Tuesday, June 30, 2015

David Harvey on Reading Marx’s Capital, Volume 1, Class 02 (Updated)

David Harvey is a Professor of Anthropology and Geography at the Graduate Center of the City University of New York. He has produced a video series on Marx’s Capital, and is also the author of these relevant books:
Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Harvey, David. 2013. A Companion to Marx’s Capital. Volume Two. Verso, London and New York.
Class 2 of his video series on Reading Marx’s Capital Volume 1 is below.



This video deals with sections 2, 3 and 4 of Chapter 1 and Chapter 2 of volume 1 of Capital.

My critical comments:
(1) Even Harvey acknowledges that Marx’s attempt to reduce all heterogeneous types of labour to a simple, homogeneous socially-necessary labour time unit is problematic (from 16.46–18.09), as we can see in the clip below.



This is a far greater problem than Harvey is willing to admit, and is one of many major unresolved issues that destroy the labour theory of value.

(2) despite Harvey’s claims to the contrary (at 31.20 onwards), Marx’s explanation of the emergence of the “universal equivalent” as gold is just standard Classical and neoclassical theory and the “barter” origin theory of money;

(3) I think Harvey is largely unaware of the many other devastating problems with the labour theory of value, as outlined here.

(4) Harvey barely even addresses that issue of how Marx’s monetary theory is badly contradicted by the existence of fiat money. This also undermines Marx’s labour theory of value, as shown here and here.
My critique of Class 1 of the series is here.

Finally, my own critical review of the first three chapters of volume 1 of Capital are below:
“Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 1 (Updated),” June 21, 2015.

“Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 2,” June 26, 2015.

“Marx’s Capital, Volume 1, Chapter 2: A Critical Summary,” June 4, 2015.

“Marx’s Capital, Volume 1, Chapter 3: A Critical Summary,” June 12, 2015.

Sunday, June 28, 2015

Why Marx’s Labour Theory of Value is Wrong in a Nutshell

The labour theory of value as presented in Part 1 of volume 1 of Capital is wrong for the following reasons:
(1) the a priori argument for the labour theory of value in volume 1 of Marx’s Capital is a non sequitur and later contradicts itself, as detailed here and here.

(2) Marx faces the problem of reducing all heterogeneous human labour to a homogeneous abstract socially necessary labour time unit, but does not properly explain how this happens;

(3) even if Marx could overcome (1) and (2), he faces the problems of defining labour value in cases of joint production, where it is possible that the labour value of a commodity might be undefined, nil, or negative.

(4) there is no reason why free human wage labour should have a special power that animals, slaves or machines do not have, as I point here.

(5) modern fiat money refutes Marx’s theory of money and also his labour theory of value, since money must be a produced commodity in Marx’s theory but has long since ceased to be, as I point out here and here.

(6) the empirical reality is that prices are not set by means of the abstract socially necessary labour time of commodities or of money as a produced commodity, and

(7) the problem that surplus labour value (if that concept could even be adequately defended) would not really explain money profits, since money profits can exist in a slave-based economy and very probably even in an economy where machines did most of the work.
These points together are devastating to the labour theory of value, but only one needs to be true to demonstrate that Marx’s theory as it stands in volume 1 of Capital is flawed.

I will review some of the more important problems below.

On point (1), it can be seen that Marx’s argument for the labour theory is a non sequitur. It is not obvious at all that commodity exchanges constitute an equality in the way Marx sees them. Marx actually admits later in Chapter 1 that in some human societies commodities may simply exchange as use value for use value (Marx 1906: 75), and in Chapter 3 that most commodities do not normally exchange at their true and equal labour values (Marx 1906: 114). Now there is an equality in exchanges in the sense in which, say, 2 sheep might exchange for 1 cow, and only two sheep and nothing more are exchanged, and vice versa. But this is a trivial sense of equality. It does not help Marx. Marx’s leap to the conclusion that there must be an additional, fundamental unit of homogeneous labour time in which both commodities can be measured quantitatively and by which they can both be shown to be equivalent simply does not follow. It is a non sequitur. It could be that labour value as Marx defines it is non-existent. Marx’s argument was shoddy and commits a straightforward logical fallacy. Later, Marx admits that labour value cannot be completely separated or “abstracted” from use value, so that the whole argument contradicts itself (for more details, see here and here).

On point (2), Marx argues that all skilled or experienced labour is a multiple of simple abstract labour, and that all labour is reducible to a meaningful, common homogeneous unit of labour. Marx does not adequately explain how to do this. First, Marx suggests that the reduction of skilled labour to a simple unit of abstract labour can be conducted in a physical or scientific manner by examining the “expenditure of human brains, nerves, and muscles.” But then Marx states that:
“Experience shows that this reduction is constantly being made. A commodity may be the product of the most skilled labour, but its value, by equating it to the product of simple unskilled labour, represents a definite quantity of the latter labour alone. The different proportions in which different sorts of labour are reduced to unskilled labour as their standard, are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by custom.” (Marx 1906: 51–52).
But since Marx admits that most commodities do not even exchange for their true labour values, this argument does not work. And what is more it contradicts his earlier approach: if the only actual way we can determine the value of skilled value is by looking at the actual market exchange of the products of skilled labour for products of unskilled labour, then why bother with explaining the difference in terms of “expenditure of human brains, nerves, and muscles”?

Furthermore, if exchange of the products of skilled labour for products of unskilled labour can be used to determine the value of skilled value as a multiple of simple labour, then the argument is circular. Exchange values determine labour values, but labour values are supposed to be a source of exchange values.

On point (3), the labour theory of value faces the problem of joint production: if a production process produces more than one commodity but two or several, then how does one calculate socially necessary labour time? (see Brewer 1984: 23; Nitzan and Bichler 2009: 101–102). In particular, Ian Steedman has argued that joint production leaves open the possibility that some labour values of commodities produced in joint production can be undefined, nil, or negative (Nitzan and Bichler 2009: 101).

On point (5), modern fiat money utterly refutes Marx’s labour theory of value, because money needs to be a produced commodity with a labour value for his theory to work. But money has long since ceased to be a produced commodity and is now fiat money. This is one of the devastating problems with Marx’s theory, and is sufficient in and of itself to refute the theory, as shown here and here.

For example, Marx thought that prices are determined by (at the least) (1) the long-run labour value of gold as determined by the abstract socially necessary labour time required for gold’s production and (2) as this relates in exchange to the labour value of other commodities (Marx 1906: 108). But this idea, if taken seriously, requires that the actual exchange value of gold as money against other commodities gravitates around the long-run value of the abstract socially necessary labour time needed to produce gold. This is an important point, and utterly undermines the Marxist apologists’ claims that Marx never meant labour value to be a determiner of individual commodity prices in Capital. But now in the modern world we have fiat money, and the theory is worthless: Marx’s theory of how labour values determine prices is utterly impossible.

All in all, one cannot take Marx’s labour theory of value seriously: it is flawed or under-determined in so many ways and stands refuted by the reality of modern fiat money.

Links
“Fiat Money Destroys the Labour Theory of Value,” June 6, 2015.

“Marx on the Necessity of Money being a Commodity,” June 8, 2015.

“Karl Popper on the Labour Theory of Value,” May 30, 2015.

“A Devastating Contradiction in Marx’s Argument for the Labour Theory of Value,” May 19, 2015.

“Wicksteed on the Contradiction in Chapter 1 of Volume 1 of Capital on the Labour Theory of Value,” May 21, 2015.

“Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 1 (Updated),” June 21, 2015.

“Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 2,” June 26, 2015.

“Marx’s Capital, Volume 1, Chapter 3: A Critical Summary,” June 12, 2015.

BIBLIOGRAPHY
Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Nitzan, Jonathan and Shimshon Bichler. 2009. Capital as Power: A Study or Order and Creorder. Routledge, Abingdon, UK and New York.

Friday, June 26, 2015

Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 2

Chapter 1 of volume 1 of Capital is called “The Commodity,” and presents Marx’s theory of the commodity and labour value.

Chapter 1 is divided into four sections:
(1) The Two Factors of the Commodity: Use Value and Value

(2) Dual Character of the Labour embodied in Commodities

(3) The Value-Form, or Exchange-Value

(4) The Fetishism of the Commodity and its Secret.
A summary of the first two sections is here. Below is a critical summary of the last two sections.

(3) The Value-Form, or Exchange-Value
A commodity has a dual nature: a use value (natural form) and a bearer of labour value (value form) (Marx 1990: 138). Commodities have heterogeneous use values (natural forms), but a common value-form in their money-forms (Marx 1990: 139).

According to Marx, in early stages of human society (so it would appear) commodities do not exchange for equal labour values, but merely use value for use value:
“But to be equated to linen, and again to iron, is to be as different as are linen and iron. This form, it is plain, occurs practically only in the first beginning, when the products of labour are converted into commodities by accidental and occasional exchanges. …. ” (Marx 1906: 75).
A full exposition of how Marx sees the origin of commodities and money does not appear until Chapter 2, however. Marx appears to argue that as commodity production becomes a major form of production within a community labour values come to dominate exchange value.

The labour value is a social phenomenon, not a physical one:
“The value of commodities is the very opposite of the coarse materiality of their substance, not an atom of matter enters into its composition. Turn and examine a single commodity, by itself, as we will. Yet in so far as it remains an object of value, it seems impossible to grasp it. If, however, we bear in mind that the value of commodities has a purely social reality, and that they acquire this reality only in so far as they are expressions or embodiments of one identical social substance, viz., human labour, it follows as a matter of course, that value can only manifest itself in the social relation of commodity to commodity. In fact we started from exchange value, or the exchange relation of commodities, in order to get at the value that lies hidden behind it.” (Marx 1906: 55).
By defining labour value in this way, Marx seems committed to defending the labour theory as an empirical concept.

Marx now turns to the question of the origins of prices or money-forms (Marx 1990: 139). He gives the following example:
20 yards of linen = 1 coat, where
linen (relative form of value) = coat (equivalent) (Marx 1906: 56).
The linen is in “relative form” and the coat is its equivalent in terms of value (Marx 1990: 140). Marx argues as follows:
“… in the value relation nothing is seen but the proportion between definite quantities of two different sorts of commodities that are considered equal to each other. It is apt to be forgotten that the magnitudes of different things can be compared quantitatively, only when those magnitudes are expressed in terms of the same unit. It is only as expressions of such a unit that they are of the same denomination, and therefore commensurable.” (Marx 1906: 57).
Marx’s argument here follows the initial one in Section 1 of Chapter 1, but he does not prove that labour value is the common quantitative unit underlying commodity exchange.

Marx’s argument continues:
“If we say that, as values, commodities are mere congelations of human labour, we reduce them by our analysis, it is true, to the abstraction, value; but we ascribe to this value no form apart from their bodily form. It is otherwise in the value relation of one commodity to another. Here, the one stands forth in its character of value by reason of its relation to the other.

By making the coat the equivalent of the linen, we equate the labour embodied in the former to that in the latter. Now, it is true that the tailoring, which makes the coat, is concrete labour of a different sort from the weaving which makes the linen. But the act of equating it to the weaving, reduces the tailoring to that which is really equal in the two kinds of labour, to their common character of human labour. In this roundabout way, then, the fact is expressed, that weaving also, in so far as it weaves value, has nothing to distinguish it from tailoring, and, consequently, is abstract human labour. It is the expression of equivalence between different sorts of commodities that alone brings into relief the specific character of value-creating labour, and this it does by actually reducing the different varieties of labour embodied in the different kinds of commodities to their common quality of human labour in the abstract.

There is, however, something else required beyond the expression of the specific character of the labour of which the value of the linen consists. Human labour-power in motion, or human labour, creates value, but is not itself value. It becomes value only in its congealed state, when embodied in the form of some object. In order to express the value of the linen as a congelation of human labour, that value must be expressed as having objective existence, as being a something materially different from the linen itself, and yet a something common to the linen and all other commodities. The problem is already solved.” (Marx 1906: 58–59).

“The body of the commodity that serves as the equivalent, figures as the materialization of human labour in the abstract and is at the same time the product of some specifically useful concrete labour. This concrete labour becomes, therefore, the medium for expressing abstract human labour. If on the one hand the coat ranks as nothing but the embodiment of abstract human labour, so, on the other hand, the tailoring which is actually embodied in it, counts as nothing but the form under which that abstract labour is realised. In the expression of value of the linen, the utility of the tailoring consists, not in making clothes, but in making an object, which we at once recognise to be Value, and therefore to be a congelation of labour, but of labour indistinguishable from that realised in the value of the linen. In order to act as such a mirror of value, the labour of tailoring must reflect nothing besides its own abstract quality of being human labour generally.” (Marx 1906: 67).
It is only when commodities with labour value exchange for other such commodities that abstract labour is compared and made commensurable.

Marx thinks that Aristotle was the first to show that commodity exchange constitutes an equality, but was prevented from moving to a labour value theory because of slavery:
“There was, however, an important fact which prevented Aristotle from seeing that, to attribute value to commodities, is merely a mode of expressing all labour as equal human labour, and consequently as labour of equal quality. Greek society was founded upon slavery, and had, therefore, for its natural basis, the inequality of men and of their labour powers. The secret of the expression of value, namely, that all kinds of labour are equal and equivalent, because, and so far as they are human labour in general, cannot be deciphered, until the notion of human equality has already acquired the fixity of a popular prejudice. This, however, is possible only in a society in which the great mass of the produce of labour takes the form of commodities, in which, consequently, the dominant relation between man and man, is that of owners of commodities. The brilliancy of Aristotle’s genius is shown by this alone, that he discovered, in the expression of the value of commodities, a relation of equality. The peculiar conditions of the society in which he lived, alone prevented him from discovering what, ‘in truth,’ was at the bottom of this equality.” (Marx 1906: 69).
But this does not answer the question: does a product made by slave labour have a labour value in Marx’s terms? (Harvey 2010: 36 seems to imply that it would not).

But, to resume the main argument, Marx states that changes in the socially necessary labour time required to produce commodities will continue to determine exchange values (Marx 1990: 145).

Marx also makes it clear that a commodity can only have a labour value if it actually obtains an exchange value on the market (a view he repeats in Chapters 2 and 3 and as stated by Harvey 2010: 37):
“When, at the beginning of this chapter, we said, in common parlance, that a commodity is both a use-value and an exchange value, we were, accurately speaking, wrong. A commodity is a use-value or object of utility, and a value. It manifests itself as this two-fold thing, that it is, as soon as its value assumes an independent form—viz., the form exchange value. It never assumes this form when isolated, but only when placed in a value or exchange relation with another commodity of a different kind.” (Marx 1906: 70).
By the end of section 3, Marx touches on the origin of money, but almost wholly in an abstract, theoretical way (an empirical analysis is provided in Chapter 2):
“The expanded form of value comes into actual existence for the first time so soon as a particular product of labour, such as cattle, is no longer exceptionally, but habitually, exchanged for various other commodities.

The third and lastly developed form expresses the values of the whole world of commodities in terms of a single commodity set apart for the purpose .... By this form, commodities are, for the first time, effectively brought into relation with one another as values, or made to appear, as exchange values.

The two earlier forms either express the value of each commodity in terms of a single commodity of a different kind, or in a series of many such commodities. In both cases, it is, so to say, the special business of each single commodity to find an expression for its value, and this it does without the help of the others. These others, with respect to the former, play the passive parts of equivalents. The general form of value C, results from the joint action of the whole world of commodities, and from that alone. A commodity can acquire a general expression of its value only by all other commodities, simultaneously with it, expressing their values in the same equivalent; and every new commodity must follow suit. It thus becomes evident that, since the existence of commodities as values is purely social, this social existence can be expressed by the totality of their social relations alone, and consequently that the form of their value must be a socially recognised form.” (Marx 1906: 70).
If we were to choose linen as a “universal equivalent,” Marx argues, then the following would be true:
“The general form of relative value, embracing the whole world of commodities, converts the single commodity that is excluded from the rest, and made to play the part of equivalent—ere the linen—into the universal equivalent. The bodily form of the linen is now the form assumed in common by the value of all commodities; it therefore becomes directly exchangeable with all and every of them. The substance linen becomes the visible incarnation, the social chrysalis state of every kind of human labour. Weaving, which is the labour of certain private individuals producing a particular article, linen, acquires in consequence a social character, the character of equality with all other kinds of labour. The innumerable equations of which the general form of value is composed, equate in turn the labour embodied in the linen to that embodied in every other commodity, and they thus convert weaving into the general form of manifestation of undifferentiated human labour. In this manner the labour realised in the values of commodities is presented not only under its negative aspect, under which abstraction is made from every concrete form and useful property of actual work, but its own positive nature is made to reveal itself expressly. The general value-form is the reduction of all kinds of actual labour to their common character of being human labour generally, of being the expenditure of human labour power.” (Marx 1906: 77).

“… a particular kind of commodity acquires the character of universal equivalent, because all other commodities make it the material in which they uniformly express their value. (Marx 1906: 78).
Money, then, as a commodity with a labour value expresses its value in a potentially infinite series of exchange values (where labour value is equal) with other commodities (Marx 1990: 161).

It was gold that won out as the universal equivalent:
“Gold is now money with reference to all other commodities only because it was previously, with reference to them, a simple commodity. Like all other commodities, it was also capable of serving as an equivalent, either as simple equivalent in isolated exchanges, or as particular equivalent by the side of others. Gradually it began to serve, within varying limits, as universal equivalent. So soon as it monopolises this position in the expression of value for the world of commodities, it becomes the money commodity, … .” (Marx 1906: 81).
The expression of a commodity in terms of gold is its “price form” (Marx 1990: 163).

(4) The Fetishism of the Commodity and its Secret
Curiously, this section was moved from a mere appendix in the first German edition of Capital (1867) to the concluding part of Chapter 1 in later editions (Harvey 2010: 38).

Marx states that the commodity has a certain metaphysical or mystical nature, but this does not consist in its use value or the concrete labour used to produce it (Marx 1990: 163–164). Experience of the commodity as a use value gives no access to its nature as a labour value (Harvey 2010: 39).

According to Marx, capitalist society seems to hide the social character of labour through the act of exchange of commodities:
“Whence, then, arises the enigmatical character of the product of labour, so soon as it assumes the form of commodities? Clearly from this form itself. The equality of all sorts of human labour is expressed objectively by their products all being equally values; the measure of the expenditure of labour-power by the duration of that expenditure, takes the form of the quantity of value of the products of labour; and finally, the mutual relations of the producers, within which the social character of their labour affirms itself, take the form of a social relation between the products.

A commodity is therefore a mysterious thing, simply because in it the social character of men’s labour appears to them as an objective character stamped upon the product of that labour; because the relation of the producers to the sum total of their own labour is presented to them as a social relation, existing not between themselves, but between the products of their labour. This is the reason why the products of labour become commodities, social things whose qualities are at the same time perceptible and imperceptible by the senses.” (Marx 1906: 82–83).

“As a general rule, articles of utility become commodities, only because they are products of the labour of private individuals or groups of individuals who carry on their work independently of each other. The sum total of the labour of all these private individuals forms the aggregate labour of society. Since the producers do not come into social contact with each other until they exchange their products, the specific social character of each producer’s labour does not show itself except in the act of exchange. In other words, the labour of the individual asserts itself as a part of the labour of society, only by means of the relations which the act of exchange establishes directly between the products, and indirectly, through them, between the producers.” (Marx 1906: 83–84).
The enigmatic nature of the commodity consists in being the “social character of men’s labour” as manifested in labour values through exchange. Commodities are “social” things, and the social relations between people as labourers, consumers and capitalists occur through commodity exchange, even though this very process disguises those relations (Harvey 2010: 39).

Marx’s theory has a strange incoherence. On the one hand, exchange values are governed by labour value. But these labour values are apparently a secret or hidden phenomenon determining exchange values:
“The character of having value, when once impressed upon products, obtains fixity only by reason of their acting and re-acting upon each other as quantities of value. These quantities vary continually, independently of the will, foresight and action of the producers. To them, their own social action takes the form of the action of objects, which rule the producers instead of being ruled by them. It requires a fully developed production of commodities before, from accumulated experience alone, the scientific conviction springs up, that all the different kinds of private labour, which are carried on independently of each other, and yet as spontaneously developed branches of the social division of labour, are continually being reduced to the quantitative proportions in which society requires them. And why? Because, in the midst of all the accidental and ever fluctuating exchange-relations between the products, the labour-time socially necessary for their production forcibly asserts itself like an over-riding law of nature. The law of gravity thus asserts itself when a house falls about our ears. The determination of the magnitude of value by labour-time is therefore a secret, hidden under the apparent fluctuations in the relative values of commodities. Its discovery, while removing all appearance of mere accidentally from the determination of the magnitude of the values of products, yet in no way alters the mode in which that determination takes place.” (Marx 1906: 86–87).
How such a secret and hidden phenomenon can determine individual exchange values is not explained by Marx in this Chapter, though by Chapter 3 we have a fuller description.

When commodities are related to units of money (the universal equivalent commodity) the producers can understand how their own labour relates to the labour of society:
“Consequently it was the analysis of the prices of commodities that alone led to the determination of the magnitude of value, and it was the common expression of all commodities in money that alone led to the establishment of their characters as values. It is, however, just this ultimate money form of the world of commodities that actually conceals, instead of disclosing, the social character of private labour, and the social relations between the individual producers. When I state that coats or boots stand in a relation to linen, because it is the universal incarnation of abstract human labour, the absurdity of the statement is self-evident. Nevertheless, when the producers of coats and boots compare those articles with linen, or, what is the same thing with gold or silver, as the universal equivalent, they express the relation between their own private labour and the collective labour of society in the same absurd form.” (Marx 1906: 87).
A use-value of a thing can be realised by a direct relation between the thing and a human being, but labour value is realised in exchange of commodities (Marx 1990: 177).

BIBLIOGRAPHY
Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Sunday, June 21, 2015

Marx’s Capital, Volume 1, Chapter 1: A Critical Summary, Part 1 (Updated)

Updated: This post is a work in progress at the moment

Chapter 1 of volume 1 of Capital is called “The Commodity,” and presents Marx’s theory of the commodity and labour value.

Chapter 1 is divided into four sections:
(1) The Two Factors of the Commodity: Use Value and Value

(2) Dual Character of the Labour embodied in Commodities

(3) The Value-Form, or Exchange-Value

(4) The Fetishism of the Commodity and its Secret.
Interpreters of Marx admit that the first few chapters of Capital are made difficult to understand because of Marx’s use of a Hegelian style of argument (Brewer 1984: 21).

Let us now turn to a summary of the first two sections. I will examine the last two sections in the next post.

(1) The Two Factors of the Commodity: Use Value and Value
Capitalist production is a system founded on production of commodities for sale, and the commodity is the elementary form or thing in capitalism (Marx 1990: 125). For Marx, capitalism is the commodity form of production (Foley 1986: 12), and ultimately only a transient system of production in human history.

Marx’s definition of the commodity is as follows:
“A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference. Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production.” (Marx 1906: 41–42).
At the heart of Marx’s analysis of commodities is his idea that they have a dual nature, as follows:
(1) as qualitative things called use values, and

(2) as quantitative things called labour values and manifested in exchange values.
A use value of a commodity is determined by its usefulness to human beings as derived from its properties, and use values are realised in use or consumption (Marx 1990: 126). A society can produce things with use values without being capitalist or producing commodities for sale (Brewer 1984: 22). That is, a good can be a use value without being a commodity (Brewer 1984: 22).

Commodities also bear exchange value, but this is quantitative. Marx assumes that, when one commodity exchanges for another, this entails an equality (Marx 1990: 127). But since Marx will later admit in Chapter 3 that most commodities do not exchange at their labour values (Marx 1906: 114), Marx has not even properly proven that commodity exchange constitutes such an equality in the first place.

Marx’s “proof” of labour value, as presented in Chapter 1 of Capital, is grossly inadequate:
“Let us take two commodities, e. g., corn and iron. The proportions in which they are exchangeable, whatever those proportions may be, can always be represented by an equation in which a given quantity of corn is equated to some quantity of iron: e. g., 1 quarter corn = x cwt. iron. What does this equation tell us? It tells us that in two different things—in 1 quarter of corn and x cwt. of iron, there exists in equal quantities something common to both. The two things must therefore be equal to a third, which in itself is neither the one nor the other. Each of them, so far as it is exchange value, must therefore be reducible to this third.

A simple geometrical illustration will make this clear. In order to calculate and compare the areas of rectilinear figures, we decompose them into triangles. But the area of the triangle itself is expressed by something totally different from its visible figure, namely, by half the product of the base into the altitude. In the same way the exchange values of commodities must be capable of being expressed in terms of something common to them all, of which thing they represent a greater or less quantity.

This common ‘something’ cannot be either a geometrical, a chemical, or any other natural property of commodities. Such properties claim our attention only in so far as they affect the utility of those commodities, make them use-values. But the exchange of commodities is evidently an act characterised by a total abstraction from use-value.” (Marx 1906: 43–44).

“As use-values, commodities are, above all, of different qualities, but as exchange values they are merely different quantities, and consequently do not contain an atom of use-value. If then we leave out of consideration the use-value of commodities, they have only one common property left, that of being products of labour. But even the product of labour itself has undergone a change in our hands. If we make abstraction from its use-value, we make abstraction at the same time from the material elements and shapes that make the product a use-value; we see in it no longer a table, a house, yarn, or any other useful thing. Its existence as a material, thing is put out of sight. Neither can it any longer be regarded as the product of the labour of the joiner, the mason, the spinner, or of any other definite kind of productive labour. Along with the useful qualities of the products themselves, we put out of sight both the useful character of the various kinds of labour embodied in them, and the concrete forms of that labour; there is nothing left but what is common to them all; all are reduced to one and the same sort of labour, human labour in the abstract.

Let us now consider the residue of each of these products; it consists of the same unsubstantial reality in each, a mere congelation of homogeneous human labour, of labour-power expended without regard to the mode of its expenditure. All that these things now tell us is, that human labour-power has been expended in their production, that human labor is embodied in them. When looked at as crystals of this social substance, common to them all, they are—Values.

We have seen that when commodities are exchanged, their exchange value manifests itself as something totally independent of their use-value. But if we abstract from their use-value, there remains their Value as defined above. Therefore, the common substance that manifests itself in the exchange value of commodities, whenever they are exchanged, is their value.” (Marx 1906: 44–45).
Harvey (2010: 17) sees this argument as an a priori one; he is right and that is part of the problem. The labour theory of value needs to be empirical, and requires an empirical argument to support it, not an a priori proof. Secondly, Marx thinks that all commodities are products of human labour, but this need not be so: commodities might be the product of animal labour or in theory purely of machines or robots, as I point out here. Thirdly, this leaves us with the problem of the products of slave labour: are products produced by slaves and sold for money profit commodities in Marx’s sense of the term?

Fourly, another serious problem is that it is not obvious at all that commodity exchanges constitute an equality in the way Marx sees them. Marx actually admits later in Chapter 1 that in some human societies commodities may simply exchange as use value for use value:
“But to be equated to linen, and again to iron, is to be as different as are linen and iron. This form, it is plain, occurs practically only in the first beginning, when the products of labour are converted into commodities by accidental and occasional exchanges. …. ” (Marx 1906: 75).
And later Marx will admit that most commodities do not exchange at their true and equal labour values (Marx 1906: 114). So why should we think that there must be a common quantitative basis for exchange in labour values?

Now there is an equality in exchanges in the sense in which, say, 2 sheep might exchange for 1 cow, and only two sheep and nothing more are exchanged, and vice versa. But this is a trivial sense of equality. It does not help Marx. Marx’s leap to the conclusion that there must be an additional, fundamental unit of homogeneous labour time in which both commodities can be measured quantitatively and by which they can both be shown to be equivalent simply does not follow. It is a non sequitur. Marx’s argument was shoddy and commits a straightforward logical fallacy.

Now exchange value, for Marx, is an “expression” or “form of appearance” of labour value (Marx 1990: 128), but how do we measure value? What is the “measure of its magnitude”? According to Marx, we measure it by the quantity of labour-time needed to produce a commodity (Marx 1990: 129).

However, it is not raw or concrete labour hours that count in determining value, but abstract socially necessary labour time:
“Some people might think that if the value of a commodity is determined by the quantity of labour spent on it, the more idle and unskilful the labourer, the more valuable would his commodity be, because more time would be required in its production. The labour, however, that forms the substance of value, is homogeneous human labour, expenditure of one uniform labour-power. The total labour-power of society, which is embodied in the sum total of the values of all commodities produced by that society, counts here as one homogeneous mass of human labour-power, composed though it be of innumerable individual units. Each of these units is the same as any other, so far as it has the character of the average labour-power of society, and takes effect as such; that is, so far as it requires for producing a commodity, no more time than is needed on an average, no more than is socially necessary. The labour-time socially necessary is that required to produce an article under the normal conditions of production, and with the average degree of skill and intensity prevalent at the time. ….

We see then that that which determines the magnitude of the value of any article is the amount of labour socially necessary, or the labour-time socially necessary for its production. Each individual commodity, in this connexion, is to be considered as an average sample of its class. Commodities, therefore, in which equal quantities of labour are embodied, or which can be produced in the same time, have the same value. The value of one commodity is to the value of any other, as the labour-time necessary for the production of the one is to that necessary for the production of the other. ‘As values, all commodities are only definite masses of congealed labour-time.’” (Marx 1906: 44–46).
This answers some common objections to the labour theory of value (such as, for example, the criticism that, if more concrete labour is taken to produce an individual commodity by a slower or less experienced worker, then the more value it must be). Labour must be necessary and not wasted. However, Marx’s ideas here lead to serious problems as well, such as how to reduce all heterogeneous forms of human labour to such socially necessary labour time. Another problem is joint production: if a production process produces more than one commodity but two or several, then how does one calculate socially necessary labour time? (Brewer 1984: 23; Nitzan and Bichler 2009: 101–102). In particular, Ian Steedman has argued that joint production leaves open the possibility that some labour values of commodities produced in joint production can be undefined, nil, or negative (Nitzan and Bichler 2009: 101).

Next, Marx examines productivity. The greater the productivity of human labourers, the less socially necessary labour time is needed to produce a given commodity (Marx 1990: 131).

Marx even attempts to explain the high price of diamonds by reference to the great socially necessary labour time needed to produce diamonds:
“The same labour extracts from rich mines more metal than from poor mines. Diamonds are of very rare occurrence on the earth’s surface, and hence their discovery costs, on an average, a great deal of labour-time. Consequently much labour is represented in a small compass.” (Marx 1906: 47).
At the same time, Marx seems to doubt that gold and diamonds actually do fetch an exchange value equal to their socially necessary labour time (Marx 1990: 130), but this point is quickly passed over.

Marx makes an interesting point which is later taken up in Chapter 3:
“A thing can be a use-value, without having value. This is the case whenever its utility to man is not due to labour. Such are air, virgin soil, natural meadows, &c. A thing can be useful, and the product of human labour, without being a commodity.” (Marx 1906: 47–48).
That is to say, things that are not produced by human labour have no real value (e.g., air, uncultivated soil, natural meadows) and, according to Marx in Chapter 3, and only fetch an “imaginary” money price. (Marx 1906: 115).

The final passage in section 1 contains an admission that undermines Marx’s “proof” of the labour theory of value earlier in the section:
“Whoever directly satisfies his wants with the produce of his own labour, creates, indeed, use-values, but not commodities. In order to produce the latter, he must not only produce use-values, but use-values for others, social use-values. Lastly, nothing can have value, without being an object of utility. If the thing is useless, so is the labour contained in it; the labour does not count as labour, and therefore creates no value.” (Marx 1906: 48).
As I have pointed out here and here, this admission is a devastating contradiction, because Marx cannot claim that he can deduce that labour time is the common quantity determining value totally independently of use value. Marxists like Harvey (2010: 22) fail to notice how badly this undermines Marx’s argument.

Another fundamental problem is this: is Marx’s labour theory of value meant to be (1) an empirical phenomenon Marx has discovered or (2) a mere analytic concept and definition he has formulated to analyse capitalism? (the problem is noted by Brewer 1984: 24). This is crucial issue.

Marxists frequently claim that Marx in volume 1 of Capital merely assumed as a simplifying assumption that commodities exchange for true labour values (Brewer 1984: 25), but I find it hard to take this seriously. For one thing, Marx never makes such a claim in Chapter 1 or Part 1 of volume 1 of Capital, and secondly as we read Chapter 2 and Chapter 3 of volume 1 we find that Marx makes explicit statements about how labour values do govern individual exchange values of commodities, which are simply rendered nonsensical if all this was only a “simplifying assumption.”

(2) Dual Character of the Labour embodied in Commodities
Just as a commodity has a dual nature (as a use-value and an exchange value), so does the labour embodied in the commodities. Marx thinks he was the first to identify the dual nature of labour as embodied in commodities (Marx 1990: 132).

To produce a specific use-value, one needs labour of a particular type (Marx 1990: 132). So labour comes in qualitatively different forms:
“As the coat and the linen are two qualitatively different use-values, so also are the two forms of labour that produce them, tailoring and weaving. Were these two objects not qualitatively different, not produced respectively by labour of different quality, they could not stand to each other in the relation of commodities. Coats are not exchanged for coats, one use-value is not exchanged for another of the same kind.

To all the different varieties of values in use there correspond as many different kinds of useful labour, classified according to the order, genus, species, and variety to which they belong in the social division of labour. This division of labour is a necessary condition for the production of commodities, but it does not follow conversely, that the production of commodities is a necessary condition for the division of labour. In the primitive Indian community there is social division of labour, without production of commodities. Or, to take an example nearer home, in every factory the labour is divided according to a system, but this division is not brought about by the operatives mutually exchanging their individual products. Only such products can become commodities with regard to each other, as result from different kinds of labour, each kind being carried on independently and for the account of private individuals.

To resume, then: In the use-value of each commodity there is contained useful labour, i. e., productive activity of a definite kind and exercised with a definite aim. Use-values cannot confront each other as commodities, unless the useful labour embodied in them is qualitatively different in each of them. In a community, the produce of which in general takes the form of commodities, i. e., in a community of commodity producers, this qualitative difference between the useful forms of labour that are carried on independently by individual producers, each on their own account, develops into a complex system, a social division of labour.” (Marx 1906: 48–49).
So the “social division of labour” is Marx’s version of the division of labour from Classical economics.

Labour, then, comes in two forms:
(1) qualitatively different types of concrete, useful labour that produces specific use values, and

(2) abstract socially necessary labour that is the quantitative source of value, and is reducible to a homogeneous single unit of measurement (Brewer 1984: 23–24).
Social labour, the labour required to produce commodities, is the only thing that produces value (Foley 1986: 16). But labour of different qualitative, concrete types is a “natural necessity” for the creation of use values, and use values are the result of a combination of (1) material provided by nature and (2) human labour (Marx 1990: 133). In this sense, labour is not the only source of use values:
“The use-values, coat, linen, &c, i. e., the bodies of commodities, are combinations of two elements—matter and labour. If we take away the useful labour expended upon them, a material substratum is always left, which is furnished by Nature without the help of man. The latter can work only as Nature does, that is by changing the form of matter. Nay more, in this work of changing the form he is constantly helped by natural forces. We see, then, that labour is not the only source of material wealth, of use-values produced by labour. As William Petty puts it, labour is its father and the earth its mother.” (Marx 1906: 50).
By contrast, values of commodities are produced only by labour and are quantitative:
“On the one hand all labour is, speaking physiologically, an expenditure of human labour-power, and in its character of identical abstract human labour, it creates and forms the value of commodities. On the other hand, all labour is the expenditure of human labour-power in a special form and with a definite aim, and in this, its character of concrete useful labour, it produces use-values.” (Marx 1906: 54).
If we take an exchange of a coat with linen, then
“So far as they are values, the coat and the linen are things of a like substance, objective expressions of essentially identical labour. But tailoring and weaving are, qualitatively, different kinds of labour.” (Marx 1906: 50).
But in order to argue that values are just homogeneous unit quantities of labour, Marx has to demonstrate how this is so.

His answer is that all the different qualitative forms of labour can be reduced to a common unit of simple labour power:
“Productive activity, if we leave out of sight its special form, viz., the useful character of the labour, is nothing but the expenditure of human labour-power. Tailoring and weaving, though qualitatively different productive activities, are each a productive expenditure of human brains, nerves, and muscles, and in this sense are human labour. They are but two different modes of expending human labour-power. Of course, this labour-power, which remains the same under all its modifications, must have attained a certain pitch of development before it can be expended in a multiplicity of modes. But the value of a commodity represents human labour in the abstract, the expenditure of human labour in general. And just as in society, a general or a banker plays a great part, but mere man, on the other hand, a very shabby part, so here with mere human labour. It is the expenditure of simple labour-power, i.e., of the labour-power which, on an average, apart from any special development, exists in the organism of every ordinary individual. Simple average labour, it is true, varies in character in different countries and at different times, but in a particular society it is given. Skilled labour counts only as simple labour intensified, or rather, as multiplied simple labour, a given quantity of skilled being considered equal to a greater quantity of simple labour. Experience shows that this reduction is constantly being made. A commodity may be the product of the most skilled labour, but its value, by equating it to the product of simple unskilled labour, represents a definite quantity of the latter labour alone. The different proportions in which different sorts of labour are reduced to unskilled labour as their standard, are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by custom. For simplicity’s sake we shall henceforth account every kind of labour to be unskilled, simple labour; by this we do no more than save ourselves the trouble of making the reduction.” (Marx 1906: 51–52).
Skilled or experienced labour is, then, a multiple of simple abstract labour (as noted by Harvey 2010: 29). All labour is reducible to a meaningful, common homogeneous unit of labour (Foley 1986: 16). It follows that all concrete labour can be reduced to units of simple abstract labour and aggregated too.

But how does the market do this reduction of all heterogeneous types of labour power to homogeneous units of simple labour? Marx does not explain how, but merely assumes it does: “[e]xperience shows that this reduction is constantly being made.” But how? Marx says that the process is not even consciously known or understood by capitalists:
“Experience shows that this reduction is constantly being made. A commodity may be the product of the most skilled labour, but its value, by equating it to the product of simple unskilled labour, represents a definite quantity of the latter labour alone. The different proportions in which different sorts of labour are reduced to unskilled labour as their standard, are established by a social process that goes on behind the backs of the producers, and, consequently, appear to be fixed by custom.” (Marx 1906: 51–52).
But this is a lazy statement and a serious problem with Marx’s theory. Even a Marxist like Harvey notes that this passage has not explained how heterogeneous types of labour are reduced to homogeneous units of simple labour:
“Notably, Marx never specifies what ‘experience’ he has in mind, making this passage highly controversial. In the literature it is known as the ‘reduction problem:’ because it is not clear how skilled labor can be and is reduced to simple labor independently of the value of the commodity produced. Rather like the proposition about value as socially necessary labor time, Marx’s formulation appears cryptic, if not cavalier; he doesn’t explain how the reduction is made. He simply presumes for purposes of analysis that this is so and then proceeds on that basis.” (Harvey 2010: 29).
In the same vein, Brewer (1984: 24) rightly notes that critics of Marx find the argument flawed. First, if exchange of the products of skilled labour for products of unskilled labour can be used to determine the value of skilled value as a multiple of simple labour, then the argument is circular. Exchange values determine labour values, but labour values are supposed to be a source of exchange values.

Secondly, this part of the argument contradicts the previous idea stated by Marx that the reduction of skilled labour to a simple unit of abstract labour can be conducted in a physical or scientific manner by examining the “expenditure of human brains, nerves, and muscles.” If the only actual way we can determine the value of skilled value is by looking at the actual market exchange of the products of skilled labour for products of unskilled labour, then why bother with explaining the difference in terms of “expenditure of human brains, nerves, and muscles”?

And what if exchanges of the products of skilled labour for products of unskilled labour lead to radically inconsistent measures of the value of skilled labour as a multiple of simple labour?

These are severe problems with the theory. We are still left with the question: how are all heterogeneous forms of human labour power meaningfully reduced to simple homogeneous labour units?

Marx ends section 2 by pointing out that productivity changes can change the quantity of goods produced by labour, but not the duration of simple labour per se:
“Productive power has reference, of course, only to labour of some useful concrete form; the efficacy of any special productive activity during a given time being dependent on its productiveness. Useful labour becomes, therefore, a more or less abundant source of products, in proportion to the rise or fall of its productiveness. On the other hand, no change in this productiveness affects the labour represented by value. Since productive power is an attribute of the concrete useful forms of labour, of course it can no longer have any bearing on that labour, so soon as we make abstraction from those concrete useful forms. However then productive power may vary, the same labour, exercised during equal periods of time, always yields equal amounts of value. But it will yield, during equal periods of time, different quantities of values in use; more, if the productive power rise, fewer, if it fall. The same change in productive power, which increases the fruitfulness of labour, and, in consequence, the quantity of use-values produced by that labour, will diminish the total value of this increased quantity of use-values, provided such change shorten the total labour-time necessary for their production; and vice versa.” (Marx 1906: 53–54).
In essence, the value of one hour of abstract socially necessary labour time is always the same, but changes in labour productivity change the quantity of use values that can be produced in one hour (Brewer 1984: 24).

BIBLIOGRAPHY
Brewer, Anthony. 1984. A Guide to Marx’s Capital. Cambridge University Press, Cambridge.

Foley, Duncan K. 1986. Understanding Capital: Marx’s Economic Theory. Harvard University Press, Cambridge, Mass. and London.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Nitzan, Jonathan and Shimshon Bichler. 2009. Capital as Power: A Study or Order and Creorder. Routledge, Abingdon, UK and New York.

What is “Austerity”?

I mean in an economic context.

People sometimes seem confused about what it means, but I don’t find it problematic. In an economic context, “austerity” has this sense:
(1) a situation where the net effect of a government budget (in all its aspects whether spending or taxation, etc.) is contractionary fiscal policy in which aggregate demand is reduced or drained from the economy. E.g., the fiscal policy of Greece and Ireland after 2008 was an example of this type of austerity.
However, sometimes people use the word “austerity” in a secondary, looser sense:
(2) a situation in which a government reduces a previously expansionary fiscal policy to a much weaker one but where the net effect of fiscal policy is actually expansionary rather than contractionary. In this sense, the government “austerity” consists in the reduction of the expansionary effect of fiscal policy. E.g., it would seem that the Tory-Liberal Democrat government that ruled Britain from 2010–2015 more or less pursued this type of austerity.
When people talk of “austerity,” they usually think of type (1), and so confusion is frequently caused in political and economic debates when people use the word in sense (2).

Type (2) “austerity” means that a government is refusing to create stronger aggregate demand in an economy by cutting the strength of its fiscal stimulus to a weaker level, though in reality its fiscal policy is still (even if only weakly) expansionary. This means that the economy is forgoing a higher level of output and employment: unemployment, for example, will be higher than it needs to be. But type (2) austerity is still a form of fiscal expansion, and this should not be forgotten. An economy may well continue to have positive GDP growth and continue on a less robust growth path under type (2) austerity, since the government is not actually reducing aggregate demand in the way it would in type (1) austerity.

To avoid confusion, one has to distinguish these two senses of “austerity.”

Friday, June 19, 2015

Bad News for the Eurozone

In two recent news stories here:
Richard Orange, “Denmark election: Right-wing Eurosceptics look set to form a new government,” Independent, 18 June 2015.

Ben Chu, “Desperate Greeks turn to Vladimir Putin for help as country teeters on edge of bankruptcy,” Independent, 18 June 2015.
Could there be a greater tribute to the incompetence and stupidity of the Eurozone leaders?

First, there is the mind-numbing neoliberal economic incompetence that has caused depressions on the periphery of Europe (e.g., Ireland, Spain, Greece, the Baltic states) and economic conditions in the centre that are hardly much to boast about (e.g., unnecessarily high unemployment, asset bubbles, insanely high housing prices, unsustainably high private debt levels, etc.).

Secondly, there has been a steady rise of anti-EU right-wing parties in Europe and now we may well be seeing signs that some nations like Greece will be driven into geo-political alliances with Russia – just to avoid the anti-democratic Eurozone political and economic system.

In the UK in the recent election, the surprise result (actually probably not that surprising) was that the vehemently anti-EU UKIP party became the third largest party in terms of percentage of the vote (but owing to the first-past-the-post system in the UK only obtained one seat in the House of Commons).

One major reason why the Labour party lost was that UKIP attracted a significant number of Labour voters or swing voters who would have voted for Labour, just as I predicted here.

All in all, I see no reason to doubt that the EU is rapidly heading into a political crisis, and it will be exacerbated by any new economic crisis in the future.

Tuesday, June 16, 2015

Bibliography on Marx’s Monetary Theory

I’ve been reviewing Marx’s monetary theory as developed in part 1 of volume 1 of Capital, but there are also a number of interesting studies of this topic, as follows:
Arnon, Arie. 1984. “Marx’s Theory of Money: The Formative Years,” History of Political Economy 16: 311–326.

Arnon, Arie. 2012. Monetary Theory and Policy from Hume and Smith to Wicksell: Money, Credit, and the Economy. Cambridge University Press, Cambridge and New York. Chapter 15, pp. 309–329.

de Brunhoff, Suzanne. 1976. Marx on Money. Urizen, New York.

de Brunhoff, Suzanne and Duncan K. Foley. 2006. “Karl Marx’s Theory of Money and Credit,” in Philip Arestis and Malcolm Sawyer (eds.), A Handbook of Alternative Monetary Economics. Edward Elgar, Cheltenham, UK and Northampton, MA. 188–204.

Foley, Duncan K. 2005. “Marx’s Theory of Money in Historical Perspective,” in Fred Moseley (ed.), Marx’s Theory of Money: Modern Appraisals. Palgrave Macmillan, London. 36–49.

Germer, Claus. 2005. “The Commodity Nature of Money in Marx’s Theory,” in Fred Moseley (ed.), Marx’s Theory of Money: Modern Appraisals. Palgrave, London. 21–35.

Graziani, Augusto and Michel Vale. 1997. “The Marxist Theory of Money,” International Journal of Political Economy 27.2: 26–50.

Lapavitsas, C. 1994. “The Banking School and the Monetary Thought of Karl Marx,” Cambridge Journal of Economics 18: 447–461.

Lavoie, Don. 1986. “Marx, the Quantity Theory, and the Theory of Value,” History of Political Economy 18:1, 155–170.

Messori, Marcello and Michael Vale. 1997. “The Theory of Value without Commodity Money?: Preliminary Considerations on Marx's Analysis of Money,” International Journal of Political Economy 27.2: 51–96.

Moseley, Fred. “The ‘Monetary Expression of Labor’ in the Case of Non-Commodity Money,” November 2004
https://www.mtholyoke.edu/~fmoseley/Working_Papers_PDF/melt.pdf

Nelson, Anitra. 1999. Marx’s Concept of Money: The God of Commodities. Routledge, London and New York.

Nelson, Anitra. 2001. “Marx’s Theory of the Money Commodity,” History of Economic Review 33: 44–63.

Smith, Matthew. 2004. “Thomas Tooke’s Legacy to Monetary Economics,” in Tony Aspromourgos and John Lodewijks (eds.), History and Political Economy: Essays in Honour of P.D. Groenewegen. Routledge, London. 57–75, especially 62–65.

Wolfson, Murray. 1988. “Comment: Marx, the Quantity Theory, and the Theory of Value,” History of Political Economy 20: 137–140.
No doubt I have missed some important works, but I will update the bibliography as necessary.

An important point is that Marx seems to have had a type of quantity theory, albeit a highly idiosyncratic one based on the labour theory of value.

Furthermore, Marx took over and incorporated fundamental ideas on endogenous money right from the Banking School economist Thomas Tooke’s work as follows:
Tooke, Thomas. 1844. An Inquiry into the Currency Principle: The Connection of the Currency with Prices and the Expediency of a Separation of Issue from Banking. Longman, Brown, Green, and Longmans, London.
https://archive.org/details/inquiryintocurre00tookuoft

Friday, June 12, 2015

Marx’s Capital, Volume 1, Chapter 3: A Critical Summary

Chapter 3 of volume 1 of Capital is called “Money, or the Circulation of Commodities,” and develops Marx’s theory of money in a capitalist economy, as related to exchange of commodities, the functions of money and the value of money.

Chapter 3 is divided into three sections:
(1) The Measure of Value;
(2) The Means of Circulation;
(3) Money.
I discuss these sections below.

First, we should, however, note four important distinctions Marx makes in the functions of money:
(1) money as a “measure of value” (this measures labour value and can be either (1) ideal/abstract or (2) real when actual gold is paid);

(2) money as “standard of price” (which is usually a gold unit fixed by governments as national units of currency);

(3) money as a “medium of circulation” (where it facilitates the exchange of commodities as sales and purchases), and

(4) money as a “means of payment” (the function in which a money commodity is used to pay for things but could be represented by coins, paper money or credit money).
Money, for Marx, is ultimately a produced commodity with a labour value: money is therefore abstract alienated labour with an embodied labour value (Nelson 2001: 45; Germer 2005). Money must be a commodity, and this is consistent with how Marx understood money in the Grundrisse:
“Money – the common form, into which all commodities as exchange values are transformed, i.e. the universal commodity – must itself exist as a particular commodity alongside the others, since what is required is not only that they can be measured against it in the head, but that they can be changed and exchanged for it in the actual exchange process. The contradiction which thereby enters, to be developed elsewhere. Money does not arise by convention, any more than the state does. It arises out of exchange, and arises naturally out of exchange; it is a product of the same.”
Marx, The Grundrisse, Notebook 1, October 1857, The Chapter on Money (Part II)
https://www.marxists.org/archive/marx/works/1857/grundrisse/ch03.htm
Marx never says anywhere in his writings – not even in volume 3 of Capital – that money does not need to be a commodity or that it can become totally severed from an underlying commodity (Germer 2005: 22–23). On the contrary, in volume 3 of Capital Marx repeatedly stated that money can never become detached from an underlying commodity, as shown in this post. This was one of the worst and most severe errors in Marx’s economic system, and badly undermines the labour theory of value as well.

However, let us now turn to the three sections of Chapter 3 of Capital.

(1) The Measure of Value
Marx states explicitly that throughout Capital the base commodity money in his analysis is assumed to be gold (Marx 1990: 188). The relevant units of a commodity money like gold were historically derived from weight units (Marx 1990: 191). Governments tend to legally fix the standard monetary units (or “money-names”) of gold or silver (Marx 1990: 194), and these units function as the units of account or the standard of price (Marx 1990: 195). So commodity money functions as a measure of labour value and also expresses prices.

Marx argues that only commodities that are products of labour with an abstract socially necessary labour value can be equated with those of other commodities and so therefore function as money:
“The first chief function of money is to supply commodities with the material for the expression of their values, or to represent their values as magnitudes of the same denomination, qualitatively equal, and quantitatively comparable. It thus serves as a universal measure of value. And only by virtue of this function does gold, the equivalent commodity par excellence, become money.

It is not money that renders commodities commensurable. Just the contrary. It is because all commodities, as values, are realised human labour, and therefore commensurable, that their values can be measured by one and the same special commodity, and the latter be converted into the common measure of their values, i.e., into money. Money as a measure of value, is the phenomenal form that must of necessity be assumed by that measure of value which is immanent in commodities, labour-time.” (Marx 1906: 106).

“But only in so far as it is itself a product of labour, and, therefore, potentially variable in value, can gold serve as a measure of value.” (Marx 1906: 110).
A price is a “money form,” which is the expression of the value of a commodity in terms of gold, e.g. 1 ton of iron = 2 ounces of gold (Marx 1990: 189). Price in terms of gold can be an ideal, notional or abstract form (e.g., when someone asks a particular price for a commodity that is not yet sold), since one does not need to receive physical gold to value a good in terms of price (Marx 1990: 189–190). Prices can be imaginary quantities of gold (Marx 1990: 192).

Money has no price, according to Marx, since that would involve equating “it to itself as its own equivalent” (Marx 1906: 107; Marx 1990: 189).

For Marx, prices in gold depend on the labour value of gold:
“… although the money that performs the functions of a measure of value is only ideal money, price depends entirely upon the actual substance that is money. The value, or in other words, the quantity of human labour contained in a ton of iron, is expressed in imagination by such a quantity of the money-commodity as contains the same amount of labour as the iron. According, therefore, as the measure of value is gold, silver, or copper, the value of the ton of iron will be expressed by very different prices, or will be represented by very different quantities of those metals respectively.

If, therefore, two different commodities, such as gold and silver, are simultaneously measures of value, all commodities have two prices—one a gold-price, the other a silver-price. These exist quietly side by side, so long as the ratio of the value of silver to that of gold remains unchanged, say, at 15:1.” (Marx 1906: 108).
That is, even though Marx may admit later that actual prices often diverge from labour values, he is committed, at the very least, to the view that the long-run value of gold money is determined by the abstract socially necessary labour time required for gold’s production and also as this relates to the labour value of other commodities. But this idea, if taken seriously, requires that the actual exchange value of gold as money against other commodities gravitates around the long-run value of the abstract socially necessary labour time needed to produce gold. This is an important point, and badly undermines the Marxist apologists’ claims that Marx never meant labour value to be a determiner of individual commodity prices in Capital. Volume 1 of Capital is fundamentally inconsistent with volume 3.

To sum up, Marx makes two distinctions in the function of gold money:
(1) as a measure of value money is the “socially recognised incarnation of human labour,” and

(2) as a standard of price, gold money is “a fixed weight of metal” (Marx 1906: 110), usually fixed by law by states (Marx 1990: 194). Originally these derived from the weight units of precious metals like gold or silver, but for many historical reasons monetary unit names diverged from the strict weight names.
For Marx, money needs to be a commodity so that it is a product of human labour with a potentially variable labour value (Marx 1990: 192), which governs the value of money.

Marx even attempts to explain general price inflation and deflation in terms of labour value:
“A general rise in the prices of commodities can result only, either from a rise in their values—the value of money remaining constant—or from a fall in the value of money, the values of commodities remaining constant. On the other hand, a general fall in prices can result only, either from a fall in the values of commodities—the value of money remaining constant—or from a rise in the value of money, the values of commodities remaining constant. It therefore by no means follows, that a rise in the value of money necessarily implies a proportional fall in the prices of commodities; or that a fall in the value of money implies a proportional rise in prices. Such change of price holds good only in the case of commodities whose value remains constant. With those, for example whose value rises, simultaneously with, and proportionally to, that of money, there is no alteration in price. And if their value rise either slower or faster than that of money, the fall or rise in their prices will be determined by the difference between the change in their value and that of money ; and so on.” (Marx 1906: 111).
Using his questionable Hegelian dialectical analysis, Marx infers that underneath the money price of goods there is an underlying labour value:
“Price is the money-name of the labour realised in a commodity. Hence the expression of the equivalence of a commodity with the sum of money constituting its price, is a tautology, just as in general the expression of the relative value of a commodity is a statement of the equivalence of two commodities. But although price, being the exponent of the magnitude of a commodity’s value, is the exponent of its exchange ratio with money, it does not follow that the exponent of this exchange-ratio is necessarily the exponent of the magnitude of the commodity’s value. Suppose two equal quantities of socially necessary labour to be respectively represented by 1 quarter of wheat and £2 (nearly 1/2 oz. of gold), £2 is the expression in money of the magnitude of the value of the quarter of wheat, or is its price.” (Marx 1906: 114).
Only at this stage in his analysis does Marx state that labour value and price can diverge:
Magnitude of value expresses a relation of social production, it expresses the connection that necessarily exists between a certain article and the portion of the total labour-time of society required to produce it. As soon as magnitude of value is converted into price, the above necessary relation takes the shape of a more or less accidental exchange-ratio between a single commodity and another, the money-commodity. But this exchange-ratio may express either the real magnitude of that commodity’s value, or the quantity of gold deviating from that value, for which, according to circumstances, it may be parted with. The possibility, therefore, of quantitative incongruity between price and magnitude of value, or the deviation of the former from the latter, is inherent in the price-form itself. This is no defect, but, on the contrary, admirably adapts the price-form to a mode of production whose inherent laws impose themselves only as the mean of apparently lawless irregularities that compensate one another.” (Marx 1906: 114).
So, according to Marx, as labour values are converted into prices, we find “the shape of a more or less accidental exchange-ratio between a single commodity and another.” Astonishingly, we find no further analysis of how prices are formed or how they diverge from labour values in Chapter 3. Harvey (2010: 58–59) interprets this passage as a recognition by Marx that supply and demand conditions govern the prices of commodities on everyday markets. But Harvey also argues that Marx thinks that the long-run Classical equilibrium price (or natural price) is the centre of gravitation for market prices, and that this natural price is a “representation of socially necessary labor-time that generates the value crystallized in money” (Harvey 2010: 61, 59). This is utterly unsatisfactory, since the Classical natural price includes a uniform profit rate and Marx denies that this natural price directly equals or corresponds to labour value.

As we have seen above, Marx seems committed to the view that the natural value of a unit of gold money is ultimately determined by the abstract socially necessary labour time needed to produce it, not by random fluctuations of prices in accordance with supply and demand. So clearly Chapter 3 has a massive hole in it: how do labour values (including of gold) determine prices, and how do labour values relate to Classical prices of production/natural prices?

Fundamentally, for Marx, many things that have no actual labour value can have prices:
“The price-form, however, is not only compatible with the possibility of a quantitative incongruity between magnitude of value and price, i.e., between the former and its expression in money, but it may also conceal a qualitative inconsistency, so much so, that, although money is nothing but the value-form of commodities, price ceases altogether to express value. Objects that in themselves are no commodities, such as conscience, honour, &c, are capable of being offered for sale by their holders, and of thus acquiring, through their price, the form of commodities. Hence an object may have a price without having value. The price in that case is imaginary, like certain quantities in mathematics. On the other hand, the imaginary price-form may sometimes conceal either a direct or indirect real value-relation; for instance, the price of uncultivated land, which is without value, because no human labour has been incorporated in it.” (Marx 1906: 115).
So, for Marx, uncultivated land, because it is not a produced commodity, has no labour value, but can fetch an imaginary money price. But it is worse than this. In Marx’s economic theory, there are a vast swathe of goods whose prices are not actually “real” but “imaginary,” as follows:
(1) non-reproducible commodities, whether antiques, works of art by certain artists or masters, objects or goods signed by famous people sold on markets, letters or writings by famous people, vintage wine, etc.

(2) second-hand goods,

(3) uncultivated land, and

(4) the prices of financial and real assets bought and sold on secondary asset markets.
I discuss this point here.

Marx’s theory of prices, based as it is on labour value, is in reality an extraordinarily feeble theory with little explanatory power, given how many prices must be regarded as wholly “imaginary” under it.

(2) The Means of Circulation
Marx regards commodity exchange as part of a process of “social metabolism,” in which a commodity moves from being a non-use value to a seller to being a use value consumed by a buyer (Marx 1990: 198). This process is obscured by money. Commodities as use values are related to exchange values in terms of money which measure labour value, and in turn the money is used to buy other commodities as use values (Marx 1990: 199–200).

For Marx such a transaction is denoted by the expression:
Commodity – Money – Commodity, or
C–M–C.
This is a type of “commodity circuit”: indirectly, by the medium of money, one commodity exchanges for another. The labour value in the commodity simply “undergoes a change of form” (Harvey 2010: 63), from a commodity labour value to equal money labour value (money also being a type of commodity). That is, it is a change “in form of a particular commodity into the universal equivalent, the money commodity” (Harvey 2010: 63).

Also, any sale of a commodity is simultaneously a purchase (Marx 1990: 203–204), and for the seller it can be described as C–M and for the buyer M–C.

In analysing this, Marx repeats his view that commodities need to be demanded as use values for labour value to be realised:
“The social division of labour causes his labour to be as one-sided as his wants are many-sided. This is precisely the reason why the product of his labour serves him solely as exchange value. But it cannot acquire the properties of a socially recognised universal equivalent, except by being converted into money. That money, however, is in some one else’s pocket. In order to entice the money out of that pocket, our friend’s commodity must, above all things, be a use-value to the owner of the money. For this, it is necessary that the labour expended upon it, be of a kind that is socially useful, of a kind that constitutes a branch of the social division of labour. But division of labour is a system of production which has grown up spontaneously and continues to grow behind the backs of the producers. The commodity to be exchanged may possibly be the product of some new kind of labour, that pretends to satisfy newly arisen requirements, or even to give rise itself to new requirements. A particular operation, though yesterday, perhaps, forming one out of the many operations conducted by one producer in creating a given commodity, may to-day separate itself from this connection, may establish itself as an independent branch of labour and send its incomplete product to market as an independent commodity. The circumstances may or may not be ripe for such a separation. To-day the product satisfies a social want. To-morrow the article may, either altogether or partially, be superseded by some other appropriate product. Moreover, although our weaver’s labour may be a recognised branch of the social division of labour, yet that fact is by no means sufficient to guarantee the utility of his 20 yards, of linen. If the community's want of linen, and such a want has a limit like every other want, should already be saturated by the products of rival weavers, our friend’s product is superfluous, redundant, and consequently useless. Although people do not look a gift-horse in the mouth, our friend does not frequent the market for the purpose of making presents. But suppose his product turn out a real use-value, and thereby attracts money? The question arises, how much will it attract? No doubt the answer is already anticipated in the price of the article, in the exponent of the magnitude of its value. We leave out of consideration here any accidental miscalculation of value by our friend, a mistake that is soon rectified in the market. We suppose him to have spent on his product only that amount of labour-time that is on an average socially necessary. The price then, is merely the money-name of the quantity of social labour realised in his commodity. But without the leave, and behind the back, of our weaver, the old fashioned mode of weaving undergoes a change. The labour-time that yesterday was without doubt socially necessary to the production of a yard of linen, ceases to be so today, a fact which the owner of the money is only too eager to prove from the prices quoted by our friend’s competitors. Unluckily for him, weavers are not few and far between. Lastly, suppose that every piece of linen in the market contains no more labour-time than is socially necessary. In spite of this, all these pieces taken as a whole, may have had superfluous labour-time spent upon them. If the market cannot stomach the whole quantity at the normal price of 2 shillings a yard, this proves that too great a portion of the total labour of the community has been expended in the form of weaving. The effect is the same as if each individual weaver had expended more labour-time upon his particular product than is socially necessary. Here we may say, with the German proverb: caught together, hung together. All the linen in the market counts but as one article of commerce, of which each piece is only an aliquot part. And as a matter of fact, the value also of each single yard is but the materialised form of the same definite and socially fixed quantity of homogeneous human labour.” (Marx 1906: 119–121.
Marx in this passage states that the amount of abstract socially necessary labour time appropriate for the production of any given commodity is not independent of the market demand for that commodity: market demand will determine the socially necessary labour time for each unit, so that if there is an excess of supply in relation to demand, then the amount of social labour expended in the production of the aggregate output has been too high and some labour time wasted: it is as if all labourers had spent more time than was socially necessary for the production of each unit.

So Marx cannot be correct in saying in Chapter 1 of Capital that labour value is the fundamental cause of commodity exchange, and this can be deduced because “the exchange of commodities is evidently an act characterised by a total abstraction from use-value” (Marx 1906: 44–45).

As an aside, Marx is aware that capitalists in their production of commodities sometimes attempt to create new desires and consumer demand:
“The commodity to be exchanged may possibly be the product of some new kind of labour, that pretends to satisfy newly arisen requirements, or even to give rise itself to new requirements.” (Marx 1906: 119).
This point, however, remains underdeveloped.

According to Harvey (2010: 66), Marx also appears to make an attack on Say’s law in this chapter as follows:
“Nothing can be more childish than the dogma, that because every sale is a purchase, and every purchase a sale, therefore the circulation of commodities necessarily implies an equilibrium of sales and purchases. If this means that the number of actual sales is equal to the number of purchases, it is mere tautology. But its real purport is to prove that every seller brings his buyer to market with him. Nothing of the kind. The sale and the purchase constitute one identical act, an exchange between a commodity-owner and an owner of money, between two persons as opposed to each other as the two poles of a magnet. They form two distinct acts, of polar and opposite characters, when performed by one single person. Hence the identity of sale and purchase implies that the commodity is useless, if, on being thrown into the alchemistical retort of circulation, it does not come out again in the shape of money; if, in other words, it cannot be sold by its owner, and therefore be bought by the owner of the money That identity further implies that the exchange, if it does take place, constitutes a period of rest, an interval, long or short, in the life of the commodity. Since the first metamorphosis of a commodity is at once a sale and a purchase, it is also an independent process in itself. The purchaser has the commodity, the seller has the money, i.e., a commodity ready to go into circulation at any time. No one can sell unless some one else purchases. But no one is forthwith bound to purchase, because he has just sold. Circulation bursts through all restrictions as to time, place, and individuals, imposed by direct barter, and this it effects by splitting up, into the antithesis of a sale and a purchase, the direct identity that in barter does exist between the alienation of one's own and the acquisition of some other man's product. To say that these two independent and antithetical acts have an intrinsic unity, are essentially one, is the same as to say that this intrinsic oneness expresses itself in an external, antithesis. If the interval in time between the two complementary phases of the complete metamorphosis of a commodity becomes too great, if the split between the sale and the purchase becomes too pronounced, the intimate connexion between them, their oneness, asserts itself by producing—a crisis. The antithesis, use-value and value ; the contradictions that private labour is bound to manifest itself as direct social labour, that a particularized concrete kind of labour has to pass for abstract human labour ; the contradiction between the personification of objects and the representation of persons by things; all these antitheses and contradictions, which are immanent in commodities, assert themselves, and develop their modes of motion, in the antithetical phases of the metamorphosis of a commodity. These modes therefore imply the possibility, and no more than the possibility, of crisis. The conversion of this mere possibility into a reality is the result of a long series of relations, that, from our present standpoint of simple circulation, have as yet no existence.” (Marx 1906: 127–128).
In this passage Marx is essentially saying that Say’s law does not hold because people can hoard or hold money and not purchase commodities so that the commodity circuit C–M–C is broken, so that this interrupts and disrupts the process of circulation (Marx 1990: 208–209; this also how Harvey 2010: 66–67 interprets the passage). There is an embryonic theory of aggregate demand here, but anyone can see it is hardly developed at all. Moreover, as a critique of Say’s law, Marx’s ideas are – as in many of the instances where Marx has genuine insights into capitalism – quite undeveloped and dressed up in Hegelian dialectical claptrap that just obscures the argument.

Marx also repeats his idea as described in Chapter 2 that gold when initially brought to market exchanges with other commodities at its labour value:
“In order that it may play the part of money, gold must of course enter the market at some point or other. This point is to be found at the source of production of the metal, at which place gold is bartered, as the immediate product of labour, for some other product of equal value. From that moment it always represents the realised price of some commodity.” (Marx 1906: 122).
So here Marx is committed to the view that gold really does exchange for objects of equal labour value in its initial entrance into the process of circulation.

For Marx, the “process of circulation” is the endless series of transactions in a market economy where commodities exchange for money (C–M) and then money for commodities (M–C). Thus the sequence C–M–C is repeated endlessly (Marx 1990: 206–209), though when commodities are bought and used up either as consumer goods or capital goods they are removed from the sphere of circulation (Marx 1990: 211 with n. 25).

Money is a “medium of circulation” and “keeps continually within the sphere of circulation, and moves about in it” (Marx 1906: 132–133).

Marx reviews the quantity theory of his day (Harvey 2010: 68). Curiously, Harvey argues that Marx adopts a version of the quantity theory as held by Ricardo (Harvey 2010: 68), but other scholars hold that Marx fundamentally rejected the quantity theory.

Marx defines the quantity of money in this way:
“… for a given interval of time during the process of circulation, we have the following relation: the quantity of money functioning as the circulating medium is equal to the sum of the prices of the commodities divided by the number of moves made by coins of the same denomination. This law holds generally.” (Marx 1906: 132–135).
Marx also notes that gold money can be represented in physical exchanges by tokens (Marx 1990: 223).

Marx seems to think that silver and copper coins represent gold by law, but do not obtain their value from their own metal content or labour value:
“The weight of metal in the silver and copper tokens is arbitrarily fixed by law. When in currency, they wear away even more rapidly than gold coins. Hence their functions are totally independent of their weight, and consequently of all value. The function of gold as coin becomes completely independent of the metallic value of that gold. Therefore things that are relatively without value, such as paper notes, can serve as coins in its place. This purely symbolic character is to a certain extent masked in metal tokens. In paper money it stands out plainly.” (Marx 1906: 142).
Marx is quite clear that paper money must be backed by gold:
“The State puts in circulation bits of paper on which their various denominations, say £1, £5, &c, are printed. In so far as they actually take the place of gold to the same amount, their movement is subject to the laws that regulate the currency of money itself. A law peculiar to the circulation of paper money can spring up only from the proportion in which that paper money represents gold. Such a law exists; stated simply, it is as follows: the issue of paper money must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols.” (Marx 1906: 143).

“If the paper money exceed its proper limit, which is the amount of gold coins of the like denomination that can actually be current, it would, apart from the danger of falling into general disrepute, represent only that quantity of gold, which, in accordance with the laws of the circulation of commodities, is required, and is alone capable of being represented by paper. If the quantity of paper money issued be double what it ought to be, then, as a matter of fact, £1 would be the money-name not of 1/4 of an ounce, but of 1/8 of an ounce of gold. The effect would be the same as if an alteration had taken place in the function of gold as a standard of prices. Those values that were previously expressed by the price of £1 would now be expressed by the price of £2.

Paper-money is a token representing gold or money. The relation between it and the values of commodities is this, that the latter are ideally expressed in the same quantities of gold that are symbolically represented by the paper. Only in so far as paper-money represents gold, which like all other commodities has value, is it a symbol of value.” (Marx 1906: 144).
This seems to rule out pure fiat money. How wrong Marx was.

(3) Money
Money “itself is a commodity, an external object, capable of becoming the private property of any individual” (Marx 1906: 148–149), so people also hoard money and so this interrupts the process of circulation (Marx 1990: 227). A money hoard is essentially money functioning as a store of value.

Marx states:
“With the very earliest development of the circulation of commodities, there is also developed the necessity, and the passionate desire, to hold fast the product of the first metamorphosis. This product is the transformed shape of the commodity, or its gold-chrysalis. Commodities are thus sold not for the purpose of buying others, but in order to replace their commodity-form by their money-form. From being the mere means of effecting the circulation of commodities, this change of form becomes the end and aim. The changed form of the commodity is thus prevented from functioning as its unconditionally alienable form, or as its merely transient money-form. The money becomes petrified into a hoard, and the seller becomes a hoarder of money.” (Marx 1906: 146–147).
This is Marx’s inflated way of saying that people desire to hold money, though he ascribes this desire to hoard to the ability of money to function as a universal equivalent and its power to buy any commodity (Marx 1990: 229).

There is also a type of social power that comes with the accumulation money:
“Just as every qualitative difference between commodities is extinguished in money, so money, on its side, like the radical leveller that it is, does away with all distinctions. But money itself is a commodity, an external object, capable of becoming the private property of any individual. Thus social power becomes the private power of private persons.” (Marx 1906: 148–149).
Marx continues to describe the desire to hoard money as follows:
“…. [sc. money is] the universal equivalent form of all other commodities, and the immediate social incarnation of all human labour. The desire after hoarding is in its very nature unsatiable. In its qualitative aspect, or formally considered, money has no bounds to its efficacy, i.e., it is the universal representative of material wealth, because it is directly convertible into any other commodity. But, at the same time, every actual sum of money is limited in amount, and therefore, as a means of purchasing, has only a limited efficacy. This antagonism between the quantitative limits of money and its qualitative boundlessness, continually acts as a spur to the hoarder in his Sisyphus-like labour of accumulating. It is with him as it is with a conqueror who sees in every new country annexed, only a new boundary.” (Marx 1906: 149–150).
Later Marx is aware that people accumulate money in order to discharge debt obligations (Marx 1990: 240). Thus some money hoards are a “reserve fund of the means of payment” (Marx 1990: 240) to deal with debt repayment.

Next Marx considers debt–credit relationships owing to the time structure of production and sale of goods and realisation of profits. Money in a debt transaction serves as a measure of value (as money of account) and as a deferred means of payment (Marx 1990: 234–235), and for the debtor takes the form M–C–M (Harvey 2010: 76). In this case money is used obtain more money, though Marx does not explicitly explain this in Chapter 3.

On credit money, Marx has the following to say:
“Credit-money springs directly out of the function of money as a means of payment. Certificates of the debts owing for the purchased commodities circulate for the purpose of transferring those debts to others. On the other hand, to the same extent as the system of credit is extended, so is the function of money as a means of payment. In that character it takes various forms peculiar to itself under which it makes itself at home in the sphere of great commercial transactions. Gold and silver coin, on the other hand are mostly relegated to the sphere of retail trade.” (Marx 1906: 156–157).
There is reference here to the endogenous nature of credit money, but it remains underdeveloped in Chapter 3 of Capital.

Marx is aware that the chain of debt obligations in a capitalist economy and the inability to repay debts is part of business cycles:
“This contradiction comes to a head in those phases of industrial and commercial crises which are known as monetary crises.1 Such a crisis occurs only where the ever-lengthening chain of payments, and an artificial system of settling them, has been fully developed. Whenever there is a general and extensive disturbance of this mechanism, no matter what its cause, money becomes suddenly and immediately transformed, from its merely ideal shape of money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the presence of its own independent form. On the eve of the crisis, the bourgeois, with the self-sufficiency that springs from intoxicating prosperity, declares money to be a vain imagination. Commodities alone are money. But now the cry is everywhere: money alone is a commodity!” (Marx 1906: 155).
Again, like endogenous money, the role of debt in business cycles remains underdeveloped in Chapter 3.

Finally, Marx considers “world money.” In international exchange, gold and silver prevail as money (Marx 1990: 241) and countries also need gold reserves for international balance of payments (Marx 1990: 243–244). This is consistent with his commodity theory of money, and confirms that Marx is a metallist.

With the end of Chapter 3, Part 1 of Capital is concluded.

BIBLIOGRAPHY
Germer, Claus. 2005. “The Commodity Nature of Money in Marx’s Theory,” in Fred Moseley (ed.), Marx’s Theory of Money: Modern Appraisals. Palgrave, London. 21–35.

Harvey, David. 2010. A Companion to Marx’s Capital. Verso, London and New York.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Nelson, A. 2001. “Marx’s Theory of the Money Commodity,” History of Economic Review 33: 44–63.