[OPE-L:3325] Re: TSS and Value of Money

Steve Keen (s.keen@uws.edu.au)
Tue, 8 Oct 1996 18:31:41 -0700 (PDT)

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In a digression, Duncan commented on Andrew's:
> In reply to Andrew's [OPE-L:3307]:
>> If, for instance, bank lending
> >increases markedly, money prices might rise such that equal portions of the
> >output, *produced* in a "given period" but sold in succession, may have
> >different money prices.
> Duncan (now):
> Though this is somewhat off the main point of the discussion, I'd like to
> note that this possibility is inconsistent with the mature Marx's theory of
> money, in which, following Tooke, he argued that the price level is
> determined by the cost of production of the money-commodity to other
> commodities, and not by credit or the quantity of monetary assets.

I'd like to support Andrew on this, and argue that what he describes is
closer to the "mature" Marx than the "price level is determined by the
cost of production of the money-commodity to other commodities" approach
favoured by Duncan.

The money-commodity approach did dominate Capital I, and it's quite
legitimate to take that as the matire Marx. However, in Capital III,
Marx began to apply the core of his analysis of the commodity--the
dialectic between use-value and exchange-value--to money, and financial
assets. He reasoned:

"What, now, does the industrial capitalist pay, and what is, therefore,
the price of the loaned capital?... What the buyer of an ordinary
commodity, buys is its use-value; what he pays for is its value. What
the borrower of money buys is likewise its use-value as capital; but
what does he pay for? Surely not its price, or value, as in the case of
ordinary commodities." (Marx 1894, p. 352.)

He reached the conclusion that the price of money is set, not by its
value, but by its use-value. This arises because, while it is a
commodity in one sense--that it is traded, and necessary for trade--it
is not a commodity in another--loaned money is not produced by other
commodities, but by agreement between lender and borrower.

This is a credit-money perspective, not a commodity-money one, and while
I agree that the latter was the most developed notion in Marx, I see it
as less mature than this nascent credit-money approach. This is also, of
course, the basis to Post-Keynesian theories of money, and I don't think
it could be denied that PK theories of money are significantly more
developed than Marxian ones.

Andrew's example considers the possibility of an endogenous increase in
the money supply, initiated by the activity of banks (and with the
participation of their capitalist borrowers, of course). While this is
impossible in a money-commodity world, it is quite feasible in a
credit-money world--and that is the world in which we live.

Steve Keen