Chapter 3 – Money, or the Circulation of Commodities

Money is the product of exchange, developing in accordance with the needs of exchange.

It is implicit in the opposition between the relative & equivalent forms of value & this, with the proliferation of exchange into a general social act, led on to the emergence of a universal equivalent that took the form of a tangible money commodity that represented value even as it disguised the origins of value in socially necessary labour time.

The two main functions of money:

Measure of value – the commodity in terms of which the value of other commodities is expressed.

Means of circulation – in order to exchange one commodity for another the value of the first commodity has to be realised in the form of money and the money then realised in the use-value of the second commodity.

There is a tension, a contradiction, between these two functions.
Gold is a great measure of value, but inefficient as a means of circulation.

Section 1: The Measure of Values

There is a distinction between ‘money’ & ‘the money commodity’.
Marx assumes gold is the money commodity.
Money is a standard of price as well as a measure of value.

Prices are imaginary. Commodities go to the market with price tags on them, but these may not be the prices at which exchange eventually takes place.

Price depends upon the actual substance that is money.

“Price is the money-name of labour objectified in the commodity” (p. 195)

The value of the money commodity may change, e.g. the concrete conditions of the production of gold.
Even though this changes, it makes no difference to the relative values of commodities.

Prices can diverge from values.
“This is not a defect, but, on the contrary, it makes this form the adequate one for a mode of production whose laws can only assert themselves as blindly operating averages between constant irregularities.” (p. 196)
This is not just due to supply & demand fluctuations.
Leverage from the credit system can result in aggregate market prices exceeding their value equivalents.

The price system is the surface appearance of an objective reality.
Value, as socially necessary labour time, is at its heart.
Market prices fluctuate around values by perpetually deviating from them.

Section 2: The Means of Circulation

Exchange is a transaction in which value undergoes a change of form.
Commodity into money, & money into commodity.

The circulation of commodities has the form C-M-C.

This is quiet different from the simple exchange of use-values C-C.
Changing money into a commodity is in principle much easier than turning a commodity into money.
Everyone accepts money, but not everyone may want particular commodities.

The separation of purchase and sale introduces the possibility that the whole system can break down: a commercial crisis, for every sale is conditional on previous purchases since the buyer must have money.

Say’s Law (that supply creates its own demand) does not hold.
A crisis of overproduction is possible.

Means of purchase – while commodities enter and leave circulation, money remains within circulation. Thus a given quantity of money is necessary and sufficient to maintain the circulation of commodities.

Many economists (Monetarists) believe that the quantity of money determines the level of prices. Marx argues that with commodity money it is circulation that determines the movement of money and not vice versa, hence it is the level of prices that determines the quantity of money required.

Marx argues that token money can replace commodity money in the function of means of circulation, in which function it represents commodity money symbolically. With token money, if too much money is issued the currency will be devalued and price will rise.

“…just as true paper money arises out of the function of money as the circulating medium, so does credit-money take root spontaneously in the function of money as a means of payment.” (p. 224)

The relationship of moneys to socially necessary labour time, which was problematic even in the case of a gold standard, has become even more remote & elusive under a system of fiat money. But to say it is hidden, remote & elusive is not to say it does not exist.

Section 3: Money

Hoarding increases the quantity of money required.

The separation of sale from payment and the rise of credit money reduce the quantity required.

The relationship between debtors & creditors opens up, not only the possibility, but the necessity for another form of circulation, that of capital.

Under capitalism, money permits, in theory, infinite accumulation & limitless growth.

Capital emerges when money is put into circulation in order to get more money: M-C-M’.

The contradiction between money as a measure of value & as a means of circulation, results in crises:

“This contradiction bursts forth in that aspect of an industrial & commercial crisis which is known as a monetary crisis. Such a crisis occurs only where the ongoing chain of payments has been fully developed, along with an artificial system for settling them. Whenever there is a general disturbance of the mechanism, no matter what its cause, money suddenly & immediately changes over from its merely nominal shape, money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, & their value vanishes in the face of their own form of value. The bourgeois, drunk with prosperity & arrogantly certain of himself, has just declared that money is a purely imaginary creation. ‘Commodities alone are money’, he said. But now the opposite cry resounds over the markets of the world: only money 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 & their value-form, money, is raised to the level of an absolute contradiction. Hence money’s form of appearance is here also a matter of indifference. The monetary famine remains whether payments have to be made in gold or in credit money, such as bank-notes. (pp. 236-7)

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