Credit relations split the act of buying from the act of paying. The development of credit, therefore, gives rise to a new function of money: money as a means of payment.
Credit allows me to purchase a commodity with credit rather than with money. But in doing so, I incur a debt that is payable in money. The capitalists actually purchase the commodity labor power with credit rather than money. When I sell my labor power to an industrial capitalist, I have to work for a week or more before I collect my wage in money form. It’s not unheard of for industrial capitalists to go bankrupt and fail to pay the debts they owe the workers for the labor power they bought with credit.
Not all debts payable in money are created by the purchase of commodities with credit. For example, tax liabilities payable to the state under conditions of capitalist production have to be paid for in money. In pre-capitalist times, taxes were sometimes payable in kind, but under capitalism they are almost always payable in money. Rent liabilities are also payable in money under capitalist conditions.
Under the feudal system of production that dominated Europe in the centuries before the rise of capitalism, feudal ground rents were either payable in labor, the inserfed peasants having to work on the lord’s lands for part of the workweek, or they were payable in kind. During the transition from feudalism to capitalism, rents payable in labor or kind were replaced by rents payable in money.
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Money as the universal measure of value
Last week, I demonstrated that as commodity production and exchange develop, one or at most a few commodities emerge as general equivalents. In their role of general equivalents, they measure the exchange value of commodities in terms of their own use values.
Originally, the commodities that played the role of general equivalents were those that were the main form of wealth of the given society. For example, in the Homeric poems, wealth is measured in terms of cattle. Cattle were indeed an early form of what Marx called money material, the physical material of the use value of the commodity that acts as the universal measure of value. Some societies even measured the exchange value of commodities in terms of slaves. In this case, the enslaved workers not only produced the surplus product for the exploiting non-workers, they served as money material as well!
But as commodity production and exchange developed further, slaves and cattle did not make very good money. Slaves can only be divided so far. A half a slave is a dead man or woman, not a slave. Slaves and cattle aren’t durable but live only a certain number of years. Enslaved humans generally had quite short lifetimes. As commodity production and exchange developed, a universal equivalent emerged whose main use value was its monetary function.
Do crises originate in the real or the monetary economy?
Some Marxists have been arguing on the Internet that the current crisis shows the cause of capitalism’s periodic economic crises lies in the “real economy” as opposed to the “money economy.” They seem very pleased by the renewed interest in the theories of John Maynard Keynes. Keynes, it is said, realized that capitalist economic crises originate in the “real economy.” These Marxists are hoping that the star of “monetarist” theory, Milton Friedman, who is widely and justly hated by exploited people throughout the world, is setting at last.
The late Milton Friedman was the main ideologue of “neoliberalism” within the economic profession. He held, in opposition to the followers of Keynes, that capitalism is an inherently stable system. The only serious cause of cyclical instability in a capitalist economy, according to Friedman, is located on the monetary side of the economy. Therefore, Friedman opposed the kind of “stimulus packages” that are now being implemented by various governments around the world.
According to Friedman, the only thing that has to be done to make sure a recession does not get out of hand is for the “monetary authority”—such as the U.S Federal Reserve System, Bank of England or the European Central Bank—to keep the “money supply” growing at a slow and above all steady rate. As long as such policies are followed by the “monetary authority,” Friedman and his followers claimed, the industrial cycle of boom and bust would all but disappear. Until the current crash, this had been the reigning economic dogma in both Washington and London for almost 30 years.
According to Marx, the capitalist mode of production can in the long run exist only as a system of expanded reproduction. But expanded reproduction can only take place if certain proportions are maintained between Department I, which produces the means of production, and Department II, which produces the means of (personal) consumption.
Marx’s basic assumptions
Marx developed his diagrams of expanded reproduction in volume II of “Capital” from the diagrams of simple reproduction. Like was the case with simple reproduction, Marx assumed that society consists of only two classes, industrial capitalists and productive workers. Like was the case with the diagrams of simple reproduction, the rate of surplus value is 100 percent. That is, the workers work half the time for themselves and half the time for the industrial capitalists.