[OPE-L:3360] Re: TSS and Value of Money

Duncan K. Fole (dkf2@columbia.edu)
Fri, 11 Oct 1996 12:20:17 -0700 (PDT)

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On Steve's [OPE-L:3343]:

>Ditto on money. In Vol. I, Marx starts with a treatment of money where
>it, like everything else, is a commodity. But in later volumes, he can
>relax that assumption to take account of the (obvious?) non-commodity
>aspects of money--that it is not produced by means of other commodities,
>but by fiat (in the case of notes issues) or by agreement between
>borrower and lender (in the case of credit).

I don't think this is quite right. Marx analyzes commodity money (the gold
standard), convertible paper notes, and inconvertible paper (like US
greenbacks during the Civil War, or the British pound during the Napoleonic
Wars), but not "fiat" money. He also has a theory of credit, but in the
context of a gold standard system where the price level of commodities is
determined by their production costs, so that the expansion of credit can
influence the accumulation process, but not prices.

Marx's theory is a precursor of modern endogenous money theories like
Minsky's. In particular, he analyzes the equation of exchange MV = PT as
determining the quantity of money in circulation given the price level and
output, thereby parting company with the Hume/Ricardo quantity of money
theory of prices.

I doubt that there is any historical example of "fiat" money. What gives
modern state issued banknotes value is their role as part of the state
debt, backed not by gold reserves but by the state's power to raise tax
revenue. They are no more "worthless pieces of paper" than are the bonds or
stock certificates of profitable corporations.


Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu