Lecture 6: Money or the circulation of commodities
Exchange
In the process of exchange of commodities, commodity owners are necessary who mutually recognise the rights of private proprietorship. This judicial relation expressed in a contract, whether part of a developed legal system or not, is the reflection of the real economic relation between commodity owners. Similarly:
‘…the characters who appear on the economic stage are but the personifications of the economic relations which exist between them.’ (p85)
Commodities have no direct use-value for their owners other than being depositories of value – a means of exchange. They have a use-value for their non owners. So they must all change hands. That is they must be exchanged.
In the process of exchange commodities are realised as values. That is they are realised as values before they can be realised as use-values. On the other hand they must show that they are use-values, a socially useful product, or a product useful for others, and that the labour embodied in them is really value – that is, really social labour before they can be realised as values. ‘Whether that labour is useful for others…can only be proved in the act of exchange.’ (p95)
Exchange is both a private transaction and a social transaction. The commodity owner seeks to satisfy his own private wants by exchanging his commodities for commodities he wants. He also seeks to realise the value of his commodities – as a proportion of society’s embodied labour.
Every owner of a commodity sees his commodity as the universal equivalent for all other commodities. However such a private equivalent cannot serve as a social equivalent. That is why the development of exchange leads to the exclusion of one commodity in which all other commodities represent their values.
We saw from the earlier analysis of the commodity that commodity owners cannot bring their commodities in relation to each other as values except by comparing them with some other commodity as the universal equivalent. This can only occur as the result of a social act. ‘The social action therefore of all other commodities, sets apart the particular commodity in which they all represent their values.’ The bodily form of this commodity becomes the form of the socially recognised universal equivalent – becomes money (p86). ‘At the same rate, then, as the conversion of products into commodities is being accomplished, so also is the conversion of one special commodity into money.’
There is an important footnote to this attacking petty bourgeois socialism which Marx argues while perpetuating the production of commodities, aims at abolishing the antagonism between money and commodities, and consequently, since money only exists by virtue of this antagonism, abolishing money itself. This is where Marx says ‘we might just as well try to retain Catholicism without the Pope.’ (p87)
The process of exchange first occurred on the boundaries of primitive societies. Property was held in common and exchange in the form of barter took place at the point of contact between such communities. As such exchange develops and takes place to a greater extent it becomes habitual to compare the values of commodities to one special article which is readily exchangeable with them. The particular article is at first a matter of chance. But there are important influences eg cattle as a major example of indigenous alienable wealth. Marx remarks that Nomads are the first to develop the money-form, because all their worldly goods consist of movable objects and are directly alienable.
Finally with the development of exchange over larger areas the value of commodities more and more expands into the embodiment of human labour in the abstract and the character of money attaches itself to commodities which are more suitable to perform the function of universal equivalent. These are the precious metals.
The precious metals are the best material for money – they are homogeneous, are easily divisible and can be easily reunited. Gold and silver are best suited to perform the function of money commodity. NB: A small quantity embodies a large amount of socially necessary labour time.
The act of exchange gives to the commodity converted into money not its value but its specific value-form. By confusing value and value-form some writers consider the value of money to be imaginary. ‘The fact that money can, in certain functions, be replaced by mere symbols of itself, gave rise to that other mistaken notion, that it is itself a mere symbol.’ (p90)
Although we are aware that gold is money and consequently directly exchangeable for all other commodities this by no mean tells us how much 10lbs of gold is worth. Money like any other commodity can only express the magnitude of its value relatively in other commodities. This value is determined by the labour time necessary for its production, and is expressed by the quantity of any other commodity that costs the same amount of labour time. Such quantitative determination of its relative value is its barter at the place of its production.
While it seems that commodities express their value in gold because it is money, the fact is that gold is money because all commodities express their values in it.
Money or the circulation of commodities
For the sake of simplicity it is assumed that gold is the money commodity.
The first chief function of money is to serve as the universal measure of value – to express quantities of embodied labour time in quantities of gold.
‘It is not money that renders commodities commensurable. Just the contrary. It is because all commodities, as values, are realised human labour, and therefore commensurable, that their values can be measured by one and the same special commodity, and the latter be converted into the common measure of their values ie into money. Money as a measure of value, is the phenomenal form that must of necessity be assumed by that measure of value which is immanent in commodities, labour time.’
The expression of the value of a commodity in gold is its money form or price. Gold itself does not have a price, otherwise we would have to equate it to itself as its own equivalent.
The price or money form of commodities, like the form of value generally, is quite distinct from the commodity’s bodily form. It is therefore a purely mental or ideal form. Although invisible the value of iron, linen and corn has actual existence in these articles: it is ideally made perceptible by their equality with gold, ‘a relation that, so to say, exists only in their heads. Their owner must, therefore, lend them his tongue, or hang a ticket on them, before their prices can be communicated to the outside world.’ (p95) As the expression of the value of commodities in gold is merely an ideal act, we can use for this purpose imaginary or ideal money. It does not require the least bit of real gold to estimate the value of goods in that metal. So when money serves as a measure of value it is employed only as imaginary or ideal money. However price (which is the quantity of money thus expressing a value) depends on the kind of metal that is money.
If two metals, such as silver and gold , function as measures of values, the disturbances of the ratio between them demonstrate the impossibility of any real standard based on two metals.
When the values of commodities are habitually expressed in quantities of gold it becomes necessary to have a standard of price – a fixed quantity of gold as a unit measure. Such a standard of price is adopted from the preexisting standard of weight. Hence the pound weight as a standard of price subsequently developed into the pound sterling.
As a measure of value and a standard of price money has two entirely different functions to perform. As a measure of value it is the socially recognised incarnation of human labour; as a standard of price it is a fixed weight of the metal. As a measure of value it serves to convert the values of commodities into prices, into imaginary quantities of gold; as a standard of price it measures those quantities of gold.
Variations in the value of gold do not interfere with its function as a standard of price – this function only amounts to measuring the weights of different quantities of gold.
Neither do variations in the value of gold interfere with its function as a measure of value. The changes affect all commodities simultaneously, leaving their relative values unaltered, although those values are now expressed in higher of lower gold prices. A general rise in prices of commodities can be brought about either from a rise in their values – the value of money remaining constant – or from a fall in the value of money, the values of commodities remaining constant. A fall in the price of commodities with a fall in their values – the value of money remaining constant – or a rise in the value of money with the values of commodities remaining constant. So variations in the gold value do not necessarily entail proportional variations of prices. This only occurs with commodities of constant value.
The current weights of money gradually diverge from the original weights of money as represented by the money’s weight name. This is mainly due to the introduction of foreign coins, the replacement of less precious metals by more precious metals as wealth increases, and the debasement of the coinage. So that of the original weights of money only the names remain.
In the end standards of money are regulated by legal statute. A given weight of one of the precious metals, an ounce of gold, becomes officially divided into aliquot parts, with legally bestowed names, such as dollar, pound etc. These serve as units of money, and are subdivided into other aliquot parts with legal names eg pence etc. But both before and after these divisions are made a definite weight of metal is the standard of metallic money. So instead of saying a thing is worth an ounce of gold we say it is worth £200 – in this way money comes to function as money of account. This is the case whenever it is a question of fixing the value of an article in its money form.
Every trace of a value relation disappears in the money-names of commodities eg pound, dollar, franc etc. Also money-names are ambiguous expressing both the values of commodities, and, at the same time divisions of the weight of metal that is the standard of money – the standard of price. (In a footnote Marx points out that money when serving as a standard of price appears under the same reckoning name as the price of commodities ie the sum of £200 may signify on the one hand an ounce weight of gold and on the other the value of a ton of iron.) However it is necessary that the value of commodities must assume the money form in opposition to the varied bodily forms of commodities.
This leads to another difficulty. Although price, being the exponent of the magnitude of a commodity’s value, is the exponent of its exchange ratio with money; it does not follow that the exponent of this exchange ratio with money is necessarily the exponent of the magnitude of the commodity’s value. Under certain conditions, the realised price may be too big or too small to really represent the value; but price is the only form in which the value may appear, no matter whether it be too big or too small. Marx gives the example of 1 quarter of wheat and £2 (equal to one-half an ounce of gold) representing equal quantities of socially necessary labour and circumstances allowing the price to rise to £3 or fall to £1 with no change in the magnitude of the socially necessary labour to produce a quarter of wheat.
The magnitude of a commodity’s value is the portion of the total labour time of society necessarily embodied in it. When the magnitude of value is converted into price the above necessary relation takes the form of a more or less accidental exchange-ratio between a single commodity and another, the money commodity. This may really represent the value, or, on the other hand, may represent the greater or lesser quantity of money (gold deviating from that value) for which it can be sold under the given circumstances. The possibility, therefore, of a quantitative incongruity between price and the magnitude of value, ie that the price may diverge from the magnitude of value, is inherent in the price-form itself. This is not a defect, but, on the contrary, the price-form is admirably suited for a mode of production whose laws only assert themselves as blindly operating averages of continual irregularities.
Because of the price-form, a price may exist where there is no value. Objects which are in themselves not commodities, such as conscience, honour etc can be offered for sale by their holders, thus acquiring, through their price, the form of commodities. The price in such a case is imaginary.
Finally price expresses value by declaring that a given quantity of the universal equivalent (eg an ounce of gold) is directly exchangeable for it. This does not mean, however, that the commodity is directly exchangeable for gold. For this to be the case it must, in practice, transform itself from imaginary gold to real gold. ‘To fix its price, it suffices to equate it (the commodity) with gold in imagination. But to enable it to render to its owner the service of universal equivalent, it must be actually replaced by gold’ (p103). Therefore the price-form implies that the commodity is exchangeable for money, and the necessity that it must be exchanged. On the other hand, gold serves as an ideal measure of value because it has already established itself as the money commodity in the process of exchange. Thus behind the ideal measure of value ‘there lurks hard cash’.
