On March 11, President Joseph Biden signed into law a $1.9 trillion package called the Coronavirus Relief bill. It provides for $300-a-week extra in unemployment insurance payments — only half the original $600 provided by the CARES Act passed last year — and only until Sept. 6. It also provides $25 billion for rental relief and utility assistance and $350 billion relief for hard-pressed state and local and Native American tribal governments.
The bill includes a one-time $1,400 payment for low- and middle-income Americans. Also, $20 billion will be spent on COVID-19 vaccinations. Democrats are especially proud of a provision that extends for a year a child tax credit that was part of the CARES Act. They claim this will reduce child poverty in the richest nation in the world by one-half. This tells you a lot about the nature of the U.S. tax system, which pushes many children of working-class families below the official federal poverty line while allowing billionaires like former President Trump as well as giant corporations like Apple to get away with paying virtually no taxes.
Progressives were hoping that the stimulus bill would have a provision raising the federal minimum wage to $15 an hour from the current $7.25. This was important because the bizarre and undemocratic rules that govern the U.S. Senate mean only a few bills can be passed through a process known as “budgetary reconciliation” with a simple majority vote. All other bills need the support of 60 senators. This means that given the composition of the current Senate, 50 Democrats and 50 Republicans with Democratic Vice President Kamala Harris casting the tie-breaking vote, the GOP has veto power over most other proposed legislation coming up this session.
For the minimum wage hike to have had any chance of passing in the current session, it would have been necessary to include it in the stimulus bill. President Biden gave lip service to the proposed minimum wage hike but failed to push it. This gave the green light to conservative Democrats to ally with the GOP to exclude the $15-an-hour minimum wage from the bill — effectively killing it. This is the exact outcome the capitalists wanted. Once again, the Democrats and Republicans working together delivered the goods for capital.
A Critique of Crisis Theory 
“If my impression was correct, both were trying to prove that the sum of direct prices and the sum of prices of production must always be equal. … both Langston and Mandel believed that the rate of profit in value terms, direct prices, and prices of production must also be exactly equal, just as Fred Moseley believes today.”
^ In case of Mandel, this impression seems incorrect, because if I recall a key point of Mandel’s essay ‘Gold, Money and the Transformation Problem’ (in Ricardo, Marx, Sraffa: the Langston memorial volume, 1984) was precisely, that due to changes in the value of gold (and not due to gold’s quantity relation to commodities, as you seem to hold), prices can differ. And if I recall, it is the sum of values and the sum of prices of production that must be equal for Mandel, but both in terms of labour hours (that is, he interprets the unit of Marx’s table with prices of production as still only being on the abstraction level of quantities of labour time, and not yet prices).
There is no such thing as commodity money or non-commodity money. There is such a thing as a money commodity, i.e. a commodity which gets singled out from all other commodities that act as equivalent forms of value, and becomes the universal equivalent form, as Marx sets out in his Value Form analysis in Cap.I, Ch.3, but, as soon as this commodity, say Gold, then takes on this role, as Marx states, it gives up its role as commodity, it gives up its use value, in order to take on solely the use value of money.
That does not stop gold which does not act as money from continuing to act as a use value and commodity, for example, as raw material in jewellery. Indeed, it must do so in order to be the money commodity. Its why Bitcoin is not a money commodity, because it has no use value outside being an object of speculation, and so also has no value, and so no exchange value.
As soon as gold takes on the role of money commodity, and is converted into coins to act as currency, then again it is not commodity money, but merely a money token. As Marx sets out at length in The Contribution to A Critique of Political Economy, that is why underweight coins can continue to function perfectly well as money tokens, and is the basis for them being replaced with base metals or paper.
And, so also when we come to these forms of currency such as paper notes, then they are not non-commodity money, but simply non-commodity money tokens, just as much as an underweight gold or silver coin is a token and not itself money. It is why the idea put forward by the proponents of MMT is nonsense, because simply printing more of these tokens – be they underweight gold coins, or paper notes – than is required by the requirements of circulation, simply devalues each individual token – inflation.
Boffy wrote: “As soon as gold takes on the role of money commodity, and is converted into coins to act as currency, then again it is not commodity money”
^ By coincidence a few days ago twitter-user Eshalegal also stated your position Boffy, perhaps more bluntly. It seems your phrase “coins [in order] to act as currency” leaves a bit room though, namely what about coins that do not “act as currency”, ie coins which are used for burial rite, other superstitions, or as jewellery (like weaving coins into clothing)? If coins thus can have another use-value besides “acting as currency”, does it mean these particular (and potentially all) coins then are a commodity temporarily (when they’re not “acting as currency”) or always (just like a car is commodity, even when it is never driven and just is used as a sleeping couch)? This is just a pedantic objection I raise.
But more seriously to the point of contention between Sam Williams (also in the preceding post) and Moseley, I would love to hear your position: do you think gold (as money) can have a price of production?
Coins not acting as currency have some other use value. That is why, as Marx says in A Contribution that where gold coins exist in superfluity to the requirements of circulation they are taken out, and melted down, for example. I have pointed out that a few years ago, the same thing happened with copper in British 2p coins, when copper prices rose sharply. The copper content value was greater than the 2p face value of the coin. As Marx says, its the difference between a coin mad of an actual commodity such as gold, or a con made of base metal, or a paper note. You can’t use these as other use values of any value, just as you can’t use Bitcoin for anything other than as an object of speculation, or theoretically for currency, though its lack of value and immense volatility due to speculation makes the latter practically impossible.
Gold, of course has a price of production, as with any other commodity. And, under capitalism its that, rather than its value that enables it to function as a money commodity. However, again look at what Marx says in A Contribution. The reality is that all gold coins contain less gold than is suggested by the face value of the coin itself. That may be due to the fact of authorities debasing the coinage, or simply of clipping and normal wear and tear in circulation. So, the gold in any coin can only have a value/price of production equal to the actual amount of gold it contains, not the face value of the coin. If its melted down, its only the former you would get for it.
As Marx points out, that does not stop it functioning as currency, precisely because the coin only acts as a token of money, not money itself, or more precisely as Marx points, if the coin is half-weight, then half of the coin is already merely a token. The fact that this did not stop coins circulating at full value – provided they were not minted in excess of the value they purported to represent – is what leads to the creation of coins comprised of base metals, or paper currency, as fiat currency.
On the question of the transformation problem, it quite clearly is not necessary or possible for the rate of profit to be the same on the basis of prices of production as calculated on the basis of exchange-values. That is made clear by Marx in Capital III, Chapter 12.
“It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production. Suppose, the average composition is 80c + 20v. Now, it is possible that in the actual capitals of this composition 80c may be greater or smaller than the value of c, i.e., the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way, 20v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.”
Its for this reason that Marx and Engels say that from the start of capitalist production in the 15th century, commodities no longer exchange at exchange values. Even non-capitalist produced commodities do not sell at their exchange value – though also not at their price of production – because the non-capitalist producers of those commodities, buy in means of production that are capitalistically produced, and the price they pay for them is their price of production, not their exchange-value.
The prices of commodities bought as wage goods are also, thereby not their exchange values, and as capitalist production expands are increasingly their price of production. As Marx says, here, if the price of production of those wage goods is less than their exchange-value, then the value of labour-power, determined by the cost of its reproduction will be lower than it would have been had wage goods been sold at their exchange value. So, necessary labour is reduced, and surplus labour increases, the rate of surplus value rises, and rate of profit rises with it.
I have elsewhere shown that the value of c, however is unchanged overall whether determined by price of production or exchange values. In other words if the total of prices of production and total of exchange values is equal, which it is, then k + p, is equal to c + v + s, as Engels also sets out in Capital III. But, the new value created by labour is objectively determined by the amount of new labour undertaken, and is equal to v + s. If v is lower under a regime of prices of production than under exchange values, then s simply rises by a corresponding amount, and vice versa.
If v + s is constant, irrespective of any variation due to prices of production, then given that c + v + s = k +p, then c must also be constant. So, any variation in s must result in a change in the rate of profit p/k.
Boffy wrote: “The reality is that all gold coins contain less gold than is suggested by the face value of the coin itself.”
“an underweight gold or silver coin is a token and not itself money.”
^ True, but more fundamentally, even a 100% pure finesse coin would not be money itself. As Marx in ch.3 (first paragraph on Hoarding) wrote:
“The continual movement in circuits of the two antithetical metamorphoses of commodities, or the never ceasing alternation of sale and purchase, is reflected in the restless currency of money, or in the function that money performs of a perpetuum mobile of circulation. But so soon as the series of metamorphoses is interrupted, so soon as sales are not supplemented by subsequent purchases, money ceases to be mobilised; it is transformed, as Boisguillebert says, from “meuble” into “immeuble,” from movable into immovable, from coin into money.”
So for Marx when coin does not “act as currency”, it is transformed into money. Whereas you imply that non-circulating coin is no longer money:
“Coins not acting as currency have some other use value. That is why, as Marx says in A Contribution that where gold coins exist in superfluity to the requirements of circulation they are taken out, and melted down,”
^ By the phrase “some other use value” you implied a non-monetary use. But for Marx hoarding is definitely still a monetary function, in fact even more important than money’s function as coin.
Thanks for your reply.
Even a 100% pure coin is not money. Correct, because its necessary to understand what money itself is. Before any single money commodity such as gold, silver, salt, cattle let alone coins, commodities are exchanged at more or less exchange-values by primitive communities, as products become transformed into commodities, individual values of those products become transformed into market values, as an average of those individual values, via competition, and the market values become the basis of exchange values.
What is the basis of this? As Marx sets out in TOSV, Chapter 20, in dealing with the confusion over money and exchange value by Bailey et al, and in Capital I, Chapter III, describing the relative and equivalent forms of value, it is that each product has an individual value determined by the labour-time required for its particular production. each commodity has a market value, being the average labour-time required for its production. In other words, if 10 producers of commodity A, produce 1,000 units of it, with a total of 100 hours of labour required for that production, the market value will be 0.10 hours per unit, even though some producers will produce it with an individual value less than that, and some more than that.
But, it is this, which enables all of these commodities then to be brought into an exchange relation with all other commodities. It is this proportional relation of market values that determines the exchange-value of each commodity with every other. As Marx says in TOSV, Chapter 20, value is measured directly and absolutely in terms of labour hours, whereas exchange-value is measured indirectly, in terms of the price of one commodity in terms of a quantity of some other.
For this reason, as Marx also says, every commodity is money, every commodity is a representative of what money is, which is this claim on a quantity of labour-time, equal to that of the given commodity itself. Under barter, that is how every commodity acts. Fundamentally, money is merely a claim on a quantity of social labour time, of a given amount. In societies where there is considerable trust – the original meaning of credit – it is not even necessary for money to take the form of a money commodity let alone a coin. A can exchange there commodity with B, with B simply promising to reciprocate at some later date. Often this is marked by some form of token, such as baked tablets that are broken in half, so that one half is redeemed when the later transaction occurs.
The need for a money commodity arises, where no such trust exists, which must arise as trade increases. As Marx says, what money is is exchange-value incarnate. In other words, strip away commodity fetishism, and the exchange-value of commodities is simply this equivalence of values, the fact that they contain equal amounts of social labour-time, and under barter this is inherent in the commodities being exchanged themselves, each commodity exchanged is immediately a claim on an equal amount of labour-time. Each commodity acts as money, and the means, thereby, to obtain this equal amount of labour-time embodied in some other commodity or service.
Initially, as Marx sets out in Cap. I, Chapter 3, a few regularly traded commodities take on the role of equivalent form of value. The money commodity is simply the continuation of this process, as it becomes the universally accepted equivalent form of value. But, its quite clear from what has been said that money does not have to take on this form of a money commodity. Indeed, if we take gold, then its use in that function meant that it took on the function of being proxy for abstract labour, i.e. the labour required to produce a given quantity of gold acted as the measure of abstract labour contained in every other commodity. But, its obvious that this does not apply today, because this link to gold no longer exists.
The value of a Pound or Dollar no longer has any connection to gold or to the labour-time required to produce it. The Pound coin or Dollar Bill, is simply a statement of a claim on a given amount of social labour-time. But, the same condition applies, if more of these claims on social labour-time are printed than the value of commodities requires for circulation, then these tokens will be correspondingly devalued.
Are gold coins that are hoarded money, only to the extent that any other commodity that has value is money. In other words, an ounce of gold, has value, and acts as a store of value, which is one of the functions of money, but hoarded diamonds also act as a store of value, as does a store of baked beans. To the extent that none of them are functioning as currency, they do not act as money, because such function is itself a requirement of money. Today, such commodities do not even act as unit of account. The unit of account in each economy is the basic unit of currency, such as the Pound or Dollar, and ultimately, the value of each Pound or Dollar is determined by the claim on social labour-time it actually represents, i.e. the total labour-time divided by the quantity of notes of that denomination in circulation multiplied by the velocity of circulation.
So, if the total value of 1 million commodities in circulation is 1 million hours, and 1 million notes are put in circulation, with the velocity of circulation being 10, the value of each note will be equal to 0.10 hours, no matter what the face value of the note may say. If £1 is originally equal to 1 hour of labour-time, then ten times as many notes have been put into circulation than is required, i.e. they cannot possibly represent the equivalent form of the value of the 1 million hours of value represented by the commodities to be circulated. The value of each note must then be devalued by a factory of ten. Where the price of the commodities, initially had a price of £1, with only 100,000 such notes in circulation, each circulating on average ten times, now, with 1 million notes in circulation, the price of each commodity unit will be £10.
The value of currency in circulation can never be greater than the value of the commodities for which it acts as equivalent form of value. In the case of gold, or silver, the excess is simply taken out of circulation. For fiat currencies, the value of each token is itself devalued, and manifest in an inflation of prices.
Boffy wrote: “Are gold coins that are hoarded money, only to the extent that any other commodity that has value is money. In other words, an ounce of gold, has value, and acts as a store of value, which is one of the functions of money, but hoarded diamonds also act as a store of value, as does a store of baked beans. ”
^ Money itself doesn’t have to take the form of a coin or circulate. You stress above all else money’s function of means of payment, so that you consider every commodity in that function (of means of payment, barter) as money, but this is wrong for under the early barter system (that you mention), and even in modern times under the barter system like Nazi-Germany set up for foreign trade, there is one commodity-money, namely in the function of measure of value (to whose value all bartered goods are compared, even though the money itself is not present at the exchange). You’d probably call this function the ‘unit of account’, though this is non-Marxist (as is your term ‘store of value’ btw). Hoarding is a function of money alone, and not of every commodity (that has a shelf life).
The paragraph I cited from Marx indicates (I claim), that money’s function of hoarding is more important than its mobility as coin (and means of payment). Here it’s again:
“… the function that money performs of a perpetuum mobile of circulation. But so soon as the series of metamorphoses is interrupted … money … is transformed … from coin into money.”
Boffy wrote:
“…money does not have to take on this form of a money commodity. Indeed, if we take gold, then its use in that function meant that it took on the function of being proxy for abstract labour, i.e. the labour required to produce a given quantity of gold acted as the measure of abstract labour contained in every other commodity. But, its obvious that this does not apply today, because this link to gold no longer exists. The value of a Pound or Dollar no longer has any connection to gold or to the labour-time required to produce it.”
^ You are conceiving of money here solely as coin and means of payment, for it is patently not obvious, that gold no longer fulfills money’s function of measure of value. Gold coins were debased and there were money tokens in the past (a point you brought up), but that does not mean, that gold no longer was the measure of value; debasement is a weakening of the existing “link/connection” of the debased coin to gold, and likewise today, a Pound or Dollar represents more or less gold content, this fluctuation (in gold content) being the connection (just as the level of debasement of coins in the past was the “connection” to gold).
“Money itself doesn’t have to take the form of a coin or circulate. You stress above all else money’s function of means of payment, so that you consider every commodity in that function (of means of payment, barter) as money, but this is wrong for under the early barter system (that you mention), and even in modern times under the barter system like Nazi-Germany set up for foreign trade, there is one commodity-money, namely in the function of measure of value (to whose value all bartered goods are compared, even though the money itself is not present at the exchange).”
In that case Marx was also wrong, because in TOSV, he says explicitly that all commodities are money! And read Capital I, Chapter 3 on the development of a money commodity as universal equivalent form of value. Its simply not true that initially there is a single money commodity. Exchanges between tribes/primitive communes takes place initially on the basis of the values of the commodities being exchanged measured in labour-time, ie. the relative value form.
Under barter the unit of measure of value is labour-time, not some equivalent form of value, in the shape of commodities. Its why in TOSV, Chapter 17, Marx sets out why Say’s law can only apply under such barter, where supply creates its own equal demand, whereas, as soon as a money commodity is introduced, this is no longer the case, because the money can itself be hoarded, rather than spent or consumed.
On the question of coin and money, all this is saying is that the money commodity is taken out of circulation. If its hoarded, the consequence of this is that the velocity of circulation is reduced. If its melted down for bullion or converted to some other commodity, then the amount of currency itself is reduced.
“You are conceiving of money here solely as coin and means of payment, for it is patently not obvious, that gold no longer fulfills money’s function of measure of value.”
Absolutely not. If you think gold still acts as proxy for abstract labour then please tell me how many labour hours are required to produce an ounce of gold, so that we can know how much abstract labour is contained in other commodities? If, as in fact is the case, no one actually knows this information – which is in any case continually fluctuating, and is at any one time totally unrelated to the market price of gold, which varies according to demand and supply, then in what meaningful sense does it fulfil that function?
It doesn’t, and it doesn’t need to. Even international transactions and payments have long since ceased being paid in gold or related to the price of gold, instead being based upon payment in currency with fluctuating exchange rates. The value of each currency is not determined by its relation to gold, but by the quantity of currency put into circulation, in relation to the value is to act as equivalent form for, and so moves in tandem essentially with changes in national rates of productivity.
“Pound or Dollar represents more or less gold content, this fluctuation (in gold content) being the connection (just as the level of debasement of coins in the past was the “connection” to gold).”
No, it absolutely doesn’t. It wasn’t the case after Bretton Woods, when the value of a Dollar was fixed artificially at $30 to 1 ounce of gold, and other currencies set against the Dollar accordingly, and it hasn’t been the case since 1971, when that currency regime collapsed, and gold went from its official price of $30 to $800 in 1980, only to fall back to $250 by 1999, and then to rise to over $1,000 in the early noughties, and then to nearly $2000 in 2011.
It certainly wasn’t the case that the Dollar circulation fell dramatically when the gold price fell, or that the labour-time required for its production rose when the gold price rose. The Dollars in circulation did not fall dramatically, for example, when Gold fell from nearly $2,000 an ounce in 2011, to around $1200, in the following years.
Any relation between currencies and the value of gold today is purely accidental. Currencies simply act as money tokens doing what they always done, which is to act as a claim on a proportion of total social labour.
Boffy wrote: “Its simply not true that initially there is a single money commodity. Exchanges between tribes/primitive communes takes place initially on the basis of the values of the commodities being exchanged measured in labour-time, ie. the relative value form. Under barter the unit of measure of value is labour-time, not some equivalent form of value, in the shape of commodities.”
^The point is that, in the period after some single money commodity has already emerged (ie a period comprising thousands of years) “barter” continues to operate, as I set out, namely the function of measure of value is fulfilled by one money commodity, while the commodities being “bartered” serve at most the function of means of payment, but, given that this is not the primary function of money, are not therefore money itself. Thus, when there’s an archeological absence of coins during some period in a place, this can’t be taken as indication of a non-monetary economy (I would criticise Engels’ claim in the supplement to vol.3, where he thinks still the 19th German peasant and artisan exchanging goods is somehow a pre-monetary barter based on equal labour-time – I think that, on the contrary, such “barter” was already conducted with reference to the measure of value of an established precious metal, and was not like the initial barter in pre-history which you’re thinking of).
Boffy wrote: “Its why in TOSV, Chapter 17, Marx sets out why Say’s law can only apply under such barter, where supply creates its own equal demand, whereas, as soon as a money commodity is introduced, this is no longer the case, because the money can itself be hoarded, rather than spent or consumed.”
^ This sounds like a Keynesian view of crisis as caused by the rentier or unwilling investor (/hoarder). You mentioned that under primitive barter, there was exchange based on trust or credit, but if that were so, that would sound already like a modern bill of exchange, just that in the primitive case, it is a promise to “pay” with commodities of an equal value, while in the modern case, it is a promise to pay with money. The existence of “trust” or promises to pay, doesn’t preclude crises.
Boffy wrote: ” If its melted down for bullion or converted to some other commodity, then the amount of currency itself is reduced.”
^ And why would this ability to hoard money need be the cause of crisis?
Boffy wrote:
“If you think gold still acts as proxy for abstract labour then please tell me how many labour hours are required to produce an ounce of gold, so that we can know how much abstract labour is contained in other commodities? If, as in fact is the case, no one actually knows this information – which is in any case continually fluctuating, and is at any one time totally unrelated to the market price of gold, which varies according to demand and supply, then in what meaningful sense does it fulfil that function?”
^ As I understand it, Engels’ point (in the supplement to vol.3) about the introduction of (precious metal) money, was that therewith people began to lose the information (of labour time) in commodities (and money), and took as their reference just the price itself. Prices (or the people on the market) don’t require knowledge about labour-time. The rate of convertibility of money tokens into gold today is not fixed, but as I said, it was not fixed in the past with debased coins either, and anyway is irrelevant to the question of labour-time magnitude (the state can arbitrarily set its national standard of price at a certain gold quantity, while today the market decides this).
Boffy wrote: “Even international transactions and payments have long since ceased being paid in gold or related to the price of gold, instead being based upon payment in currency with fluctuating exchange rates.”
^ That’s just the function of coin and means of payment, which long before the 20th century already predominately (percentage-wise) was fulfilled by bills of exchange (and today is not paid even in currency, but by means of clearing for over 90% of daily international payments iirc).
Boffy wrote: “The value of each currency is not determined by its relation to gold, but by the quantity of currency put into circulation, in relation to the value is to act as equivalent form for, and so moves in tandem essentially with changes in national rates of productivity.”
^ The existence of a relation of the value of a unit of currency to gold is what I claimed, not what the exact magnitude of this relation is or how this relation is determined (and yes, I imagine this currency’s own total quantity would play a role in such determination).
Boffy wrote: “[“Pound or Dollar represents more or less gold content, this fluctuation (in gold content) being the connection (just as the level of debasement of coins in the past was the “connection” to gold).”] No, it absolutely doesn’t. … The Dollars in circulation did not fall dramatically, for example, when Gold fell from nearly $2,000 an ounce in 2011, to around $1200, in the following years. Any relation between currencies and the value of gold today is purely accidental.”
^ The relation is seemingly accidental, or fluctuates as I said. In the years following 2011 the gold content of the Dollar rose, and you argue, if there was truly any connection to gold, this should should have decreased the quantity of dollars in circulation (as each dollar now represented more gold content/value, and so presumably less of them were required for the needs of commodity circulation). A decrease of the quantity of Dollars didn’t happen, so there is no meaningful relation with gold, QED. I think Sam Williams has made more serious attempts at verifiable/empirical criteria for the relation, than me. If there was decrease of Dollars (after 2011), this would prove gold is still the money commodity for you. But for my part, I don’t claim to provide precisely how the relation is determined.
“The point is that, in the period after some single money commodity has already emerged (ie a period comprising thousands of years) “barter” continues to operate, as I set out, namely the function of measure of value is fulfilled by one money commodity, while the commodities being “bartered” serve at most the function of means of payment, but, given that this is not the primary function of money, are not therefore money itself.”
Except that isn’t the case. When a single money commodity arises, it is then used as unit of account, store of value, and means of payment. Its why soon after such a money economy develops, precious metals take on the role of that money commodity.
Your interpretation of Engels’ comments about exchanges in 19th century German villages is wrong. Engels is not saying that such represented a pre-money economy, quite the contrary. What he is describing is that these exchanges, most of which would have been undertaken by the payment of money, are conducted on the basis of exchange value, not prices of production, because this is not yet capitalist production.
“This sounds like a Keynesian view of crisis as caused by the rentier or unwilling investor (/hoarder).”
Maybe it does, but that is what Marx says, and its undeniably true, however, in relation to the consumer not the producer.
Marx says,
““It can therefore be said that the crisis in its first form is the metamorphosis of the commodity itself, the falling asunder of purchase and sale.”
(Theories of Surplus Value Part 2, Chapter 17, p 510.)
And,
“If the crisis appears, therefore, because purchase and sale become separated, it becomes a money crisis, as ‘soon as money has developed as means of payment, and this second form of crisis follows as a matter of course, when the first occurs.” (TOSV2 p 514)
And,
“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.” (TOSV2 p 505)
“The existence of “trust” or promises to pay, doesn’t preclude crises.”
Nor did I say that it did. The distinction is payment with commodities as against payment with money, whether a money commodity such as gold, money tokens, such as gold coins, paper tokens or credit money. In other words is it a barter economy or a money economy.
“And why would this ability to hoard money need be the cause of crisis?”
See Marx’s explanation in the comments above, i.e. we have C-M, on the part of producer A who sells their output to B. But, no corresponding M-C, when A holds on to the money rather than buying the commodities of equal value from B, who anticipated selling them to A, as the real basis of their ability to purchase in the first place. If you read my book marx and Engels’ Theories of Crisis you will see I deal with this at length, based on Marx’s analysis in TOSV, and in Capital II, in particular.
So, in Capital II, Marx sets out that its not just a failure to pay that leads to the circuit being broken, but even failure to pay within the required time for the value of production to be reproduced, and so on.
There is also Marx’s analysis of the role of price and income elasticity of demand. For example,
“Say’s earth-shaking discovery that “commodities can only be bought with commodities” simply means that money is itself the converted form of the commodity. It does not prove by any means that because I can buy only with commodities, I can buy with my commodity, or that my purchasing power is related to the quantity of commodities I produce. The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.”
(TOSV, Chapter 20)
Or variations in demand and supply arising from differences in productivity in different spheres.
“By the way, in the various branches of industry in which the same accumulation of capital takes place (and this too is an unfortunate assumption that capital is accumulated at an equal rate in different spheres), the amount of products corresponding to the increased capital employed may vary greatly, since the productive forces in the different industries or the total use-values produced in relation to the labour employed differ considerably. The same value is produced in both cases, but the quantity of commodities in which it is represented is very different. It is quite incomprehensible, therefore, why industry A, because the value of its output has increased by 1 per cent while the mass of its products has grown by 20 per cent, must find a market in B where the value has likewise increased by 1 per cent, but the quantity of its output only by 5 per cent. Here, the author has failed to take into consideration the difference between use-value and exchange-value.”
(Theories of Surplus Value, Chapter 20)
You didn’t answer the question about in what meaningful way gold continues to act as a proxy for abstract labour, and so the basis of determining value and exchange-value. Marx and Engels point was that a quantity of gold came to act as a proxy for a given amount of abstract labour. But, this only continues to be the case when gold remains the basis of the monetary system. Today it isn’t. As Marx describes there is no need of any such relation. All that is required is a representative of social labour-time. Today that representative takes the form of the various currencies.
You haven’t shown any connection between gold and international payments. Quite the contrary, which seems to undermine your argument.
“The existence of a relation of the value of a unit of currency to gold is what I claimed, not what the exact magnitude of this relation is or how this relation is determined (and yes, I imagine this currency’s own total quantity would play a role in such determination.”
Yes, you have claimed it, but failed to provide either any evidence to support that claim, or any logical explanation of how that relation is supposed to function. So again, for example, I ask how do you explain the wide swings in the value of gold compared to currency units between 1999, and 2021, a period when currencies have continued to be issued in increasing quantities, but during which time the price of gold has moved from $250 an ounce to nearly $2000 an ounce, back down to $1200 an ounce, and then back up to over $2000 an ounce?! The price of production of gold has not changed by such amounts during that time.
I’ve looked at some of Sam Williams arguments, and to be honest they look closer to a Misean/Austrian School theory of crack up boom than the Marxian theory of crises. They share the same gold fetishism.
> “… in what meaningful way gold continues to act as a proxy for abstract labour, and so the basis of determining value and exchange-value. Marx and Engels point was that a quantity of gold came to act as a proxy for a given amount of abstract labour. But, this only continues to be the case when gold remains the basis of the monetary system. Today it isn’t. As Marx describes there is no need of any such relation. All that is required is a representative of social labour-time. Today that representative takes the form of the various currencies.”
^But in what meaningful way do the fiat currencies serve as “representatives” of abstract labor time? They are constantly “printed” and speculated against stocks, commodities and each other. Prices of goods and services are heavily influenced by multiple factors such as governments’ tariffs and subsidies, commercial banks’ credit and loan extensions, lack of market competitiveness, etc.
Assertions, such as “commodity prices are very closely proportional to labor content”, to put it simply, are baseless, and plain circular arguments:
Why are prices such as they are? – Because proportions. – But how do we know the proportions? – From the prices.
And if I remember correctly, Marx did say that a proxy for abstract labor was required for the law of value to operate. That’s why he stated that it would be impossible for money and credit to detach completely from gold or some other money commodity. That’s why Sam here says that “if … Marx was correct, … “non-commodity” money is simply impossible as long as commodity production and therefore capitalism exist.”
Well, first of all, commodity production does not equate to capitalism. Secondly, another thing Marx said was that capitalism was likely to be discontinued at some point in the future due to the tendency of the rate of profit to fall… Which leads us to a rather logical solution to this token money conundrum. Namely, that the future is here and that the present mode of production is no longer to be called capitalism. It is something else entirely. The law of value is no longer operational in any shape or form (and hasn’t been for a while now, possibly even prior to 1971).
The Germany’1923 monetary disaster, which is invariably brought into these discussions, may no longer be relevant either, because bourgeois economists have had almost a whole century to figure out ways to keep inflation under control, and they did just that, the results of their studies manifesting in the form of MMT. For starters, Germany had to pay its debt (WWI reparations) in foreign currencies which was the main reason for the paper mark to collapse; the US and EuroZone don’t face this issue, so they can print as much as they like.
Another important conclusion of MMT is that as long as only a small fraction of the “printed” money reaches the actual consumers, the prices of consumer goods will remain stable, and in case of emergencies, unemployment may be used as a “safety valve” to cool off the inflation (bogus lockdowns should prove quite handy in this regard…). Of course, prices of stocks, real estate, etc. will go exponential. But who cares, as that’ll only mean the rich getting richer, and the poor poorer, which is the whole point, isn’t it?
And, by the way, bitcoin could theoretically serve as a money commodity. Because it takes a lot of electricity to run the algorithm.
Boffy wrote: “When a single money commodity arises, it is then used as unit of account, store of value, and means of payment. Its why soon after such a money economy develops, precious metals take on the role of that money commodity. Your interpretation of Engels’ comments about exchanges in 19th century German villages is wrong.”
^ I don’t think so. Here’s an excerpt from ‘Money, treasure-building’ (Kautsky 1927), which bolsters my point, namely that money’s function of means of payment (and coin) is subordinate, and can be fulfilled in “barter” even by ordinary commodities, but without therewith those commodities becoming the money commodity:
In the beginnings of commodity traffic it often happens that the money commodity serves only as measure of value, as expression of the price of commodities, without there being an actual payment with money, and with exchange being a natural exchange [in products, without the intervention of actual money].
The ancient Egyptians for example already used copper and gold (not silver) in the third millennium BCE as money commodity and as the general measure of value of commodities. But the commodities whose value was measured in money were mostly exchanged in kind against each other.
So in one of these exchange transactions, for example, a bull was exchanged. Its value was set at 119 copper utnu3 (14.4 kilograms of copper). For it was given in exchange a reed mat computed at 25 utnu, 5 measures of honey at 4 utnu, 8 measures of oil at 10 utnu, and seven other things for the remainder.
Here copper functioned only as measure of value. It would have functioned as means of circulation if the owner of the bull had been paid 119 copper utnu for it and had then bought the mat and the other things with them.
The fact that copper functioned in ancient Egypt more as a measure of value than as a means of circulation probably derived from the fact that copper was wanted too much as a use value. Precisely this fact made it very suitable as money commodity, but it prevented, as long as its production was not very extensive, its utilisation as a means of circulation, because as long as it circulated as such, it was of course not industrially usable.’
Boffy wrote: “Maybe it does, but that is what Marx says, and its undeniably true, however, in relation to the consumer not the producer.”
^ In the Marx-quotes you provided I see no mention of hoarding. Marx in ch. 3 lists the functions of money, which, besides hoarding also includes eg world money. Those are functions of money, not of crisis.
Boffy wrote: “But, this only continues to be the case when gold remains the basis of the monetary system. Today it isn’t. As Marx describes there is no need of any such relation. All that is required is a representative of social labour-time. Today that representative takes the form of the various currencies.”
^ It’s not just representation, but the incarnation of abstract labour in the money commodity. By shifting to the word ‘representation’ what is stopping you from severing currencies’ relation/connection not just with the value of gold, but with the value of all commodities (including gold)? You may claim that the value of a unit of currency today is related to the value of commodities, but that determination is left undetermined, unexplained, without any meaning or empirical evidence. I don’t intend this as a criticism, perhaps if you had time for major research you could show the determination of such a relation.
Boffy wrote: “You haven’t shown any connection between gold and international payments. Quite the contrary, which seems to undermine your argument.”
^ Again, payments are one the functions of money, but not all of its functions (see eg hoarding or measure of value).
Boffy wrote: “So again, for example, I ask how do you explain the wide swings in the value of gold compared to currency units between 1999, and 2021 … The price of production of gold has not changed by such amounts during that time.”
^ The swings are rather in the gold content/value of the dollar. The reasons for the swings, I would guess, are not exclusively, mostly or even significantly caused by the production conditions of gold.
An economy in which commodities continue to be bartered is a barter economy, not a money economy. The fact that a single commodity emerges as a money commodity does not change this, and the example you have cited from Kautsky illustrates the point. Copper acts as unit of measure. In other words, here, it acts as a proxy for abstract labour. The value of commodities to be exchanged rather than being measured in labour-time, are now instead measured indirectly in copper. This then tells us how much of commodity B has to be given in exchange for a unit of commodity A, where previously this would have been determined by a direct measurement of the labour-time required for the reproduction of both A and B.
But, now, the unit of A is bought and paid for by the required quantity of B (or in the Kautsky example in exchange for a bull payment is made in reed mats, honey and so on) in other words, this remains a barter economy, and these commodities are used as means of payment, i.e. they act as money commodities, just as Marx points out that precisely because every commodity does represent a given amount of social labour-time (or now, here, copper) every commodity is also money!
“In the Marx-quotes you provided I see no mention of hoarding.”
Here it is again.
“At a given moment, the supply of all commodities can be greater than the demand for all commodities, since the demand for the general commodity, money, exchange-value, is greater than the demand for all particular commodities, in other words the motive to turn the commodity into money, to realise its exchange-value, prevails over the motive to transform the commodity again into use-value.” (TOSV2 p 505)
The motive to turn the commodity into money, and then to hoard that money, i.e. not to convert it back to some other commodity, is precisely what is described here, and the basis of supply exceeding demand.
“By shifting to the word ‘representation’ what is stopping you from severing currencies’ relation/connection not just with the value of gold, but with the value of all commodities (including gold)?”
Nothing at all, and in reality that is what we see. Its called inflation. The only requirement is that the amount of currency in circulation is equal to the value of commodities to be circulated, taking into account the velocity of circulation. I’d point you to Marx and Engels analysis of the currency circulation in Capital III, where they reject the ideas you are presenting, and which essentially follow the false theory of money put forward by Ricardo, which was the theoretical basis of the 1844 Bank Act.
Marx and Engels show how the amount of specie put into circulation was raised or lowered in accordance with the level of economic activity – even in relation to the time of year, to account for payments to be made at quarter days etc. As I set out before, if a piece of paper has the label £1, and £1 is set equal to 1 hour of abstract labour, then this fulfils exactly the same function, as if I say that 1 ounce of gold is equal to 1 hour of abstract labour. The only difference is this. If too many ounces of gold are put unto circulation, they are taken out. If too many £1 notes are put into circulation they are not, and so the actual value of each note falls below its nominal value of 1 hour of labour, and consequently the prices of commodities measured in Pounds rises. It is only a means of expressing a claim on social labour-time that is relevant, here.
I don’t need major research to show that empirical connection, because it was already given by Marx and Engels more than 150 years ago, as well as the theoretical explanation of it being given. I’d suggest reading Marx’s explanation in the Critique of the Gotha Programme of how this claim on social labour-time is effected in a communist society, via the issuing of paper certificates, giving such a claim. The same relation would exist, double the quantity of certificates issued, each promising the owner the ability to claim products with a value equal to a given amount of social labour-time, and its clear that shortages would arise, and the actual “prices” of those products would double.
No requirement for the intervention of gold is required in that case as a measure of values, and today, the amount of paper money performs – in this respect – the same function. If, commodities with a total value of 1 million hours are to be circulated in an economy, and ten million bits of paper are put into circulation (the velocity of circulation being 1) then each bit of paper has a value of 0.10 hours. No link to gold is required to obtain this relation. If I give this bit of paper the name £1, then 1 hour of labour is equal to £10, the commodities in circulation, with a total value of 1 million hours have a value of £10 million. If it amounts to 1 million units, then each unit has an average value of £10. Again no relation to gold is required to make this assessment.
If I double the number of bits of paper in circulation, but keep the denomination the same at £1, then its clear that the result must be that the total currency circulation now amounts nominally to £20 million, whilst the value of commodities remains 1 million hours. Consequently, an hour of labour now equates to £20, and the total value of commodities rises to £20 million, an average of £20 per unit. For all it matters, the world might never have heard of gold for these relations to exist. It is an irrelevance.
“The swings are rather in the gold content/value of the dollar.”
But, they clearly are not, otherwise, as more and more dollars were issued the price of gold in Dollars would have continually risen, but it didn’t. The reason is (partly) that the value of the Dollar is not determined by gold, but by the quantity of Dollars put into circulation relative to the value of all commodities to be circulated. Again see Marx and Engels in Cap.III on this in relation to currency issue by the Bank of England. Assuming a constant velocity of circulation, if the amount of currency in circulation rises faster than the value of commodities to be circulated (I’m simplifying here, because Marx also makes clear the requirements for payments rather than just circulation) then the value of the Dollar will fall, and commodity prices will rise as set out above. That includes a rise in the price of gold, as one of those commodities.
Now, as Marx sets out in the Contribution, having thrown this currency onto circulation the state has no control over where it goes. So depending upon the proportions of the denominations of the currency put into circulation, it may cause a rise in prices in some spheres and not others, or a greater rise in one sphere rather than another. A large rise in big denominations might find its way into the prices of more expensive commodities, but a relative shortage of small denominations might cause a lack of liquidity in that are, causing a tendency to deflate prices in that sphere.
Or, as I have pointed out for the last decade and more, the fact that central banks used QE to pump money directly into the purchase of financial assets and property, hyper inflated the prices of those assets, and drained liquidity out of general circulation, causing a disinflationary or deflationary pressure on commodity prices, particularly when combined with measures of fiscal austerity to reduce aggregate demand.
The other reason for the swings in the price of gold is quite simply, as with Bitcoin, speculation. When speculators feel that money printing will devalue the Dollar then they attempt to buy in advance those assets they think will rise as a result, be it shares, bonds, art, wine, Bitcoin or Gold. They do so to obtain capital gains. As is the nature of speculation the rise in demand for asset does indeed cause its price to rise, by more than would be the case due to simply the devaluation of the currency. the creation of such bubbles, then simply prompts further such speculation – pace Gamestop – as speculators fear being left out. Until there are no more bigger fools and the bubble bursts.
In short, therefore, far from the value of the Dollar being determined by gold, it is the other way around.
Boffy wrote: “…in other words, this remains a barter economy, and these commodities are used as means of payment, i.e. they act as money commodities, just as Marx points out that precisely because every commodity does represent a given amount of social labour-time (or now, here, copper) every commodity is also money!”
^ They “act as money commodities” in one function only, which is a subordinate one, but they do not act in the function of measure of value (here copper does), and so it does not make them money. Or do you want to claim that in this example they also acted as measure of value, like copper did? I doubt it. So then, even if they did not act as measure of value, in your opinion they were nevertheless money, just by acting as means of payment? But despite every commodity being money in your view, you then still call it a barter economy. Which of the Boffies can I even agree with? Perhaps you should not focus so much on a mere subordinate function of money.
Boffy wrote: “The motive to turn the commodity into money, and then to hoard that money, i.e. not to convert it back to some other commodity, is precisely what is described here, and the basis of supply exceeding demand.”
^ The word ‘hoarding’ is not mentioned in that Marx-quote. Hoarding occurs, as Marx cites an example from ancient Greece, in times of prosperity or luxury. As you noted, when there’s an excess of gold for circulation, hoarding occurs, and this is not what causes a crisis (as the ‘problem’ is that there is already more than enough demand to match the supply).
Boffy wrote: “Nothing at all, and in reality that is what we see. Its called inflation. … That includes a rise in the price of gold, as one of those commodities.”
^ Inflation weakens the link with the value of gold, as coin debasement did in the past. The gold content of a currency unit fluctuates (usually long-term diminishes). You refer me to the Gotha critique about labour certificates, but let’s stick to ch. 3 (capital vol 1) where Marx speaks about the mechanism of money tokens printing (above requirement of circulation) that you have in mind, and we see there is no mention that these tokens represent lesser quantities of social labour-time, but instead, he says they represent less and less gold content. But that does not mean the link is severed entirely, which is what you claim about gold. If you claim this about gold, then it can be claimed about the currency’s unit value to every commodity, which is what you here in this reply do (“in reality that is what we see”, ie we supposedly see in reality a severing of the link), but of course, your true position is that that this link is there (and not need even be proven by research).
“but they do not act in the function of measure of value (here copper does), and so it does not make them money. ”
Of course they act as measure of value. Every commodity is itself an equivalent form of value of any other commodity. That is what Marx sets out in Capital I, Chapter 3. Its also what he elaborates on in TOSV, Chapter 20. Its why, as he says, every commodity is money. Its why, for example, he talks in various places about the corn price of this or that commodity. Unless every commodity is itself an equivalent form of value of other commodities, and thereby, an indirect measure of that value, i.e. its exchange value, then it would be impossible for commodities to be exchanged on any rational, objectively determinable basis.
Bailey, of course, believed that to be the case, as Marx sets out in TOSV. he thought that the exchange value of commodities was purely subjective and momentary. Unless, every commodity has an objectively determinable relation to each other, based upon their relative values, then its impossible to establish any relation of them to some third commodity, i.e. a money commodity such as copper or gold. Its not their relationship to copper or gold that determines their exchange value, but the value contained in each commodity itself, and its relationship, thereby to every other commodity.
“Or do you want to claim that in this example they also acted as measure of value, like copper did? I doubt it.”
Yes, as set out above, that is precisely what I and Marx claim, because it is the basis of the equivalent form of value, and what makes exchange of commodities possible, whether their value is itself measured directly in labour-time, or indirectly as against some universal equivalent form of value such as copper.
“But despite every commodity being money in your view, you then still call it a barter economy.”
Yes, absolutely, because even if the measurement of value is undertaken indirectly, via a money commodity, such as copper, the condition you have described is one in which the basis of exchange is commodity for commodity C-C. All that has happened here is that instead of the exchange values of a Bull as against mats, and so on being established separately, they are all equated to the universal equivalent copper, giving them all a copper price, so that it acts as merely unit of account.
A money economy can only be said to exist when instead of the basis of exchange being C-C, an exchange of one set of commodities for some other set of commodities, it is instead C-M-C, in which the money commodity acts not solely as unit of account, but also as means of circulation and payment. It is precisely this condition, as against the condition of barter that means that its possible to have C-M, without M-C, being consequent upon it, and so in which the money is hoarded, held in reserve, or simply not thrown immediately back into circulation.
Indeed, if you look at Marx’s analysis in TOSV, Chapter 20, of crises of overproduction arising due to an underconsumption of fixed capital, this is precisely what he describes. In other words, Department II capitalists realise the value of wear and tear in the sale of their output, but because they do not need to physically replace this fixed capital for several years until it is worn out, they do not throw this money equivalent of the wear and tear back into circulation. It forms a reserve fund for amortisation, and consequently this value cannot form a component of the monetary demand for Department I output leading to under-consumption by Department II, and corresponding overproduction by Department I.
“There would be a crisis — a crisis of over-production — in spite of reproduction on an unchanging scale.”
He continues,
“This illustration of fixed capital, on the basis of an unchanged scale of reproduction, is striking. A disproportion of the production of fixed and circulating capital is one of the favourite arguments of the economists in explaining crises. That such a disproportion can and must arise even when the fixed capital is merely preserved, that it can and must do so on the assumption of ideal normal production on the basis of simple reproduction of the already functioning social capital is something new to them.”
“The word ‘hoarding’ is not mentioned in that Marx-quote.”
The activity of hoarding, of not throwing currency back into circulation most certainly is!!! And, what is more, without that activity, as Marx later goes on to demonstrate the development of commercial and usurers capital would not have been possible, for example. Nor later would the accumulation of productive-capital.
Hoarding, the retention of currency, occurs at all times once money economy arises, in place of barter economy. The miser creates hoards for the same of the hoard. A peasant might hoard currency, because they need to create a reserve to pay taxes or rents later in the year, or else needs to accumulate sufficient money funds to buy an additional horse, plough and so on. The merchant hoards money to turn it into money-capital, so as to expand their commodity-capital, and so appropriate additional profits. The money-dealing capitalist hoards currency, because they need a sufficient reserve to be able to conduct their business of changing money, of making payments and receiving payments. The money lending capitalist hoards money in order to be able to lend it at interest to those that need currency as means of payment.
And, as Marx explains in TOSV, Chapter 17, its precisely this act of hoarding money, of C-M, not leading to automatically to M-C, that means that Say’s law can no longer apply in such a money economy, and so production and consumption, supply and demand, use value and exchange value fall apart and create the potential for crisis, crises that repeatedly inflict themselves upon independent producers, leading to their bankruptcy and descent into the ranks of debt slaves, serfs and outright slaves.
“but let’s stick to ch. 3 (capital vol 1) where Marx speaks about the mechanism of money tokens printing (above requirement of circulation) that you have in mind, and we see there is no mention that these tokens represent lesser quantities of social labour-time, but instead, he says they represent less and less gold content.”
But, in Marx’s analysis, here, at a time when currencies were linked to gold, Marx proceeds on the basis established earlier that Gold acted as proxy for abstract labour, and so for the total of social labour-time. Look at Marx’s analysis of currency issue by the Bank of England in Capital III. It has nothing to do with gold, and on the contrary, Marx is damning of the fetishising of the link with gold, which characterised the position of Ricardo, which formed the basis of the 1844 Bank Act, and which led to the credit crunch and financial crisis of 1847 and 1857. Instead, Marx and Engels analysis is based upon the requirements of circulation dependent upon the value of commodities to be circulated, values which are themselves a function of their value, i.e. the social labour-time required for their reproduction, quite independently from gold, which acted merely as an indirect measure, itself continually fluctuating of those values.
“But that does not mean the link is severed entirely, which is what you claim about gold. If you claim this about gold, then it can be claimed about the currency’s unit value to every commodity”
That does not follow at all. The link between gold and the currency you assert is that gold remains the proxy for social labour-time, and so measure of value. Currency is then a function of the value of gold. But, if as I suggest gold no longer fulfils this function as proxy for abstract labour, then its quite possible for the currency to itself simply by-pass gold, and be itself the representative of value, and so of social labour-time. The link from any particular commodity to the currency is severed, but the currency now enjoys a link to social labour-time itself, and so to the value of every commodity.
In fact, that was always the case, as Marx describes A Contribution. If we take the condition when gold acts as money commodity, we have the following. If, there are 1 million commodity units in circulation, with a total value of 1 million hours of labour, and an ounce of gold represents 1 hour of labour time, then 1 million ounces of gold equals 1 million hours of labour-time, equal to total social labour-time. each commodity unit has an average price of 1 ounce of gold. If the velocity of circulation is 1, then 1 million ounces of gold must be put into circulation.
The gold, here, acts simply as the equivalent form of this total social labour-time, and anyone with an ounce of gold has a claim on 1 hour of social labour-time, contained in any of these commodities in circulation. But, the same is true if in place of the gold we put tokens. Superficially, if more tokens are put into circulation than the gold they purport to represent, then the value of the token will depreciate, it will represent less gold. However, gold itself, in the first place was only there to act as an equivalent form of value, to act as representative of the total social labour-time. The quantity of gold used as currency was itself a function of that total social labour-time, of the total value of the commodities to be circulated and its own value. In other words, had 2 million ounces of gold been thrown into circulation, it could not all have acted as currency, because it represented 2 million hours of social labour-time, when only 1 million hours of value existed as its equivalent.
I million ounces would have to have been taken out of circulation, otherwise 2 ounces of gold currency would be required to buy 1 ounce of gold as commodity. It is this relation to the total social labour-time that is determinant, and that does not change simply because gold itself is replaced by a token. It was not the fact that the gold content of coins diminished that reduced their value. A gold coin that contained only half the gold it purported to contain, could continue to circulate at full value, provided only that the relation between the total value of the currency in circulation did not exceed the value of the commodities they had to circulate, in other words, the total social-labour-time represented by those commodities.
What diminished the value of the coins was not the reduction in their gold or silver content, but was the fact that more of them were put into circulation, representing a greater quantity of total social labour-time, than was contained in those commodities, and expressed in their price. The inevitable consequence of that was that it was this excess circulation that resulted in the devaluation of the currency, not the fact that it contained less gold or silver. It is manifest in the only way it can be, in the inflation of the prices of commodities.
Looking at Marx and Engels analysis of the Bank of England currency issue, as dealt with at length in Capital III, the determination of how much currency to put into circulation, was not at all determined by the value of gold, but entirely by the requirements of circulation, i.e. by the value of the commodities to be circulated, which moved up and down from year to year, and at different times of the year. The linking of that, via the Bank Act, to gold, was seen by Marx and Engels as an act of idiocy. They describe, for example, the way, the economy and the currency issue became linked to the periodic arrival of the gold ship from Australia, whereby the arrival of gold from the colonies meant that more currency could be thrown into circulation, backed by these increased gold reserves.
But, just as tokens previously depended upon the total social labour-time to be circulated as represented by the commodities in circulation, so too today. It has no relation to the value of gold, nor to the reserves of gold held in the country.
As Marx puts it A Contribution,
“In the circulation of tokens of value all the laws governing the circulation of real money seem to be reversed and turned upside down. Gold circulates because it has value, whereas paper has value because it circulates. If the exchange-value of commodities is given, the quantity of gold in circulation depends on its value, whereas the value of paper tokens depends on the number of tokens in circulation. The amount of gold in circulation increases or decreases with the rise or fall of commodity-prices, whereas commodity-prices seem to rise or fall with the changing amount of paper in circulation. The circulation of commodities can absorb only a certain quantity of gold currency, the alternating contraction and expansion of the volume of money in circulation manifesting itself accordingly as an inevitable law, whereas any amount of paper money seems to be absorbed by circulation. ”
And, illustrating the point above that gold, here, itself acts only as a representative of social labour-time, Marx says,
“The token of value, say a piece of paper, which functions as a coin, represents the quantity of gold indicated by the name of the coin, and is thus a token of gold. A definite quantity of gold as such does not express a value relation, nor does the token which takes its place. The gold token represents value in so far as a definite quantity of gold, because it is materialised labour-time, possesses a definite value.”
Gold as currency represents only this quantum of social labour-time, a fraction of total social labour-time, and claim upon it, only because of its own value, as materialised labour.
As for proving the link between currency and social-labour-time via research, it is not necessary for several reasons. Firstly, the link was already established more than 150 years ago by Marx and Engels, not just theoretically, but on the basis of their own extensive research. I do not believe in unnecessarily reinventing the wheel. Show that Marx and Engels analysis of the relation between currency and total social labour-time was faulty, and I will agree with you on the need for additional research to prove some other relation.
But, secondly, the relationship, as Marx sets out in the Critique of the Gotha Programme can be logically no other than that described. Distribution is a function of production, and the total value of distribution can be no greater than the value of output, however, the distribution is effected whether by a money commodity, money tokens, or indeed tokens handed to producers in proportion to the labour-time contributed. If the total value of commodities/products to be circulated/distributed is 1 million hours, then the value of currency in circulation adjusted for the velocity of circulation can be no greater than 1 million hours, whether this is manifest directly in a certificate quantified in labour hours, or in money or a money token as a manifestation of exchange value.
If the total value of commodities to be circulated is 1 million hours, and 1 million identical scraps of paper are put into circulation, then with a velocity of circulation of 1, then the value of each scrap will be equal to 1 hour of labour, whatever the value of gold, however much gold may be held in reserves. Prove to me that a different relationship than this could exist, and I will accept the need for some other research, but logically no other relationship can exist.
Boffy wrote: “Looking at Marx and Engels analysis of the Bank of England currency issue, as dealt with at length in Capital III, the determination of how much currency to put into circulation, was not at all determined by the value of gold, but entirely by the requirements of circulation, i.e. by the value of the commodities to be circulated, which moved up and down from year to year, and at different times of the year.”
^ That currency being paper notes, not debased gold coins, for your scenario of debased gold coins acting as if full-valued (so long as not issued above circulation requirements) is not a realistic (stable and enduring) system. If you find in Marx (after 1848) such a claim about an actual country where debased gold coins functioned as if full-valued, let me know. For paper notes, your point is valid, and this point was understand by Ricardo himself. Marx’s criticism of the Bank Act had to do with issuance restriction set by reserves if I recall, but I’m not sure if Ricardo can be blamed for that.
“If you find in Marx (after 1848) such a claim about an actual country where debased gold coins functioned as if full-valued, let me know.”
This is besides the point. Marx certainly after 1848, emphasises that its not the fact that such coins were debased that prevented them acting at their full value, but the fact that authorities issued them in greater quantities than was supportable at their face value.
But Ricardo did not at all properly understand the difference between gold as currency and gold as commodity, and so linked the currency to gold in an unjustifiable way, which was the basis of the Bank Act, which required that the currency circulation be reduced when gold flowed out of the country and vice versa.
Marx and Engels most certainly did blame Ricardo for his faulty theory of money, which led to that, and which subsequently led to the credit crunches caused by the Bank Act, and the financial crises that resulted from it.
Boffy wrote: “Marx certainly after 1848, emphasises that its not the fact that such coins were debased that prevented them acting at their full value, but the fact that authorities issued them in greater quantities than was supportable at their face value.”
^ Can you provide a quote please?
Boffy wrote: “But Ricardo did not at all properly understand the difference between gold as currency and gold as commodity, and so linked the currency to gold in an unjustifiable way, which was the basis of the Bank Act, which required that the currency circulation be reduced when gold flowed out of the country and vice versa.
Marx and Engels most certainly did blame Ricardo for his faulty theory of money, which led to that, and which subsequently led to the credit crunches caused by the Bank Act, and the financial crises that resulted from it.”
^ The issue of gold reserves is not relevant to our main question of determination of currency unit’s value, as you yourself have admitted that in Marx’s time this was still tied to gold’s abstract labour (and in your view just no longer is tied to it today), so whatever criticism Marx had of Ricardo, it doesn’t bolster your claim, that is, Marx still held that the notes represented gold’s value. On this tangent of blaming Ricardo for the Bank Act, how this would still be relevant today in your opinion is, I imagine, if central bank policy took consideration of the “gold price” in setting discount policy, so eg, as you wrote, when after 2011 the “gold price” fell, the Fed should have (for some reason, perhaps inspired by Ricardo) contracted its currency, but it didn’t contract it, and this proves, in your opinion, that there is no more “link” of the currency to gold. That is, gold (at least the gold market “price”, as well as national gold reserve) apparently doesn’t exert an influence on the Bank’s policy decision today. Your point with bringing up the Banking Act is that gold (whether its “price” or reserve) didn’t exert an influence in Marx’s time on the currency’s value, but, if that is so, then nothing has changed today (ie why should the Fed, according to you, have acted after 2011 by restricting currency, when even the 19th century Bank of England didn’t act like that?).
I’m sure I could provide many quotes if I had time to look them out. Unfortunately, my time is limited, so I will give just some from “A Contribution”, which illustrate the point. For example, Marx quotes Franklin on relation to the fact that the silver sixpence in the UK was often only half-weight but continued to function as coin as though full weight.
“Benjamin Franklin, Remarks and Facts Relative to the American Paper Money, 1764, op. cit., p. 348: “At this very time, even the silver money in England is obliged to the legal tender for part of its value; that part which is the difference between its real weight and its denomination. Great part of the shillings and sixpences now current are by wearing become 6, 10, 20, and some of the sixpences even 50%, too light. For this difference between the real and the nominal you have no intrinsic value; you have not so much as paper, you have nothing. It is the legal tender, with the knowledge that it can easily be repassed for the same value, that makes three pennyworth of silver pass for a sixpence.”
(Note 8, Chapter 2c)
As Marx points out, however, with precious metal coins, this leads to a contradiction with the metal as commodity, because 1 ounce coin with a nominal value of 2 ounces of gold would buy 2 ounces of gold bullion. However, this does not apply with base metal or paper tokens, because their actual value is never equivalent to their nominal value, they are purely tokens.
This token appears as a token representing Gold – or silver if silver is the money commodity – but only because Gold has a risen as a money commodity acting as the measure of value, and representative of social labour-time.
“The token of value, say a piece of paper, which functions as a coin, represents the quantity of gold indicated by the name of the coin, and is thus a token of gold. A definite quantity of gold as such does not express a value relation, nor does the token which takes its place. The gold token represents value in so far as a definite quantity of gold, because it is materialised labour-time, possesses a definite value. But the amount of value which the token represents depends in each case upon the value of the quantity of gold represented by it.”
In other words, what the token actually represents is merely this quantity of abstract social labour-time, that was formerly represented by a quantity of gold.
So,
“Thus the token of value is effective only when in the process of exchange it signifies the price of one commodity compared with that of another or when it represents gold with regard to every commodity-owner.”
If we have C – M – C, where commodity A exchanges for a money token, and this money token exchanges for commodity B, then all that is required here is that A and B are of equal values, and the money token itself represents this same amount of value. It does not have to comprise the same amount of value, in the way a quantity of gold would have to do, but merely represent and be accepted as representing this amount of value, i.e. this amount of social labour-time.
But, in the case of paper money what determines this is the quantity of this paper thrown into circulation relative to the value of commodities to be circulated.
“How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given.”
In other words the quantity of gold coins put into circulation is a function of the value of commodities to be circulated, i.e. the total social labour-time it is to act as equivalent to. The primary determinant is the quantity of value, i.e. social labour-time that the currency is to act as equivalent for, be that currency gold coins or paper notes. In the case, of the former the quantity is dependent on the value of gold itself, but in the case of the latter which has no intrinsic value, it is simply a question of the number of notes, and their face value, i,e.
“The number of pieces of paper with a denomination of £5 which could be used in circulation would be one-fifth of the number of pieces of paper with a denomination of £1, and if all payments were to be transacted in shilling notes, then twenty times more shilling notes than pound notes would have to circulate.”
The labels £5 or £1, whilst historically were related to quantities of gold, relations long since divorced from the actual value of the note, are in reality only labels relating to a quantity of social labour-time, just as money itself arises out of the process of circulation of commodities, representing itself such a quantity of social labour-time, in material form.
“The rate at which a token of value – whether it consists of paper or bogus gold and silver is quite irrelevant – can take the place of definite quantities of gold and silver calculated according to the mint-price depends on the number of tokens in circulation and by no means on the material of which they are made. The difficulty in grasping this relation is due to the fact that the two functions of money – as a standard of value and a medium of circulation – are governed not only by conflicting laws, but by laws which appear to be at variance with the antithetical features of the two functions. As regards its function as a standard of value, when money serves solely as money of account and gold merely as nominal gold, it is the physical material used which is the crucial factor. Exchange-values expressed in terms of silver, or as silver prices, look of course quite different from exchange-values expressed in terms of gold, or as gold prices. On the other hand, when it functions as a medium of circulation, when money is not just imaginary but must be present as a real thing side by side with other commodities, its material is irrelevant and its quantity becomes the crucial factor. Although whether it is a pound of gold, of silver or of copper is decisive for the standard measure, mere number makes the coin an adequate embodiment of any of these standard measures, quite irrespective of its own material. But it is at variance with common sense that in the case of purely imaginary money everything should depend on the physical substance, whereas in the case of the corporeal coin everything should depend on a numerical relation that is nominal.”
These laws indeed appear not only to be turned upside down in the circulation of tokens of value but even annulled; for the movements of paper money, when it is issued in the appropriate amount, are not characteristic of it as token of value, whereas its specific movements are due to infringements of its correct proportion to gold, and do not directly arise from the metamorphosis of commodities.”
“it doesn’t bolster your claim, that is, Marx still held that the notes represented gold’s value.”
Actually, no, as the above quotes illustrate. The notes only represent the amount of gold coin that would otherwise have been required for circulation given the value of commodities, and the value of gold, with a given velocity of circulation. But, the gold coins themselves, here, only act as a proxy for abstract social labour-time, which is the primary determinant within the process of circulation of commodities, and existed prior to the development of any money commodity or coinage.
In fact, as Marx says, there is historical evidence of the development of pure tokens arising prior to the development of any money commodity such as gold. In effect what these tokens represented was credit money.
“Russia affords a striking example of a spontaneously evolved token of value. At a time when hides and furs served as money in that country, the contradiction between the perishable and unwieldy material and its function as a medium of circulation led to the custom of substituting small pieces of stamped leather for it; these pieces thus became money orders payable in hides and furs.”
The first commodity exchanges arise prior to any development of equivalent forms of value, and so are conducted on the basis of a direct comparison of labour-time required for production of the commodities to be exchanged. Yet, such exchanges often were undertaken on the basis of credit, with some token of the quantity of the commodity to be handed over assuming this function.
On Ricardo and the Bank Act, you have things back to front. Ricardo and the Bank Act required that if gold flowed out of the economy, so that there was less gold to back the paper notes in circulation, then the quantity of notes had to be reduced. This showed that Ricardo and the Bank Act did not distinguish between gold as commodity bullion, and gold as currency. So, when in 1847 as a result of crop failures in England and Ireland, Britain had to import agricultural produce from Europe, and paid for it with gold bullion, the Bank of England under the terms of the Bank Act, reduced the currency circulation. Faced with a reduced amount of currency in circulation, businesses began to hoard cash, to reduce credit, borrowing increased as credit was withdrawn, and interest rates spiked. At a time when Railwaymania meant that large profits following on the new economic boom as Britain exported textiles and opium to China, went into financial speculation. Calls on speculators having bought railway shares found them lacking cash, due to the rising interest rates, and need to cover the shortage of cash in their businesses as the credit crunch bit.
The linking of the currency to gold and the gold reserves was nonsensical as Mar and Engels described, because fundamentally the economy was booming, and all constricting the money supply did was to create an unnecessary financial crisis that inevitably flowed over into the real economy, with GDP falling by 37%. It led to Marx’s comment that no economic crisis can be prevented by Bank regulations, but they can certainly be caused by bad bank legislation. The correctness of that as shown by the fact that as soon as the Bank Act was suspended, the credit crunch ended, and the economy again boomed.
On Marx’s analysis, a fall in the price of gold, with a currency determined by the amount of gold required for circulation, should be, not a curtailment of the currency, but an expansion of it, because if the value of gold falls, and so the value of gold coins falls, more of them have to be put into circulation to act as equivalent to the value of commodities to be circulated.
But, its not falls in the price of gold that has caused central banks to increase currency issuance! QE was driven by a desire to hyper inflate asset prices, by devaluing currencies and using increased currency issuance to buy assets and so inflate their price. Far from the arrow of causation flowing from gold to currency, it has been from currency to gold, as devalued paper currencies found their reflection in a higher Dollar price of gold.
“That is, gold (at least the gold market “price”, as well as national gold reserve) apparently doesn’t exert an influence on the Bank’s policy decision today.”
And, you want to argue that it does! Where is any evidence for that at all? When Gold went from $30 an ounce in 1971 to $800 an ounce in 1980, according to Marx’s theory, this rise in the value of gold by a factor of more than 25, would mean that the number of gold coins in circulation should have been reduced to 1/25 of what it was in 1971, and correspondingly the amount of paper currency representing those gold coins should also then have been correspondingly reduced. Is that what happened? Of course, not. The quantity of money tokens thrown into circulation during that period expanded hugely, as the US used the printing of paper currency to pay for the Vietnam War, and Johnson’s Great Society programme of massive welfare expansion. It was that expansion of the currency circulation, i.e. as Marx says the quantity of tokens put into circulation not their material composition, that led to the devaluation of the Dollar, and the consequent rise in the Dollar price of gold along with the Dollar price of all other commodities – inflation.
Similarly, when gold prices rose from $250 an ounce to $2000 an ounce after 1999, the quantity of coins in circulation would have been reduced 8 fold, and so the quantity of money tokens should have been reduced accordingly. Was it? Absolutely not it was the period of the greatest ever amount of currency expansion seen in history!
Incidentally, the question is far more complicated than can be addressed in these terms, because there is also the question of the increase in commodity circulation itself and so on, and whether an increase in money supply can lead to an expansion of the economy itself so that the increased amount of currency is absorbed. I did some original research on that more than 40 years ago, showing a high correlation between increased money supply and GDP growth with a 2 year lag, using constant prices to remove any inflationary effect.
It is of course necessary to examine that more deeply than simply any such correlation. For example, it requires an examination of the different conditions under which any such expansion occurs. Are there under used resources that are brought into use, for example. But, I suspect that this reflects the difference between GDP and output values. In other words, as Marx describes looking at Took’s analysis of prices and currency, its not just currency required to cover distribution of revenues (GDP), but also to cover the purchase of replacement of constant capital, and accumulation of constant capital.
Although as Marx describes Department I firms replace their constant capital in kind mutually, and so this growing element of output value is not shown in GDP figures which only cover new value created by labour, the Department I firms reproduce their constant capital via a series of exchanges mediated themselves by money, and so sufficient currency must be in circulation to facilitate these exchanges. Put another way, if the velocity of circulation was 1, the currency issue would always have to exceed the value of GDP by this amount of the value of c in total output.
So, I suspect that the 2 year lag in the increase in the money supply to GDP is simply a reflection of the fact that there was capital accumulation taking place within total output, as profits were used to accumulate constant capital, and as a growing proportion of c, in total output itself required a growing amount of currency to circulate it that was not reflected in GDP, until this accumulation of capital itself becomes reflected in an expansion of employment, and new value creation, which is then reflected in GDP.
Boffy wrote: “For example, Marx quotes Franklin on relation to the fact that the silver sixpence in the UK was often only half-weight but continued to function as coin as though full weight.”
^The scenario you imagined was of debased gold coin, not silver token coin. Your claim was:
“A gold coin that contained only half the gold it purported to contain, could continue to circulate at full value, provided only that the relation between the total value of the currency in circulation did not exceed the value of the commodities they had to circulate, in other words, the total social-labour-time represented by those commodities.”
^ My question for Marx-quotes related specifically to gold coins, which you answered (quote): “Marx certainly after 1848, emphasises that its not the fact that such coins were debased that prevented them acting at their full value, but the fact that authorities issued them in greater quantities than was supportable at their face value.”
^It seems you answered not about gold coins, but silver token coins, so I hope this is a tacit agreement on your part, that there is no such Marx-quotes to back up your scenario for debased gold coins.
Boffy wrote: “In other words, had 2 million ounces of gold been thrown into circulation, it could not all have acted as currency, because it represented 2 million hours of social labour-time, when only 1 million hours of value existed as its equivalent. I million ounces would have to have been taken out of circulation, otherwise 2 ounces of gold currency would be required to buy 1 ounce of gold as commodity.”
^ The same problem would occur in case of debased gold coin which in your scenario acts at full-value: people would try to buy pure gold bullion (say 1 ounce) with debased gold coin (real gold content 1/2 ounce, nominally supposed to represent 1 ounce) or with base token, although in reality no seller of gold bullion would accept the debased gold coin or base token as payment. In history the king/state often just outright confiscates the gold of the bullion bankers, and forces them to accept token/debt notes, but the state’s force does not extend throughout the world market (so it’s debased gold coin, would not be accepted by foreign sellers at its nominal value, but instead at its real gold content). Just domestically and without sellers of bullion, there would simply develop different “prices”/agio on the gold coins, depending on the extent how debased each coin is.
As for the silver token coins or paper, I repeat myself: “For paper notes, your point is valid, and this point was understand by Ricardo himself. ”
Boffy wrote: [“it doesn’t bolster your claim, that is, Marx still held that the notes represented gold’s value.”] Actually, no, as the above quotes illustrate. … But, the gold coins themselves, here, only act as a proxy for abstract social labour-time, which is the primary determinant within the process of circulation of commodities, and existed prior to the development of any money commodity or coinage. In fact, as Marx says, there is historical evidence of the development of pure tokens arising prior to the development of any money commodity such as gold. In effect what these tokens represented was credit money.”
^ But specifically in Marx’s own time the notes acted as a proxy for gold (which incarnated abstract labour) – that you agree, and so whatever his criticism of Ricardo or the Banking Act was, it is irrelevant to our debate. You refer to primitive tokens (based on trust) long BEFORE Marx’s time, as you did already in one of your earlier posts, and then I offered a comparison to the modern bill of exchange (which is “backed” by ordinary commodities). You re-affirm your view (of primitive credit money), and my argument in response was, that credit money does not preclude crisis (which you simply agreed with), though let me press the implication. In your view in a barter economy without money-commodity these primitive credit tokens represented abstract social labour-time (and that is I imagine here your claim – because you want to show that abstract labour doesn’t always need incarnation in one money-commodity, like gold in Marx’s time); the implication then, is that crises could occur even in a barter economy (where you said Say’s of supply creating its own demand is valid, ie where crises can’t occur), and this seems ridiculous. So you argue the reason crisis (an interruption of the exchange of commodities) can’t occur is that those primitive tokens can’t be hoarded, unlike gold, because those tokens are useful only when they’re spend, so they will always be in “circulation” (and there won’t be a shortage of such tokens representing abstract labour, for producers desiring to obtain them). I responded by pointing to the modern bill of exchange, which is always in circulation (and can’t be hoarded). You simply agreed with me, that credit/trust doesn’t preclude crisis. As a reminder, I wrote: “The existence of “trust” or promises to pay, doesn’t preclude crises.” And you responded:
“Nor did I say that it did. The distinction is payment with commodities as against payment with money, whether a money commodity such as gold, money tokens, such as gold coins, paper tokens or credit money. In other words is it a barter economy or a money economy.”
Though when it suits you, you speak of the existence of credit money (representing abstract labour) in a barter economy.
—
Boffy wrote:
[“That is, gold (at least the gold market “price”, as well as national gold reserve) apparently doesn’t exert an influence on the Bank’s policy decision today.”]
And, you want to argue that it does! Where is any evidence for that at all? … when gold prices rose from $250 an ounce to $2000 an ounce after 1999, the quantity of coins in circulation would have been reduced 8 fold, and so the quantity of money tokens should have been reduced accordingly. Was it? Absolutely not it was the period of the greatest ever amount of currency expansion seen in history!”
^ Again, you misunderstand my primary claim about a “link to gold” today, which is just about gold incarnating abstract labour (and paper currency unit fluctuating in its gold content), with a secondary claim about the specificities of how that determination of the gold content of a currency unit looks (or even should look). I already said, that I, personally, here, do not provide a precise determination of the link of the value of a paper unit to gold. Neither did you feel it necessary in your case to do so for a link to national productivity, although now you seem to mention you did do some research 40 years ago.
The objection you offer (engaging the second claim), that the Fed’s policy after 2011 should have reduced its currency. Other conditions equal, if the Fed had reduced its currency, this would have meant the dollar’s gold content remained equal. But I’m not claiming the dollar’s gold content today in fact remains (or even should remain) equal. I’m saying it fluctuates, and how it fluctuates is probably, I imagine, yes influenced by the Fed’s policy, though again, I don’t make claims about the determination.
Its pedantic to complain that the example I gave from Marx in relation to the statement from Franklin is about Silver rather than gold. But, Marx says the same thing in relation to gold coins. The fact that they were below weight does not stop them circulating at full value. The reason being that what circulates, be it a gold coin, a base metal coin, or a paper note is not money, but merely a token representing money. It circulates at full value provided, as Marx says, only the same quantity of these tokens is put into circulation as would have been the amount of gold, silver, copper or whatever the money commodity might be, would have been.
“How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given.”
A paper note that purports to have the value of 1 ounce of gold, actually contains no gold whatsoever, its paper, just as in Franklin’s quote given by Marx, the silver sixpence that was half weight contained absolutely nothing, neither silver, copper nor paper, for the half of its value that it claimed to represent. If the paper note contains no gold whatsoever, compared to what it purports to represent, then it clearly cannot be the lack of this gold, which in any way could explain any depreciation of its value. What does explain that depreciation, precisely what I said, and which Marx describes in the quotes given, i.e. the fact that more of these notes are put into circulation than would have been the case with the gold put into circulation, or in reality the social-labour-time, which that gold as a currency acts as the equivalent form of value for.
“The rate at which a token of value – whether it consists of paper or bogus gold and silver is quite irrelevant – can take the place of definite quantities of gold and silver calculated according to the mint-price depends on the number of tokens in circulation and by no means on the material of which they are made.”
“Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for a total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it was brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise of prices would be merely a reaction of the process of circulation, which forcibly placed the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.”
In other words, as soon as you have a fiat paper currency, the state can and does throw this paper into circulation with no respect to the gold which might previously have acted as currency. A relation of this paper to gold, undoubtedly still exists, because gold itself is a commodity, and like all other commodities has a value. But, the role of the currency is simply to act as the representative of social labour-time in the process of circulation, to act as the general equivalent of the commodities being exchanged C – M – C. The market price of gold as with any other commodity is then determined by the quantity of paper currency put into circulation, as is the market price of any other commodity, setting aside fluctuations in demand and supply. What enables such fiat currency to fulfil this function, it is the faith that society has in it acting as such a stable currency – in fact, even with the experience of QE, paper currencies such as the Dollar have done that more effectively than could gold over the last thirty years, as its market price has indeed fluctuated wildly as a result of speculative demand, much as is happening now with Bitcoin.
If society loses faith in the stability of the currency because too much paper is printed, as with Weimar, Zimbabwe etc., then it ceases acting as currency, and society seeks alternative means of fulfilling that function, by hoarding durable commodities, reverting to barter, or using other stable currencies such as the Dollar, Euro etc., as the currency with which to undertake circulation.
“It seems you answered not about gold coins, but silver token coins, so I hope this is a tacit agreement on your part, that there is no such Marx-quotes to back up your scenario for debased gold coins.”
Not at all, for the reasons set out above. I gave the Marx quotes showing that it is not the material of the token, or the quantity of gold on it that is determinant of its value, but the quantity of the tokens put into circulation! That is precisely what Marx says in relation to paper currency acting in place of a former gold currency, i.e.
“The rate at which a token of value – whether it consists of paper or bogus gold and silver is quite irrelevant – can take the place of definite quantities of gold and silver calculated according to the mint-price depends on the number of tokens in circulation and by no means on the material of which they are made.”
“The same problem would occur in case of debased gold coin which in your scenario acts at full-value: people would try to buy pure gold bullion (say 1 ounce) with debased gold coin (real gold content 1/2 ounce, nominally supposed to represent 1 ounce) or with base token, although in reality no seller of gold bullion would accept the debased gold coin or base token as payment.”
No it doesn’t, for the reason Marx gives above that its not the lack of gold in the token that is significant here, but the quantity of tokens. You make the same mistake as Ricardo highlighted by Marx, which is that you fail to distinguish between gold as commodity, and gold as money/currency. Suppose 100 ounces of gold circulate as currency, as 100 coins. Each is of full weight. Each of these coins would buy 1 ounce of gold as commodity. Suppose, now that I replace the coins with paper notes. The notes contain not one ounce of gold, and so have been more or less totally debased. They are worthless. However, I issue 100 of these notes each purporting to represent 1 ounce of gold. These 100 notes will still buy 100 ounces of gold, the same as if full weight gold coins had been the currency. Suppose, I put 50 of these notes into circulation, each purporting to represent 1 pounce of gold? In actual fact, despite the face value of the note, each note would, in circulation appreciate to twice its face value, despite containing no gold whatsoever. Why? Because each note to act as currency, must now represent twice as much social labour-time. These 50 notes must still circulate the same amount of value that previously was circulated by 100 notes, or 100 gold coins. Each note, because it now represents twice as much labour-time, is now equal to 2 ounces of gold, despite its face value, and despite containing no gold, and no intrinsic value of its own. Similarly, as Marx describes in the quotes above, if 200 notes were put into circulation each note would represent only half the labour-time as previously, would represent only half the value of commodities as previously, so that the prices of all these commodities, including gold would be doubled.
Let us take the case you give of a debased gold coin. Provided the quantity of these is that required to circulate the value of commodities, as if they were in fact full weight, then as Franklin and Marx say, there is no reason why they will not act as full weight coins, precisely because as coins, i.e. tokens of value, and not as commodities, their value is determined by their face value (provided they are issued in the correct quantity), not the actual commodity value of the material of the coin itself. That is why a zinc coin can circulate as a representative of a 1 ounce gold coin, despite having no gold content, and no equivalent material value, just as can a paper note. If worthless pieces of paper circulated in a given quantity can buy gold, or any other commodity, up to a value determined by the quantity of the paper put into circulation, then clearly an underweight gold or silver coin can fulfil that same function, provided the same condition applies that no more of them are put into circulation than is determined by their face value, and the value of commodities to be circulated, i.e. by the total social labour-time they are to represent. There is no reason why a bullion dealer will not accept a debased gold coin, in exchange for an ounce of gold bullion, because the value of the debased coin is not determined by its gold content or lack thereof, any more than the value of a paper note is determined by its lack of gold content or other commodity value. The bullion dealer accepts in exchange for 1 ounce of gold, not 1 ounce of gold, but a money token (be it gold,silver, copper, zinc or paper) that acts as a representative of a given amount of social labour-time, also equal to the value of 1 ounce of gold.
There is no more reason for the bullion dealer not to accept such a token than there is for the seller of any other commodity. The bullion dealer does not intend to melt down the gold coin as bullion, but can simply use it themselves as coin, as though it continued to be full weight, in just the same way as, if they had sold bullion in exchange for a paper note, they would not use the paper note as toilet paper, or some other use for paper as a commodity, but would use it in its specific use value as currency, to buy other commodities, and again the sellers of these commodities would take it from them at its full value, despite its material content being worthless. Sellers would only cease doing so if the currency itself became debased, and the cause of that is that more of it is put into circulation than is required by the value of commodities to be circulated.
The reason there was a problem in this regard with gold coins which does not occur with paper, and or with base metal, is that with precious metal coins, if too many are in circulation then the value of the coin itself falls – and this applies to full weight gold coins too as Marx describes – below the bullion price. In other words a full weight 1 ounce gold coin would have a value less than the value of 1 ounce of gold as bullion. To an extent, the problem is resolved by hoarding, and so a reduction in the velocity of circulation. However, anyone seeking to convert gold coins to bullion would have a problem if they were holding underweight gold coins. The same problem would arise if they tried to use such underweight coins to pay for imported goods. But, that is because the gold here acts not as coin, but as bullion. Its for that reason as Marx says that periodically, where gold or silver coins dropped below a certain percentage of their full weight, prescribed by law, the coins were simply taken out of circulation and replaced with full weight coins, or else a new currency issue set the face value of the coin at a lower gold value, reflecting the lower gold content of the coins, and then more coins were put into circulation of this lower value. This does not occur with paper money tokens, because they have no intrinsic value, they cannot be taken out to be converted to bullion. They remain in circulation, and their value is simply reduced, so that prices rise correspondingly. Again your comment suggests that like Ricardo you do not understand this difference between gold as coin and gold as commodity/bullion.
“the implication then, is that crises could occur even in a barter economy (where you said Say’s of supply creating its own demand is valid, ie where crises can’t occur), and this seems ridiculous.”
It would be if what you set out is what I said. What I said is that a barter economy is one in which money, or money tokens does not intervene as currency in the circulation of commodities. In the example you previously gave from Kautsky, of a bull being valued indirectly in terms of a money commodity (copper), along with the other commodities (reed mats etc) that were to be exchanged for the bull. Having acted as ideal money/unit of account, copper, however, plays no part in the exchange of the bull for the mats and so on. They are directly exchanged one for the other the proportions determined by their exchange values measured in copper. This is barter not money economy. If I go to a car boot sale, and have a china bull on my stall, whose price is £10, and another trader comes along who has various items they want to sell, also with a value of £10, we might in the same way directly exchange these commodities of equal value, measured indirectly in currency units, without any currency taking part in the exchange whatsoever. It is simply a barter exchange. My supply of a China Bull creates its own equal demand, in my simultaneous purchase of the commodities being sold by the other trader, whose sale of their items creates its own equal demand, in the purchase of my bull. That is Say’s Law in action.
But, if instead of this direct barter exchange, I take ten pounds in currency, of whatever type, for the bull, I have no requirement to use this £10 to buy commodities from the other trader. This is a money transaction, not a barter transaction, and so my supply of a bull does not create its own demand. I am free to simply sit on this £10, and not create any demand for the other commodities, and unable to sell those commodities, the other sell is unable then to create demand. Say’s Law does not apply in this money economy, where Money intervenes as currency to mediate these exchanges. So, if we have a situation in which there is barter, i.e. A exchanges commodities directly with B, then its clear that no crisis of overproduction of commodities can occur, because both in their own supply create the equal demand for the other.
If then we take the example of the tokens referred to in the Russian example, what does this mean? Either these tokens are currency, in other words, A sells lumber and gets several strips of leather representing an equivalent amount of value, and so this is a money economy, not a barter economy, in which case Say’s Law does not apply, or else these strips of leather, are simply a form of credit meaning that B will provide an equal amount of vodka at some agreed later date. In that case, this remains a barter economy, and the token acts simply as a form of credit between the two sellers. Now, of course, B might be a rogue, and renege on the agreement, in which case, they would be hunted down and so on. Any such situation is not what is meant by a crisis of overproduction of commodities. It is why, as trade expands and participants in the trade are not known to each other, in place of such credit instruments actual commodities with intrinsic value take on the role of money commodity and of currency, until such time that the state itself can stand behind a fiat currency.
“So you argue the reason crisis (an interruption of the exchange of commodities) can’t occur is that those primitive tokens can’t be hoarded, unlike gold, because those tokens are useful only when they’re spend, so they will always be in “circulation” (and there won’t be a shortage of such tokens representing abstract labour, for producers desiring to obtain them).”
No that is not what I said. I said a crisis of overproduction of commodities can’t occur in a barter economy because Say’s Law applies, and so supply creates its own demand. I only buy commodity A from seller X, on condition they simultaneously buy my commodity B, of equal value. The question of primitive tokens as against gold or silver or anything else has nothing to do with it. If strips of leather act as currency, just as with paper currency, I can just as easily hoard them, as I can gold, in order to use them later either for the purpose of consumption, to pay taxes and so on, or I might use them as means of payment to cover past debts, or I might use them as capital, for example lending them at interest to someone else who is in need of currency.
In fact, today, the large majority of people when they engage in such hoarding – creation of reserves/savings – do so by the hoarding of such paper currency, or its digital equivalent in bank deposits. They do not hoard gold, which is the preserve of the wealthy and speculators.
“Though when it suits you, you speak of the existence of credit money (representing abstract labour) in a barter economy.”
Why do you see a contradiction here. It is because, like Ricardo, you fail to distinguish between money as unit of account, and money as currency. It is quite possible to have an economy in which the process of exchange of commodities, as described in Marx’s Value Form analysis, goes through the stage of the Relative Form of Value in which all commodities are indirectly measures against each other, through the Equivalent form of Value, in which several regularly traded commodities become the indirect measure of the value of other commodities, and out of which eventually arises a single money commodity, which acts as universal equivalent form of value, but without this commodity actually taking part in circulation as currency, as with your Kautsky example.
The role of this money commodity as unit of account is determined by its own well known value, and frequency with which it is traded as a commodity, which enables it to act as universal equivalent. The same characteristics may not make it ideal as currency. Initially, therefore, commodities being exchanged of equal value measured in this general equivalent may only do so on the basis of barter. Only when some money commodity that can also act as currency rather than merely unit of account, or else when some other token for this commodity is developed to act as currency, does this intervene in the process of exchange, so that barter gives way to money economy C – M – C. Its not a question of whether some general equivalent acts to measure prices/represent abstract social labour, but whether once such relative prices have been established the actual exchange of commodities is undertaken on the basis of barter C-C, or on the basis of a money economy C – M – C.
But that is not good enough on the basis of the claims you are making, and your inability to defend them in relation to the facts as seen in the real world. Marx’s theory is quite clear. At one point, gold acts as the proxy for abstract social-labour-time. It is the general commodity representing all others, the universal equivalent form of value. Instead of measuring value directly in labour-time, the value of commodities is measured indirectly as exchange value, firstly on the basis of the Relative Form of Value, then the Equivalent Form of Value, then via a money commodity, as money prices. The amount of gold required to act as currency, is then determined by the total value of commodities to be circulated – equal to the total social labour-time embodied within those commodities – divided by the value of gold multiplied by the velocity of circulation. If the value of commodities rises (either more commodities produced, or the labour-time required to produce them rises), and the value of gold remains constant, more gold must be put into circulation and vice versa. If the value of gold rises, and the value of commodities to be circulated is constant, then less gold is required for circulation, and vice versa.
So, the point is simple, on Marx’s theory when contrasted with your claim. If, as you claim the measure of abstract labour-time remains gold, today, and it is this which is determinant in relation to the currency, if we see the price of gold rise, then this should mean that less of it is put into circulation to circulate the value of all other commodities, and vice versa. But, according to Marx’s theory a paper currency simply replaces the gold coins that otherwise would have circulated, and does so to the extent that only the corresponding quantity of paper currency is placed in circulation. If as you claim the determinant is the price of gold, then a rise in the price of gold should result in a contraction of the money supply, because each note represents a greater value of gold – as would have done a gold coin – meaning less are required to act as general equivalent of the value of commodities to be circulated/total social labour-time. The only ryder to that would be that more currency would be required if the value of commodities volume x unit value, had risen.
Now, you cannot explain then why, after 1971, or after 1999, when the price of gold rose massively, we did not see a corresponding contraction of the money supply, which Marx’s theory requires if gold continues to play the role you claim it does as the determinant of the currency. After 1971, there was certainly no huge expansion of the quantity of commodities in circulation, because this was a period of crisis and stagflation. Unit values of commodities generally fall, because there is an average 2% p.a. rise in labour productivity. So, although after 1999, the onset of a new long wave upswing certainly saw a large increase in the volume of commodities produced, this was partly offset by rapidly falling unit values, but the increase in volumes was not comparable to the increase in the price of gold.
I can understand that you can legitimately argue that you have no measurement of the quantitative relation you assert exists between the value of gold, and the currency, but surely you see that there should at least be a positive correlation between the two, ant not,as actually exists, in these cases, a negative correlation! The simple answer is that it was not an increase in the value of gold which then established a relation to the currency, which should, having appreciated, been significantly reduced in circulation, but the very opposite happened. It was, rather a massive increase in the volume of currency in circulation, which meant that each Dollar represented less social labour-time, and so more Dollars were required as the equivalent of all other commodities, including gold, which leads to the rise in the Dollar price of gold.
The arrow of causation runs fom the currency to gold, in the modern economy, not vice versa. States issue currency to meet their requirements for the circulation of commodities, and since at least 1913, when the Federal reserve was created, to ensure that the general price level does not fall – deflation – which would be detrimental to monopoly profits, and was required by Fordism to ensure that inflation adjusted wages rose by less than the increase in productivity, so that although living standards rose, so did the rate of surplus value, because necessary labour declined, as a result of rising productivity. That was necessary because, as Marx and Keynes both noted, money wages are sticky downwards.
I don’t think there is much else useful to be added to this discussion which seems to be heading for going round in a circle. I also do not have further time currently to continue it. I have been intending to produce a blog post on the research on money supply I did forty years ago, as I recently accessed it from my archives that had been in storage.
I think this discussion has still further potential, but out of consideration of your time-constraints, as well as keeping the order and attention on Sam Williams blog-post, perhaps it’s best we will have to just agree to disagree for now.