodities in the
> present world monetary system?
> Chai-on:
> --------
> That is what I have to ask. If money is not a commodity, where do you
> locate the link between the national currencies and produced commodities in
> the present world monetary system?

As I've explained above, through speculation on the future taxing power of
the state.

> Chai-on:
> ---------
> Is the value of credit money governed by very different mechanism from
> produced commodities even in the case of gold money system?
> If it can be shown to be so, your position will be more persuasive than
> the analysis of the value of money in the context of speculation.

Take Marx's analysis of paper money issued by the state without a
guarantee of convertibility into gold (like the British pound during the
Napoleonic Wars, or the "greenback dollar" in the U.S. Civil War period).
He argues for a quite different mechanism of valuing these liabilities
than for valuing gold or state credit money convertible at a fixed rate of
exchange into gold.