[OPE-L:3703] Re: quantity of money in circulation

Duncan K. Fole (dkf2@columbia.edu)
Mon, 25 Nov 1996 06:31:50 -0800 (PST)

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In reply to Gerry's [OPE-L:3686]:

>Fred wrote in [OPE-L:3680]:
>> ... The main question of Marx's theory
>> of surplus-value is how this GIVEN sum of money capital increases it
>> magnitude, or becomes more money. In other words, how do capitalists
>> withdraw more money from circulation than they throw into circulation,
>> with the initial money capital thrown into circulation taken as given.
>> ...
>Someone on the list [who, at this point, is anonymous] sent me a message
>which said:
>> If the money is endogenous - i.e., is injected into the
>> system as the result from the fact that some agent (firms, the State)
>> has gone into debt in this period or in the past - how can the
>> capitalists withdraw from circulation more money than the one they throw
>> into circulation [I am disregarding the possibility that in the past
>> there has been an accumulation of money balances: this would only
>> complicate the issue, but does not change the result]? In fact, when
>> Marx has M-C-M' the positive difference M-M' is a difference in abstract
>> wealth, not in money strictly speaking - e.g., as the final means of
>> payment.
>(1) [to Fred]: how would you answer the above?
>(2) [for any and all]: what is the mechanism that causes the quantity of
>money in circulation to increase alongside increases in real wealth?
>Doesn't a concrete explanation of the causes of a change in the quantity
>of money in circulation presuppose the analysis of bank capital and the

This issue is discussed in detail in relation to the circuit of capital in
Understanding Capital, my 1982 JET article on the circuit of capital, and
Money, Accumulation and Crisis. Briefly there are three important
mechanisms: the production of the money-commodity in a commodity money
system; the expansion of credit across the circuit of capital as output
rises; and the shortening of the turnover time of financial capital.

In general the metaphor of the "injection" of money into the system by the
State is misleading. State credit is a liability of the State, and the
expansion of money actually represents borrowing by the State from the
private sector. The "injection" metaphor suggests that the State has some
direct power to command output, which it does not, as becomes obvious in
conditions of hyperinflation.


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