Re: [OPE-L] Where does the money comer from : was Why aren't non-labourers sources of value?

From: cmgermer@UFPR.BR
Date: Wed May 04 2005 - 10:36:54 EDT

> Paulo
> In relation to the question of the need for more money in simple
> reproduction and expanded reproduction.
> There seems to be implicitely in Marx´s analysis (Chapter XVII Circulation
> of surplus value, vol. II of Capital) some sort of competition between
> gold production and credit system. In so far as the credit system raises
> "the functional capacity of the quantity of money really functioning" it
> diminishes the need for metallic money.
> The question is then not one of  "downgrading the theoretical importance
> of money" but rather to investigate how the credit system downgraded the
> importance of gold within expanded reproduction.
> I would like to understand better the relationship between credit system
> and gold. For instance: if the credit system developed the way Marx
> suggets, would this slow down the production of gold because since demand
> falls prices would fall bellow prices of production? Which mechanism is
> there connecting gold production and credit system?
> Paul
> There was clearly a mechanism by which the credit system displaced gold.
> The mechanism could not have been the issue of paper money as suggested
> by Gerry as the 1844 bank act set a tight limit on the fiduciary issue
> of notes, other notes had to be backed by gold.
> On the other hand bills of exchange and cheques were not covered by this
> restriction and could act as means of payment.

As far as I know, the limit set by the 1844 bank act has never been
effective: the issue of banknotes never went up to the limit, except at a
crisis, but in this case the Parliament would make an exception and
authorize the Bank to overcome the legal limit. Marx ridiculed this
provision of the bank law because of this.
This means that the expansion of payments in cheques cannot have been
stimulated by the bank law. What in fact did this was the imposition, by
the same law, of a 10% tax on the issue of notes by the private banks, who
would then make recourse to cheques. The intention was to limit the issue
of banknotes to the Bank of England, which was gradually achieved.

On the other hand, I don’t think one can say that in Marx’s understanding
there is *competition* between gold production and the credit system. It
is the development of the banking system that reduced the need for gold,
at first in the circulation functions. This, of course, in no way affected
the role of gold as the general equivalent of value (i.e. in the setting
of prices and as measure of value, as means of hoarding and as means of
payment). With the issue of bills of exchange, which began very early, the
use of gold was greatly limited in the payments of larger amounts, i.e.
mainly among capitalists. Thus the circulation of gold was apparent only
for small payments in coin, which is the smallest sphere of the
circulation. Banknotes were then issued in the discounting of bills of
exchange. The expansion in the use of banknotes depended, I think, on the
development of the banking system, geographically and in terms of safety,
which on the other hand was dependent on the development of the means of
communication, including transport. Thus it is not a purely “monetary”
The demand for gold is of course conditionned by the development of the
credit system, which reduces, in relative terms, the need for gold in the
functions of means of circulation, means of payment and means of hoarding.


> It is not, within Marx's analysis, possible to have the sort of feedback
> relationship suggested by Paulo. He is implying that a shortage of gold
> would cause the exchange value of gold to rise above its value. This
> of course is what Ricardo said, but Marx disputed this arguing that
> gold would continue to exchange at its value.
> I have never found Marx's objections to Ricardo on this point convincing.
> If the exchange value of gold rose, that would imply a general deflation
> which is also excluded in the formulation of the circuit m-c-m'-c'-m''.
> If we assume that cheques and bills of exchange provided the means by
> which
> the circulation was achieved in the presence of a gold shortage, then
> this has implications for the view we have of capital.
> The account book capital of a firm would comprise:
> stocks of commodities+
> holdings of gold coin+
> holdings of state paper/base coin+
> holdings of private debt-
> liabilities as private debt.
> Taken across the whole capitalist class the last two entities cancel
> out. The sum of bank money comes to zero.
> Now look at the first 3 items. Only the first two actually embody
> labour and constitute value. Holdings of state paper money do not
> constitute value - instead they are proof of the unproductive
> consumption of value by the state in the past. Should they
> be ignored in computing the sum of social capital or should
> they be subtracted from the total?
> Today, is the sum of capital equal to
> stocks of commodities - notes and coin
> or is it simply
> stocks of commodities
> In either case, in the modern world, money can not constitute
> part of the total capital value.

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