[OPE-L:1780] Re: RE: the money supply

Subject: [OPE-L:1780] Re: RE: the money supply
From: Akira MATSUMOTO (akiram@mail.ucr.edu)
Date: Tue Nov 30 1999 - 15:35:41 EST

Dear Member

The problem of the contemporary currency is very interesting. Now I rush up
to think about it here.

Now we have the proper arrangement by Prof. Chai-on Lee, but I try to think
about the following problem at first.

> Chai-on asked in [OPE-L:1772]:
> > Does anybody know the difference between money and currency? Is a
> > deposit account included in both of them?
> > I need your answer urgently.
> Since you need an answer urgently, I'm not going to even attempt to give
> what might be considered a Marxist answer (although that might make a good
> discussion by itself, e.g. "How has the money supply changed in
> capitalist economies?").

At 5:56 AM -0800 99.11.30, Allin Cottrell wrote:
> On Tue, 30 Nov 1999, Chai-on Lee wrote:
> Currency and base money are not synonymous, as explained
> above.

I think there are not many people who cope with the difference between money
and currency.
But I think the currency acts for money or has a part of money functions.
Money is what has all of the measure of values, the means of circulation,
and money as money (a: hoarding, b: means of payment, c: world of money).
The currency acts for all of these functions or a part. But it isn't
absolutly money itself. Money as the measure of values should have some
values, that is commodity money. Historically, in other words during
capitalism economy at least the money is the gold. This proposition couldn't
be denied so far, as long as we couldn't show aother commodity as money.

Well, money has been represented by the cuurency because money itself is the
cost as capital. The representative is the currency. The currency has two
forms broadly. One is the credit money, another is the paper money.

 Quatation from "Capital"
   Paper money is a token representing gold or money. The relation between
it and the values of commodities is this, that the latter are ideally
expressed in the same quantities of gold that are symbolically represented
by the paper. Only in so far as paper money represents gold, which like all
other commodities has value, is it a symbol of value.
   Finally, some one may ask why gold is capable of being replaced by tokens
that have no value? But, as we have already seen, it is capable of being so
replaced only in so &r as it functions exclusively as coin, or as the
circulating medium, and as nothing else. Now, money has other functions
besides this one, and the isolated function of serving as the mere
circulating medium is not necessarily the only one attached to gold coin,
although this is the case with those abraded coins that continue to
circulate. Each piece of money is a mere coin, or means of circulation, only
so long as it actually circulates. But this is just the case with that
minimum mass of gold, which is capable of being replaced by paper money.
That mass remains constantly within the sphere of circulation, continually
functions as a circulating medium, and exists exclusively for that purpose.
Its movement therefore represents nothing but the continued alternation of
the inverse phases of the metamorphosis C---M---C, phases in which
commodities confront their value-forms, only to disappear again immediately.
The independent existence of the exchange-value of a commodity is here a
transient apparition, by means of which the commodity is immediately
replaced by another commodity. Hence, in this process which continually
makes money pass from hand to hand, the mere symbolical existence of money
suffices. Its functional existence absorbs, so to say, its material
existence. Being a transient and objective reflex of the prices of
commodities, it serves only as a symbol of itself, and is therefore capable
of being replaced by a token.One thing is, however, requisite; this token
must have an objective social validity of its own, and this the paper symbol
acquires by its forced currency. This compulsory action of the State can
take effect only within that inner sphere of circulation which is
coterminous with the territories of the community, but it is also only
within that sphere that money completely responds to its function of being
the circulating medium, or becomes coin.

Quatation from "Capital"
The function of money as the means of payment implies a contradiction
without a terminus medius. In so far as the payments balance one another,
money functions only ideally as money of account, as a measure of value. In
so far as actual payments have to be made, money does not serve as a
circulating medium, as a mere transient agent in the interchange of
products, but as the individual incarnation of social labour, as the
independent form of existence of exchange-value, as the universal commodity.
This contradiction comes to a head in those phases of industrial and
commercial crises which are known as monetary crises. Such a crisis occurs
only where the ever-lengthening chain of payments, and an artificial system
of settling them, has been fully developed. Whenever there is a general and
extensive disturbance of this mechanism, no matter what its cause, money
becomes suddenly and immediately transformed, from its merely ideal shape of
money of account, into hard cash. Profane commodities can no longer replace
it. The use-value of commodities becomes valueless, and their value vanishes
in the presence of its own independent form. On the eve of the crisis, the
bourgeois, with the self-sufficiency that springs from intoxicating
prosperity, declares money to be a vain imagination. Commodities alone are
money. But now the cry is everywhere: money alone is a commodity! As the
hart pants after fresh water, so pants his soul after money, the only
wealth. In a crisis, the antithesis between commodities and their
value-form, money, becomes heightened into an absolute contradiction. Hence,
in such events, the form under which money appears is of no importance. The
money famine continues, whether payments have to be made in gold or in
credit money such as bank-notes.
---(an omission of a middle part)---------
   Credit-money springs directly out of the function of money as a means of
payment. Certificates of the debts owing for the purchased commodities
circulate for the purpose of transferring those debts to others. On the
other hand, to the same extent as the system of credit is extended, so is
the function of money as a means of payment. In that character it takes
various forms peculiar to itself under which it makes itself at home in the
sphere of great commercial transactions. Gold and silver coin, on the other
hand, are mostly relegated to the sphere of retail trade.


As Prof. Cottrell mentioned, we can almost point out the banknote (cash) and
the deposit as the contemporary currency (of course, we have to realize that
there are many derivative form of the former bank deposit and so on).
Well, we have a question here. Whether is the contemporary currency, that is
"bank note" and "deposit money", the paper money or the credit money ?

As the deposit is the liablities of the bank, it should be the credit money.
How about the Banknote ?
As Prof. Cottrell still mentioned, the Banknote which we may also call as
the Basemoney, is the total liabilities of the central bank. So is it the
credit money? But it does't have any convertibility to gold at all now.
Could that mean it is supported by the State Cedit, that is " This
compulsory action of the State" ? Then, is it the paper money?

This problem about the nature of the Central Banknote is a long and
important matter of controversy among Japanese Marxists.

I agree with the banknote as the credit money. But it is only proper as long
as the reflux of th captial can keep fluid.
Because only under such conditions the payments balance one another so that
money functions only ideally as money of account, as a measure of value.

But the contemporary banknote is a insufficient credit money because it does
have any convertibility to gold. Therefore it might change the paper money
and cause the inflation when the reflux of th captial is left undone,that is
the economy fall into the depression and so on.

Moreover I approve that Marx was the Banking School basically.


Best Wish


Visiting Scholar
Department of Economics,
University of California, Riverside
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Email: akiram@mail.ucr.edu

Associate Professor on Money and Banking
Department of Comprehensive Policy Making
Faculty of Law & Letters
EHIME University
Matsuyama, Ehime
790-8577, Japan
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E-mail: amatsu@ll.ehime-u.ac.jp

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