Lecture 7: Money or the circulation of commodities (continued)
The development of the money form of value does not abolish the contradictions inherent in commodity exchange – between use-value and value. Rather it creates a form in which they can exist side by side. This is the way real contradictions are resolved. Marx gives an example of the ellipse embodying and reconciling the contradiction of a body both falling towards and flying away from another body.
In the process of exchange, commodities are transferred from hands in which they are non-use-values to hands in which they are use-values. Marx goes on to investigate this change of form or metamorphosis of commodities.
Whena commodity is exchanged for money there is somethingmore to notice over above the material fact of its exchange for gold, namely that gold is the converted money-form of the commodity.
Exchange produces a differentiation of commodities into commodities and money, ‘an external opposition’ which expresses the opposition between use-value and exchange-value inherent in the commodity. Commodities as use-values now stand opposed to money as exchange-value (p104). Both are commodities but they manifest themselves at two opposite poles, and at each pole in an opposite way. The ordinary commodity is in reality a use-value whose value is expressed ideally in its price by which it is equated to its opposite pole gold or money. And the material of gold ranks as the embodiment of value, as money, as exchange-value itself. Its use-value is ideally represented by the series of expressions of relative value in which it confronts all the other commodities. These antagonistic forms of commodities are the real forms of motion of the process of exchange.
We now accompany the weaver to the market where 20 yards of linen are exchanged for £2. The £2 is then exchanged for a bible. These two separate conversions, the conversion of the commodity into money and the reconversion of the money into a commodity -‘selling in order to buy’- constitute the complete metamorphosis of the linen. For the weaver the result of the process is the exchange of the product of his labour for someone else’s, nothing more than an exchange of products.
The process of exchange of commodities is therefore carried through by the following change of forms:
Commodity – Money – Commodity or C-M-C
The result of the whole process, the commodities complete metamorphosis, is C-C, which ends the process.
C-M, the first metamorphosis, or sale
In order for the commodity to be converted into money it has to satisfy a number of conditions. It must prove to be social labour by being a use-value for some buyer. It must not be a superfluous article over and above the needs of society. It must not contain more labour time than is socially necessary. It must not be superseded by some new product etc.
So that while commodities are in love with money ‘the course of true love never did run smooth’. The quantitative division of labour is brought about in exactly the same spontaneous and accidental manner as its qualitative division. And the owners of commodities find out that the social division of labour which turns them into independent private producers, also makes the social process of production and the relations of the individual producers independent of their will; that the independence from each other has as its counterpart and supplement a system of general and mutual dependence.
The social division of labour, which converts products into commodities and makes necessary the conversion of these commodities into money, causes this conversion to be accidental. However here we look at the phenomenon as if it proceeded normally. In any case unless the commodity is unsalable a change of form must always occur even if the realised price be abnormally above or below the value.
In a sale a commodity is exchanged for the shape assumed by its own value, for the universal equivalent. And gold or money is exchanged for a particular form of its own ideal use-value. But this is only one phase, C-M, in an endless chain of other metamorphoses.
M-C, or purchase: The second and concluding metamorphosis of the commodity
Being the converted shape of all commodities, money is itself convertible into all commodities without restriction. But while there is no qualitative restriction on the exchangeability of money, prices define the limit of its convertibility, namely its own quantity. This convertible money gives no trace of what commodity it is itself the converted shape of.
M-C, a purchase, is at the same time C-M, a sale. Commodity producers often convert a large quantity of one kind of commodity into small quantities of many other commodities. So the concluding phase of metamorphosis of their commodity is at the same time the first phase of metamorphosis of a whole number of other commodities. Being a seller and being a buyer are not fixed roles but constantly attach themselves to different persons in the course of the circulation of commodities.
The circulation process does not end as, in barter, with the one exchange of two objects. As a use-value, the commodity drops out of circulation at the one exchange, but the money stops in circulation. And when a commodity finally completes its metamorphosis into another commodity , the money is always left with a third person.
Because every sale is a purchase and every purchase a sale it does not follow that the circulation of commodities implies an equilibrium of sales and purchases (p113). No one is forced to immediately make a purchase because they have just made a sale. Money is a commodity which remains in a form capable of circulating, whether it appears on the market at an earlier or later date. If the interval in time between the two complementary phases of the complete metamorphosis C-M, M-C becomes too great, if the split between the sale and purchase becomes too pronounced with one commodity remaining too long in its money form, the intimate connection between them, their oneness, asserts itself by producing a crisis. But this crisis is only a mere possibility. The conversion of this possibility into a reality is a result of a long series of relations which, from the standpoint of simple circulation, do not yet exist.
The currency of money
(NB Currency is used in its original meaning of the course pursued by money when it changes from hand to hand –this differs from circulation. But Penguin edition says it was an outdated term in 1862 and they use circulation.)
When the linen (say) moves through its circuit and finishes up in the form of a bible (say), it finishes up in the owners hand as another commodity. With all commodities circulating in this way, the money only runs from hand to hand and gets further away from the point it started from. This running from hand to hand is called the currency of money. It is caused by the circulation of commodities. Because the money is continually withdrawing commodities from circulation and stepping into their places, moving further away from its starting point, the motion of money appears to be the cause of the circulation of commodities. However, money functions as a means of circulation only because in it, the values of commodities have independent reality. ‘Hence its movement, as the medium of circulation, is, in fact, merely the movement of commodities while changing their form.’ (p116)
In a given country there take place every day at the same time, though in different places, numerous one-sided metamorphoses of commodities. The commodities are equated beforehand with definite but imaginary quantities of money. In simple circulation the amount of means of circulation required is determined beforehand by the sum of the prices of all these commodities. The money in reality expresses the quantity of gold ideally expressed beforehand by the price of commodities.
Here Marx reminds us that, the values of commodities remaining constant, their price rises inversely with the value of gold. If inconsequence of such a rise or fall in the value of gold, the sum of the prices of commodities fall or rise, the quantity of money in currency must fall or rise to the same extent. The change in the quantity of circulating medium is in this case caused by the money itself but by virtue of its function as a ‘measure of value’ not as a medium of circulation. First, the price of commodities varies inversely as the value of money, and then the quantity of medium of circulation varies directly as the price of commodities. Some economists, however, wrongly believe that it is the supply and demand for money which determines the high or low prices of commodities. In this discussion of the circulation of money we shall consider the value of gold to be given.
The same pieces of money can serve a number of transactions. Eg in the wheat-linen-bible-brandy exchanges, £2 can be used four times to cover the £8 that represents the sum of the prices of the four commodities. Hence the circulating medium, at any time, equals the sum of the realised prices divided by the number of moves of coins of the same name. Dividing the total number of moves of such coins by the number of such coins functioning gives the average velocity of the currency. The circulation can only absorb that amount of gold which, if multiplied by the average velocity, will equal the sum of all the prices to be realised. Hence gold can be withdrawn from circulation by throwing in an equivalent number of pound notes.
The quantity of money in circulation at any time will depend on the level of prices, the quantity of commodities circulating, the average velocity of money-currency.
This can also be stated as follows; given the sum total of the commodities’ values, and the average rapidity of their circulation, the amount of currency in circulation is determined by the value of gold.
Coin and symbols of value
The fact that money takes the form of coin arises from its function as the circulating medium. The wearing away of gold coin leads to coin representing more value than it really contains, and to thereby becoming a symbol of value. This separation between their nominal and real weight implies the possibility of replacing metallic coins by tokens of some other material, by symbols serving the same purpose as coins. ‘The function of gold as coin becomes completely independent of the metallic value of that gold. Therefore things that are without relative value, such as paper notes, can serve as coins in its place’. Paper notes are not to be confused with cheques and bills etc. Paper money arises from the function as a medium of circulation and cheques etc from the function as a means of payment.
We are dealing with inconvertible paper money issued by the state and having compulsory circulation. The issue of paper money must not exceed the amount of gold which would actually circulate if not replaced by symbols.(p127-8) If it did all of it would only represent that amount of gold which measures the proper limit.
Money
The commodity that functions as a measure of value, either by itself or by token, as a medium of circulation, is money.
With the development of commodity circulation, the medium of circulation, becomes the end and aim instead of the medium, and the money thus petrifies into a hoard – the seller becomes the hoarder of money.
The further development of commodity production, owing to the necessity of having previously sold, in order to ever buy, leads to the accumulation of different sized hoards all along the line of exchange. Also there arises the greed for gold. The social power of money becomes the power of private persons.
The desire to hoard by its very nature is insatiable. Money has no qualitative limits to its exchangeability, yet at the same time, every actual sum of money is limited in amount, and therefore, as a means of purchasing, has only limited efficacy. This antagonism between the quantitative limits of money and its qualitative boundlessness urge on the hoarder in his Sisyphus-like labour of hoarding.
Alongside this gross form of a hoard is the aesthetic form in the possession of articles of gold and silver – jewellery etc.
The quantity of money circulating expands and contracts with the fluctuating market conditions. Hoards are necessary in order that the currency may constantly satisfy the needs of the market.
Means of payment
With the development of the exchange process, conditions arise in which the alienation of the commodity (leaving the hands ofthe seller) becomes separated by an interval of time from the realisation of its price (when the money is handed over). The seller and buyer become creditor and debtor and the money becomes the ‘means of payment’.
The two equivalents, commodities and money, cease to be simultaneously present in a sale. The money now becomes an ‘ideal means of purchase’, for it is not actually present when the commodity leaves the sellers hands: it is only ideally present inthe promise to pay.
The amount of money necessary to discharge the obligations depends on their amount and the rapidity of the currency of the means of payment. The same individuals may be both creditors and sellers and a chain of debts can be settled one after the other among such individuals with the same amount of money. In addition there is a large mass of debts which can be discharged by ‘clearing- houses’. A owes money to B, B to C, C to A etc.
Financial crises occur where this system has been fully developed and they occur through some disturbance in the system’s mechanism. They arise from the contradiction immanent in money as a means of payment. When payments balance each other out, money acts ideally as a measure of value or money of account. But in so far as payments have to be made money is the individual incarnation of social labour, the universal equivalent.
‘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.’ (p138)
Credit money such as cheques, bills, promissory notes, arises from the function of money as a means of payment. As money develops into the means of payment it becomes necessary to accumulate reserves against periodical settling days. So as hoarding to amass riches declines there grows the formation of these reserves of payment.
Universal money
In the world market money loses its local functions such as pounds, dollars etc and returns to its original form as precious metal in the shape of bullion. It is in the world market that money first acquires to the full extent the character of the commodity whose bodily form is also the immediate incarnation of human labour in the abstract. Its mode of existence becomes adequate to its concept.
As bullion, money functions as a universal means of payment in settling international balances. It acts as the ‘universal means of purchase’ chiefly whenever there is a disturbance in the customary equilibrium in the interchange of products. And it acts as the universal embodiment of social wealth whenever it is a question of transferring wealth from one country to another and the transfer in the form of commodities is ruled out.
Finally reserves of money are necessary in the international sphere just as they are in the domestic sphere.
