spend it, driving the demand for commodities down. Suddenly people can’t sell their commodities. Uncertainty increasingly troubles the market, and more people hang on to their money, the source of their security. Subsequently, the whole economy just goes spiraling downward. Keynes took the view that government had to step in and reverse the process by creating various fiscal stimuli. Then the privately hoarded money would be enticed back into the market.
As we’ve seen, Marx similarly dismisses Say’s law as foolish nonsense in Capital, and since the 1930s there has been a dialogue about the relationship between Marxian and Keynesian theories of the economy. Marx clearly sides with those political economists who did argue for the possibility of general crises—in the literature of the time, these economists were referred to as “general glut” theorists—and there were relatively few of them. The Frenchman Sismondi was one; Thomas Malthus (of population-theory fame) was another, which is somewhat unfortunate, because Marx could not abide Malthus, as we will later see.
Keynes, on the other hand, praises Malthus inordinately in Essays in Biography but scarcely mentions Marx—presumably for political reasons. In fact, Keynes claimed he never read Marx. I suspect he did, but even if he didn’t, he was surrounded by people like the economist Joan Robinson, who did read Marx and certainly told Keynes about Marx’s rejection of Say’s law. Keynesian theory dominated economic thinking in the postwar period; then came the anti-Keynesian revolution of the late 1970s. The monetarist and neoliberal theory that is predominant today is much closer to an acceptance of Say’s law. So the question of the proper status of Say’s law is an interesting one worthy of further inquiry. What matters for our purposes here, though, is Marx’s emphatic rejection of it.
The next step in Marx’s argument is to plunge into an analysis of the circulation of money. I won’t spend much time on the details of this, because Marx is basically reviewing the monetarist literature of the time. The question he is posing here is: how much money does there need to be in order to circulate a given quantity of commodities? He accepts a version of what is called the “quantity theory of money,” similar to that of Ricardo. After several pages of detailed discussion, he arrives at a supposed law: the quantity of the circulating medium is “determined by the sum of the prices of the commodities in circulation, and the average velocity of the circulation of money” (219). (The velocity of circulation of money is simply a measure of the rate at which money circulates—e.g., how many times in a day a dollar bill changes hands.) He had earlier noted, however, that “these three factors, the movement of prices, the quantity of commodities in circulation, and the velocity of the circulation of money, can all vary in various directions under different conditions” (218). The quantity of money needed therefore varies a great deal, depending on how these three variables shift. If you can find some way to speed up the circulation, then the velocity of money accelerates, as happens through credit-card use and electronic banking, for example: the greater the velocity of money, the less money you need, and conversely. Plainly, the concept of the velocity of money is important, and to this day the Federal Reserve goes to great pains to try to get accurate measures of it.
Considerations on the quantity theory of money bring him back to the argument I laid out at the beginning of this chapter—that when it comes to the circulation of commodities, little bits of gold are inefficient. It is much more efficient to use tokens, coins, paper or, as happens nowadays, numbers on a computer screen. But “the business of coining,” Marx says, “like the establishing of a standard measure of price, is an attribute proper to the state” (221–2). So the state plays a vital role in replacing metallic money commodities with tokens, symbolic forms. Marx illustrates this with brilliant imagery:
The different national uniforms worn at home by gold and silver as coins, but taken off again when they appear on the world market, demonstrate the separation between the internal or national spheres of commodity circulation and its universal sphere, the world market. (222)
The significance of the world market and world money comes back in at the end of this chapter.
Locally, the quest for efficient forms of money becomes paramount. “Small change appears alongside gold for the payment of fractional parts of the smallest gold coin” which then leads to “inconvertible paper money issued by the state and given forced currency” (224). As soon as symbols of money emerge, many other possibilities and problems arise:
Paper money is a symbol of gold, a symbol of money. Its relation to the values of commodities consists only in this: they find imaginary expression in certain quantities of gold, and the same quantities are symbolically and physically represented by the paper. (225)
Marx also notes “that just as true paper money arises out of the function of money as the circulating medium, so does credit-money take root spontaneously in the function of money as the means of payment” (224). The money commodity, gold, is replaced by all manner of other means of payment such as coins, paper moneys and credit. This happens because a weight of gold is inefficient as a means of circulation. It becomes “socially necessary” to leave gold behind and work with these other symbolic forms of money.
Is this a logical argument, a historical argument or both? Certainly, the history of the different monetary forms and the history of state power are intricately intertwined. But is this necessarily so, and is there some inevitable pattern to those relations? Until the early 1970s, most paper moneys were supposedly convertible into gold. This was what gave the paper moneys their supposed stability or, as Marx would describe it, their relationality to value. Converting money into gold was, however, denied to private persons in many countries from the 1920s onward and mainly retained for exchanges between countries to balance currency accounts. The whole system broke down in the late 1960s and early 1970s, and we now have a purely symbolic system with no clear material base—a universal money commodity.
So what relationship exists today between the various paper moneys (e.g., dollars, euros, pesos, yen) and the value of commodities? Though gold still plays an interesting role, it no longer functions as the basis for representing value. The relationship of moneys to socially necessary labor-time, which was problematic even in the case of gold, has become even more remote and elusive. But to say it is hidden, remote and elusive is not to say it does not exist. Turmoil in international currency markets has something to do with differences in material productivity in different national economies. The problematic relationship between the existing money-forms and commodity-values that Marx outlines is still with us and very much open to the line of analysis that he pioneered, even though its contemporary form of appearance is quite different.
Section 3: Money
Marx has examined money as a measure of value and revealed some of its contradictions, particularly with respect to its “ideal” functions as price and the consequent “incongruities” in the relationship between prices and values. He has looked at money from the standpoint of circulation and revealed another set of contradictions (including the possibility of general crises). Now—typical Marx—he comes back to us and says, well, at the end of the day, there is only one money. This means that somehow the contradictions between money as a measure of value and money as a medium of circulation have to have “room to move” or perhaps even be resolved.
He thus begins by reiterating the foundational idea of money as “the commodity which functions as a measure of value and therefore also as the medium of circulation, either in its own body or through a representative” (227). So we are back to the unitary concept, but we must examine how the contradictions earlier identified can operate within it. The loosening of the connection between value and its expression provides room for maneuver, but it does so at the expense of contact with a real and solid monetary base. From this point, Marx probes deeper into the contradictions that characterize this evolved form of the money system. He begins by considering the phenomenon of hoarding:
When the circulation of commodities first develops, there also develops the necessity and the passionate desire to hold fast to
