A Reply to ‘Anonymous’ on Gold’s Monetary Role Today

This is in response to a comment on my post entitled “From Money as Universal Equivalent to Money as Currency.” Scroll to the bottom of that post to read the comment.

I want to thank ‘A’ for taking my blog seriously enough to raise these interesting and important questions.

First, I should clear up some misunderstandings. It’s not correct to say that the amount of token money that can be issued “is limited (if it is to hold its value) by the amount of gold in circulation.” Token money replaces gold in circulation and implies that gold has fallen out of circulation and accumulated in hoards both official and private.

“It seems to me,” ‘A’ writes, that “if the assumption about gold underpinning token money was accurate in the past, I am unsure about its continued accuracy.”

This gets to the heart of the matter. Marx demonstrated that when social labor is broken up into independent private labors, labor embodied in the products must take the form of value. He also showed that value must, in turn, take the form of exchange value. The exchange value of one commodity must always be measured in terms of the use value of another.

With the development of commodity production, one or a few commodities emerge as the universal equivalent that measures the exchange values of other commodities in terms of its own use value. This is the essence of Marx’s theory of value and price.

Now I agree with ‘A’ that we cannot prove things by quoting authorities, even such an authority as Marx. I would recommend that ‘A’ and other readers of my blog who are confused on this point—and I would bet that would include most, probably all, readers—go back and seriously read or re-read the first three chapters of volume I of “Capital.”

Do so with a critical spirit. Just because Marx says something doesn’t make it true. But if there are flaws in Marx’s logic, what are they? This is not an easy read. You cannot simply read it and understand it. You have to think about it for days, weeks, months, years and, in my case, even decades.

You might come to the conclusion that Marx was wrong or that I have misunderstood him. Both are possible. But if so, you have to explain why either Marx was wrong, or where I have misunderstood him, or perhaps both.

But if you come to the conclusion that Marx was correct, I think you will see that “non-commodity” money is simply impossible as long as commodity production and therefore capitalism exist. If it were possible, we would all be living in a very different world.

I know my views on this subject are shared by very few. They will be dismissed as absurd by the professional economists. These economists make no pretext of upholding Marx’s views on labor value, let alone on money and price, and least of all, of course, on surplus value. They were taught in their student days that Marx was scientifically refuted more than a century ago.

More importantly, for those of us who uphold the continued relevance of Marx’s ideas, my views would be rejected by most Marxists. These would include not only “critical Marxists” who reject Marx’s value theory, but even Marxists who claim to uphold it.

Most of this latter group of Marxists seem to believe that token money somehow represents abstract human labor directly, rather than representing a commodity that must actually be produced by value-creating human labor. But exactly how is token—paper—money supposed to do this?

‘A’ wants to know how the total amount of token money can be valued. First, you take the price of gold measured in troy ounces in terms of U.S. dollars. For example, the dollar price of gold is now about $900 per troy ounce. Therefore, one dollar represents about 1/900 of a troy ounce of gold. Then, you multiply that number by the total number of token dollars in existence. This will give you a certain weight of gold that can be expressed in either troy ounces, grams, metric tons, or similar unit of weight. This will give you the gold value of the total number of token dollars in existence.

You can carry out the same procedure with all the other token currencies. Since gold, like other primary commodities, is quoted on the London gold market and similar exchanges in terms of U.S. dollars, you begin with the price of a troy ounce of gold in dollar terms as quoted on these markets. Then divide the dollar price of a troy ounce of gold by the value in terms of dollars at the current exchange rate of the currency whose gold value you want to determine. This gives you the amount of gold measured in terms of troy ounces that a unit of a given currency represents at any instant in time. You then multiply the quantity of gold in terms of troy ounces that a given unit of a particular currency represents by the total amount of token money in existence denominated in that currency.

Once you have completed this operation for all the token currencies, you add up the total amount of gold measured in terms of some unit of weight—you would probably want to convert troy ounces into a larger unit such as metric tons or the numbers would get very big—and you get the amount of gold that all the token currencies added together represent. If you know how much abstract human labor is necessary to produce that gold under the present conditions of production, you then arrive at exactly how much abstract human labor measured in terms of whatever unit of time you prefer that the total amount of token money in existence represents.

`A’ questions my assertion that the total amount of token money that can be issued is limited by the total amount of gold that exists at any given time on the world market. Does the total amount of token money exactly equal the quantity of gold or of monetary gold that exists on the world market? I am sure it doesn’t exactly. This is an area where some empirical research would be very useful.

Capitalist governments issue many useful economic statistics—though their accuracy should always be viewed critically. But they don’t issue any statistics on the relationship between the total amount of gold in existence and the total amount of token currency. If anybody wants to come up with such an estimate, it would be a very useful contribution. This would make it possible to test the exact relationship between the growth in the quantity of gold and the the value of the total quantity of token money on the world market.

I think that economic history does offer many examples of the value of paper currencies, whether the individual units or the total quantity of the currency, dropping suddenly due to a loss of “confidence” by the capitalists without any change in the quantity of either gold or the currency in question. Conversely, if the capitalists suddenly gain “confidence” in a given token currency, that currency can suddenly represent a lot more gold than it did before.

But even a regular bourgeois economist would agree that if the growth in the quantity of gold—which is determined by the level of gold production—lags behind the growth in the quantity of token money, gold will sooner or later rise in price in terms of that token money. And conversely, if the growth in the quantity of gold exceeds the growth in the quantity of token money, the price of gold in terms of token money will drop. We don’t need the Marxist law of labor value for that. All we need is the concept of supply and demand.

However, since our ordinary bourgeois economist has no concept of labor value, he or she will assume that the change in the price of gold will have very little overall effect on the economy, since gold has a rather limited role as an industrial raw material. I also think most of today’s Marxists would agree with the bourgeois economists on this point, if indeed they have given it any thought at all. This is the view I am challenging.

It is generally assumed by economists of all schools, whether Marxist or bourgeois, that it is the total quantity of commodities in circulation that determines how much token money can be issued before the token money depreciates and unleashes inflation. If this is true, however, why couldn’t the “monetary authorities” that issue token money be able to abolish crises of overproduction simply by increasing the quantity of token money whenever such a crisis threatens?

Or to put the question in more concrete and contemporary terms, why didn’t the U.S. Federal Reserve System greatly increase the growth rate of the supply of U.S. dollar token money—the monetary base—after the initial panic of August 2007? If the value of token money is determined by the quantity of commodities in circulation, they should have been able to increase the quantity of token money sufficiently to head off both the financial panic of last fall and the current deep global recession that followed. What held them back?

Because so many Marxists accept the view, or at least don’t challenge the claim, that “non-commodity money” now exists that represents value directly, not through a specific money commodity such as gold, they can’t understand how generalized crises of overproduction can still occur. That is why many of our modern Marxists economists prefer to speak of the “overaccumulation of capital” but rarely if ever refer to the “overproduction of commodities.”

Finally, ‘A’ asks, “If token money can only be issued on the basis of the total gold in existence – how is that quantity valued? On what basis? Surely if more money is issued then the cost of gold goes up and then more money can be issued on that inflated valuation.”

By “cost of gold,” ‘A’ obviously means the price of gold in token money. Even if the total amount of gold is considered fixed in terms of weight at a given point in time, won’t a rise in the price of gold in dollars, euros, yen, and so on raise the amount of gold in existence in terms of dollars or other units of token money? If the price of gold were to rise from around $900 to $1,800 in the near future, the total amount of gold measured in dollars will indeed double. Therefore, how can the quantity of gold limit the amount of dollars the U.S. Federal Reserve can create?

The simple answer is that it can’t, any more than the empty coffers of the Reichbank in Germany in 1923 limited the total amount of marks that the German Reichbank could create in that year. However, the total quantity of token money that the German Reichbank created during that fateful year, though it was almost unmeasurably large in terms of marks, represented very little money in terms of gold or U.S. dollars. In those days, the U.S. dollar was not a token currency but instead was defined as a fixed weight of gold.

One question that I have not dealt with yet is the whole question of international trade and the effects that surpluses and deficits in the balances of payments have on the amount of gold, and through gold the amount of abstract human labor, that currencies represent as exchange rates fluctuate on the world currency market. I will take up this question in the next series of posts, which will deal with world trade. These posts will examine David Ricardo’s theory of international trade and the views of John Maynard Keynes.

I hope this clarifies some of the issues, or perhaps better yet, sets the terms of the discussion.


10 Responses to “A Reply to ‘Anonymous’ on Gold’s Monetary Role Today”

  1. charley2u Says:

    “how can the quantity of gold limit the amount of dollars the U.S. Federal Reserve can create?”

    Interesting article by Larry Summers on how the fiat price of gold affects interest rates of fiat currency: http://www.gata.org/files/gibson.pdf

    Maintaining low fiat interest rates implies discouraging the monetary use of precious metals. The gold-prices of commodities must generally follow the fiat-prices of commodities.

  2. BarryM Says:


    I have enjoyed all your posts on this blog immensely. I have plenty of questions, but I wanted to first ask a rather simple one. You write, “Token money replaces gold in circulation and implies that gold has fallen out of circulation and accumulated in hoards both official and private.”

    Would you include gold in the form of jewellery as a private hoard?

  3. charley2u Says:

    I am interested in the implication of non-commodity money as a measure of value. This has been a point of controversy among “marxists”.

    Admission: I tend toward the view – rather adamantly – that non-commodity money cannot be a measure of value. But, I would like to hear your take on this.

  4. Matt Says:


    In one paragraph it is said:

    “Most of this latter group of Marxists seem to believe that token money somehow represents abstract human labor directly, rather than representing a commodity that must actually be produced by value-creating human labor. But exactly how is token—paper—money supposed to do this?”

    But later:

    “It is generally assumed by economists of all schools, whether Marxist [assuming we are talking about the Marxists above] or bourgeois, that it is the total quantity of commodities in circulation that determines how much token money can be issued before the token money depreciates and unleashes inflation.”

    In the course of argument, the concept of (total) abstract human labor has been substituted by the concept of the total (value) of commodities in circulation. But these are two different quantities!

    It is not hard to show that in any given timeframe, the total expended abstract labor time – the only real basis for the “pricing” of labor power by capitalists – cannot possibly equal the total value of commodities produced in that same timeframe:

    1) There are contributions to value of the naturally occurring use values not the product of human labor, as Marx stated in general and analyzed in detail in his theory of differential land rent in the third volume of Capital;

    2) The time measurement of abstract labor cannot measure the intensity of labor, that is under capitalism, raising the ROE by raising the intensity of expenditure of labor power. But clearly this will raise the total mass of value produced in that timeframe;

    3) The contribution of constant capital which, though certainly a product of past abstract labor and as such, a circulating commodity – including in production, where it transfers its value from commodity A to commodity B – is not *living labor* in the given timeframe, and therefore not time-measurable abstract labor.

    So while it is agreed that those LTOV Marxists who base their monetary theory of capitalism on the total value of circulating commodities are wrong, those of us who are ABSTRACT LTOV Marxists, rather than “embodied” LTOV Marxists, post-Ricardians rather than Ricardians, who IOW hold that the concept of abstract labor corresponds to something really existing – social labor, without which reality socialism would be a Utopia – a real, measurable reality that, furthermore, as the source of value together with nature, under conditions of fully developed capitalism and the “real subsumption” of labor power, nature, science, techniques of measurement etc., presents an excellent basis – a fractional basis, just like specie – for a non-specie money supply. Since this fractional basis is not equivalent to the total value of circulating commodities, its is not hard to conceive of the over-extension of credit together with the overproduction of commodities and the overaccumulation of capital.

    It was on this same basis, BTW, that the great bourgeois plagiarizer of Marx, J.M. Keynes, wrote his “General Theory..”, and explains why the title of that work associates money and interest with *employment* – rather than being titled “Money, Interest and Gold”. For not only did Keynes pilfer the essence of Marx’s theory of crisis, substituting the concept of over-accumulation of capital with the subjective mysteries of a growing “liquidity preference” with the “advance of civilization”, he also absconded with Marx’s concept of abstract labor in relating employment to the money supply, in terms of a “full employment” – one that did not adversely affect the rate of profit – that would provide the maximal fractional base for an expanded money supply, thereby offering capitalists a tradeoff between upper limits on the rate of profit as a result of absolute surplus value extraction, but note not from that of *relative* surplus value, and expanding the total *mass* of profit. So we have it: Marx as a cynical prop for the edifice of a discredited neoclassical economics.

    That is why Keynes is so deeply hated by reactionary economists, even though his theories are nothing but an extension of the same. But today “mainstream”, that is, neoclassical, economics is again in discredit in the eyes of anyone with a brain – only this time Keynesianism gets to share in the discredit.

  5. GrkStav Says:

    Contemporary money has to precisely NOT be a commodity that is produced by value-creating human labor. No singular material entity, produced with and through value-creating human labor can, by itself, be the expression of ‘value’, except by convention.

  6. kapitalism101 Says:


    I have decided to finally read through some of your old posts to try to understand your position on gold as measure of value in contemporary capitalism. I of course understand the theoretical arguments for why money as measure of value must be a commodity but I do not understand on what basis you claim that contemporary paper currency is a token for gold. The only arguments I have found thus far on your blog are:

    1. because it makes sense in Marx’s logical framework.

    Perhaps, perhaps not, but this doesn’t actually explain how gold functions as measure of value today.

    2. because we can observe price ratios between dollars and gold bullion.

    Of course we can observe the ratio between dollars and any commodity so I don’t see how this explains how gold functions as a measure of value.

    3. because people hoard gold as an alternative store of value.

    This may be the strongest argument but again people hoard lots of other commodities too to hoard value and there can’t be multiple commodities acting as the measure of value. Hoarding commodities to store value could also be a sign that capitalists, in times of uncertainty, look to commodities to provide money functions, but that the current dollar regime does not allow them to fulfill these money functions in a way that would restore stability to the monetary system.

    If you could point me to any posts of yours that address these questions I would be quite interested to read them.

  7. Jon B Says:

    Brendan, I think you will find the answers to your questions in Chapter 3 of Volume I of “Capital,” especially Part C, “Coin and symbols of value.” Sam is simply basing himself on Marx in regard to the laws governing token money, which is what contemporary paper currency is.

  8. scott.f Says:

    As private producers of commodities we can’t know whether the imaginary prices (assumed values) of our products are actually being offered for sale at their value. We have to allow the prices to correct themselves on the market,ultimately and increasingly in the immediate analysis that is the world market. It has to be a material standard as this lies outside of the exchange value equalisations that allow for prices to be standardised. A yardstick or measure of value must stand apart from what it is measuring if it is to function. In Marx’s terms the form of appearance of labour(value) called exchange value of commodities must be expressed in the use value of the general equivalent.

    So if more money is printed without a corresponding material increase in the agreed general equivalent then money as a means of circulation will depreciate in value.

    Inflation then in the prices of all other commodities

    If we could decide that the symbol money can be sundered absolutely from its material base and replaced with a pure symbol ( a Maynard?) This will of course have the happy consequence that value now values value directly (in our dreams) and that the link between Labour and value is rendered even more opaque as prices remain imaginary with no exterior material yardstick to measure their quantities.

    Is this wrong-headed

  9. Jon B Says:

    Marx explains the laws governing token—”symbolic”—money in Chap. 3, Vol. I of “Capital.” These are objective laws, and we can’t “decide” to “sunder absolutely” token money from its material base except by terminating its role as legal tender, or, alternatively, by creating unlimited quantities of it, thereby destroying its monetary role altogether. The German central bank did just this in 1923, resulting in the German mark becoming completely worthless. Prices measured in terms of such a “currency” become not opaque but entirely meaningless.

    Paper money cannot act as a symbol of value without representing a given quantity of use value of an actual money commodity that itself represents a given quantity of abstract human labor—measured in terms of some unit of time. An all too common error is to assume that paper money somehow symbolizes value (a given quantity of abstract labor measured in terms of some unit of time) without being tied—though not necessarily at a legally fixed parity—to a particular commodity that has a definite value.

    Market prices (exchange values in terms of money) are not imaginary but also reflect objective laws that Marx explained. They fluctuate around labor values (or “direct prices,” more precisely prices of production), while rarely actually equaling them.

  10. scott.f Says:

    cool Jon, thank you for that and i think that this is what Marx says as far as i understand the first 6 chapters.

    That value is the amount of abstract human labour.

    That the value of money is the price of production of the money commodity-gold(?).

    This commodity as money has no price ( but of course it does have value) and its weight as material is the yardstick against which other products of labour are measured “in the head”(priced).

    In its infinite divisibility it becomes the form of appearance of abstract labour as such- as social labour split into the immense heap of commodities.

    it is the process of constant exchange mediated by the money-commodity that allows the expected price of diverse producers of a commodity to move around that commodities value( though not necessarily coincide) and become the agreed market price.

    So money is a real abstraction from value(labour) and like other commodities it is its use vale that is the form of appearance of the exchange value of the commodity for which it is exchanged.

    Please correct me if i continue to misread.

    We can tho’ decide to behave irrationally and against the objective laws but the consequences can be appalling. A strong theory not only replaces a weak one but shows not only how it is mistaken but also why. It was the keynesians desire to just print money that sent me back to the old man in the first place.

    The “sundering” fantasy was only an imaginary foray into the ideology of money as symbol of all other commodities and why bourgeois economists find it so appealing(i.e obvious and natural). It seems to me that it does want value to value value directly and is what we would expect of people who have been immersed for thirty years in finance capital and the M-M’ circuit.It was also a joke at my own expense as I have read this stuff over and over again and always failed to spot that the money commodity is a commodity necessarily. I had assumed it was simply a stepping stone to money as convention. It seems to me as I work through the text that similar misreadings are a constant problem in marxist debate- the transformation “problem” was news to me and worried me until I got fed up of all the bickering and equations and went back to see what Marx actually said.No problem. My conclusion is that no pacts with ideological enemies is ever going to lead to change. Thats why we live in a democracy.

    This blog is proving very useful in sticking close to the actual theory and not the “new-improved-versions” that lie depreciating in the academic warehouses.

    Many thanks.

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