money functions only nominally, as money of account, as a measure of value. But when actual payments have to be made, money does not come onto the scene as a circulating medium, in its merely transient form of an intermediary in the social metabolism, but as the individual incarnation of social labour, the independent presence of exchange-value, the universal commodity. (235)
That is, when money comes into circulation to solve this disequilibrium, those who hold it don’t do so out of the goodness of their hearts, responding to the needs of others or to the market’s need for a greater supply of money. Rather, somebody who owns the universal equivalent puts it into the market purposefully, for some reason, and we have to understand what that reason might be. But the “independence” of the universal commodity and its separation from day-to-day commodity circulation have profound consequences.
From here Marx’s argument takes a surprising turn:
This contradiction bursts forth in that aspect of an industrial and commercial crisis which is known as a monetary crisis. Such a crisis occurs only where the ongoing chain of payments has been fully developed, along with an artificial system for settling them. Whenever there is a general disturbance of the mechanism, no matter what its cause, money suddenly and immediately changes over from its merely nominal shape, money of account, into hard cash. Profane commodities can no longer replace it. (236)
In other words, you can’t settle your bills with more IOUs; you’ve got to find hard cash, the universal equivalent, to pay them off. This then poses the social question in general: where is the hard cash going to come from? Marx continues,
The use-value of commodities becomes valueless, and their value vanishes in the face of their own form of value. The bourgeois, drunk with prosperity and arrogantly certain of himself, has just declared that money is a purely imaginary creation. ‘Commodities alone are money,’ he said. But now the opposite cry resounds over the markets of the world: only money is a commodity. As the hart pants after fresh water, so pants his soul after money, the only wealth. In a crisis, the antithesis between commodities and their value-form, money, is raised to the level of an absolute contradiction. Hence money’s form of appearance is here also a matter of indifference. The monetary famine remains whether payments have to be made in gold or in credit-money, such as bank-notes. (236–7)
Back in 2005, there was a consensus that there was an immense surplus of liquidity sloshing around in the world’s markets. The bankers had surplus funds and were lending to almost anyone, including, as we later found out, people who had no creditworthiness whatsoever. Buy a house with no income? Sure, why not? Money doesn’t matter because commodities like housing are a safe bet. But then the prices of houses stopped rising, and when the debts fell due, more and more people could not pay. At that point the liquidity suddenly dries up. Where is the money? Suddenly the Federal Reserve has to inject massive funds into the banking system because now “money is the only commodity.”
As Marx amusingly put it elsewhere, in boom economies everybody acts like a Protestant—they act on pure faith. When the crash comes, though, everyone dives for cover in the “Catholicism” of the monetary base, real gold. But it is in these times that the question of real values and reliable money-forms gets posed. What is the relation between what is going on in all those debt-bottling plants in New York City and real production? Are they dealing in purely fictitious values? These are the questions that Marx raises for us, questions that are forgotten during the halcyon years but regularly come back to haunt us at moments of crisis. Once the monetary system becomes even more detached from the value system than it does with a gold standard, then all sorts of wild possibilities open up with potentially devastating consequences for social and natural relations.
The sudden shortage of circulating medium, at a certain historical moment, can likewise generate a crisis. Withdrawing short-term credit from the market can crash commodity production. A good example of that took place in East and Southeast Asia between 1997 and 1998. Perfectly adequate companies, producing commodities, were heavily indebted but could easily have worked their way out of their indebtedness had it not been for a sudden withdrawal of short-term liquidity. The bankers withdrew the liquidity, the economy crashed and viable companies went bankrupt, selling out for lack of access to the means of payment. Western capital and the banks came in and bought them all up for almost nothing. Liquidity was then restored, the economy revived and suddenly the bankrupted companies are viable again. Except now they are owned by the banks and the Wall Street folk, who can sell them off at an immense profit. In the nineteenth century, there were several liquidity crises of this kind, and Marx had followed them closely. 1848 saw a profound element of a liquidity crisis. And the people who came out of that year exceedingly enriched and empowered were—guess who?—the people who controlled the gold, i.e., the Rothschilds. They brought down governments simply because they controlled the gold at that particular moment. In Capital, Marx shows how the possibility of this kind of crisis is immanent in the way contradictions within the monetary system move under capitalism (236).
This then leads Marx to modify the quantity theory of money, by insisting that less money is needed the more payments balance each other out and the more money becomes a mere means of payment. “Commodities circulate, but their equivalent in money does not appear until some future date.” In this way, “credit-money springs directly out of the function of money as a means of payment, in that certificates of debt owing for already purchased commodities”—what on Wall Street is now institutionalized as collateralized debt obligations (CDOs)—“themselves circulate for the purpose of transferring those debts to others” (237–8).
On the other hand, the function of money as a means of payment undergoes expansion in proportion as the system of credit itself expands … When the production of commodities has attained a certain level and extent, the function of money as a means of payment begins to spread out beyond the sphere of the circulation of commodities. It becomes the universal material of contracts. Rent, taxes and so on are transformed from payments in kind to payments in money. (238)
With this, Marx anticipates the monetization of everything, as well as the spread of credit and finance in ways that would radically transform both economic and social relations.
The bottom line is that “the development of money as a means of payment makes it necessary to accumulate it in preparation for the days when the sums which are owing fall due” (240). Again, accumulation and hoarding are paired, but they have different functions:
While hoarding, considered as an independent form of self-enrichment, vanishes with the advance of bourgeois society, it grows at the same time in the form of the accumulation of a reserve fund of the means of payment. (240)
This leads Marx to modify the quantity theory of money earlier stated: the total quantity of money required in circulation is the sum of commodities, multiplied by their prices and modified by the velocity and the development of means of payment. To this must now be added a reserve fund (a hoard) that will permit flexibility in times of flux (240). (In contemporary conditions, of course, this reserve fund is not privately held but lies within the prerogative of a public institution, which in the US is appropriately designated the Federal Reserve.)
The final subsection of this chapter deals with world money. To work effectively, any monetary system, as we have seen, requires a deep participation on the part of the state as a regulator of coins and symbols and overseer of the qualities and quantities of money (and in our times as manager of the reserve fund). Individual states typically manage their own monetary system in a particular way and can exercise a great deal of discretion in so doing. There is still a world market, however, and national monetary policies cannot exempt states from the disciplinary effects that flow from commodity exchange across the world market. So while the state may play a critical role in the stabilization of the monetary system within its geopolitical borders, it is nevertheless connected to the world market and subject to its dynamics. Marx points to the role played by precious metals; gold and silver became, as it were, the lingua franca of the world
