Jehu, “Reply to LK: How Labor Theory of Value destroys Fiat ‘Money’,” The Real Movement, June 12, 2015.My original post is here.
We must remember that for Marx money is a special commodity that itself must have a labour value so it can function as a universal medium of exchange and numéraire. That is the basis by which money can exchange for other produced commodities under the law of value in volume 1 of Capital. But fiat money utterly destroys this basis of Marx’s labour theory of value and his theory of exchange value in volume 1.
It would follow that the trendy modern Marxist idea of the MELT is entirely intellectually bankrupt too, under Marx’s dogmatic metallist theory of money.
In the post above, the Marxist author agrees that modern fiat money has destroyed the ability of money to properly reflect Marx’s labour values. How, then, could Marx’s theory still be right? The answer: modern currency is not really money at all! In addition, prices and labour values diverge as in volume 3, but now fiat money has destroyed even any relation between values and prices of production even as postulated in volume 3 of Capital, since this is (apparently) the trajectory of capitalism as supposedly prophesied by Marx.
What is the worth of this argument? It is refreshingly honest at the very least. But there is a strange fallacy of equivocation in the argument. The words “money” and “currency” are given different meanings: money means a produced commodity with the labour value used as a unit of account and “currency” merely a token symbol for the money commodity.
But actually the basic concept of money does not at all require either the metallist or Marxist mythology that it must be a produced commodity.
The basic definition of money is something which fulfils these three functions:
(1) a medium of exchange;The very idea that money must of necessity be a produced commodity was a delusion and error of economic theory. If fiat money is impossible, then our modern economies would have collapsed decades ago when money was severed from gold in the 1930s for domestic economic transactions, and certainly since the end of Bretton Woods (a system in which gold only had a role in the international payments system anyway).
(2) a unit of account, and
(3) store of purchasing power.
Marx was fundamentally wrong about money and modern fiat money certainly explodes the law of value in volume 1 of Capital.
I am pretty sure Marx's reason for saying that money is a produced commodity is not dogmatic, it is empirical.ReplyDelete
He doesn't assert money "must be" gold (or whathaveyou), but explains *why* in historic fact it is.
Why does money naturally take the form of a produced commodity? In the example of gold: an ounce of gold directly embodies objective proof of its value, in the labor theory sense. The use of a produced commodity as money is just a special case of the general exchange of commodities of equal value.
The proof that the objective value content of money matters can be seen in, for example, San Francisco during the Gold Rush. Gold flakes, nuggets, and refined forms instantly took on an exchange value determined by the socially recognized average effort involved in producing them.
I think you are correct in saying that the value content of gold is why, in a money-using society, exchange prices naturally orbit around commodity values (in the sense of SNLT): It is because the unit of price is also itself an objective unit of value.
Marx's distinction between currency and money is thus also a natural and empirical one. For a starting point, currency is simply a token for money. From there, the use of currency enables the possibility for divergence.
OK, but so what? After all, you assert there are three essential properties for "money" that have nothing to do with its being a produced value.
(1) a medium of exchange;
(2) a unit of account, and
(3) store of purchasing power.
Qualities (1) and (2) are certainly true of marxian money and for marxian currency. Gold notes are a medium of exchange as is species. An ounce of gold is certainly a unit of account.
The trouble is here:
(3) store of purchasing power.
What the heck is "purchasing power"?
This matters because for Marx, money would be:
(1) a medium of exchange
(2) a unit of account
(3) a measure of value (SNLT)
You are saying "No, not marxian value but, instead, *purchasing power*." What is purchasing power?
I think people say "purchasing power" to mean just "you can buy stuff with it". Isn't that circular though?
X IS MONEY IF X:
(1) Is a medium of exchange,
(2) Is a unit of account,
(3) Is money.
The question of what "purchasing power" means is vital to your argument that goes:
"If fiat money is impossible, then our modern economies would have collapsed decades ago when money was severed from gold in the 1930s for domestic economic transactions, and certainly since the end of Bretton Woods (a system in which gold only had a role in the international payments system anyway)."
I'm not aware that Marx argued that "fiat money is impossible". (The opposite, I think.)
What Marx can tell us, on the basis of the law of value, is that fiat currency can temporarily disguise a fall in the price of labor below its value. Fiat money can disguise for a time the deflation associated with a fall in the rate of (real, realized) profit.
At the same time, fiat can not magically raise the rate of (real, realized) profit and thus can not prevent the constant crises of late capitalism such as the growing impossibility of forming new, independent capitals, and the bubbles and bursts of credit.
(1) "He doesn't assert money "must be" gold (or whathaveyou),"Delete
False. Marx states repeatedly that money must be attached to and convertible into a commodity like gold:
“But as soon as credit is shaken [sc. in commercial crises]—and this phase always appears of necessity in the cycles of modern industry—all the real wealth is to be actually and suddenly transformed into money, into gold and silver, a crazy demand, which, however, necessarily grows out of the system itself. And all the gold and silver, which is supposed to satisfy these enormous demands, amounts to a few millions in the cellars of the Bank.
In the effects of the gold drains, then, the fact that production as a social process is not subject to social control is strikingly emphasized by the existence of the social form of wealth outside out of it as a separate thing. The capitalist system of production, it is true, shares this with former systems of production, so far as they rest on the trade with commodities and private exchange. But only in it does this become apparent in the most striking and grotesque form of the most absurd contradiction and nonsense, because, in the first place, production for the direct use of the producers is most completely abolished under the capitalist system, so that wealth exists only as a social process expressed by the interrelations of production and circulation; and in the second place, because capitalist production forever strives to overcome this metallic barrier the material and phantastic barrier of wealth and its movements, in proportion as the credit system develops, but forever breaks its head on this same barrier.
In the crisis the demand is made, that all bills of exchange, securities, and commodities shall be simultaneously convertible into bank money, and this whole bank money consists of gold.” (Marx 1909: 673–674).
“But it should never be forgotten, that money, in the first place, in the form of precious metals, remains the basis from which the credit system naturally can **never** detach itself.” (Marx 1909: 712).
“The banking system shows, furthermore, by putting different forms of circulating credit in the place of money, that money is in reality nothing but a special expression of the social character of labor and its products, so that this character, as distinguished from the basis of individual production, **must** present itself in the last analysis as a thing, as a peculiar commodity by the side of the other commodities.” (Marx 1909: 713).
(2) "I'm not aware that Marx argued that "fiat money is impossible". (The opposite, I think.)"
Cite me a passage by Marx where he says that money can become purely fiat money and commodity standard abolished. Do you have any evidence?
Cite me a passage by Marx where he says that money can become purely fiat money and commodity standard abolished.ReplyDelete
That's not what Marx (or I) say.
Instead: Fiat money can and does circulate as currency but the commodity money standard can not be abolished.
Fiat money is a form of credit money. How do we know? Because:
1. Quantities of fiat money and debt denominated by the same currency come into existence in equal measure.
2. Debt repayment extinguishes fiat money in equal measure.
3. At time of issue, fiat money nominally denotes a definite quantity of value determined by the same-instant prices of real commodities.
Fiat is a distinct form of credit money because the central bank has repudiated having any specific exchange rate to gold. In spite of that, the central bank has an implicit, instantaneous conversion rate to gold when new debt is created -- it is only that the promise to redeem for a specific number of ounces is formally gone.
Although a true redemption rate is formally gone, still, the convertability of credit money to real commodities is the touch stone of the reliability of the credit system. When that reliability is in doubt, there is a run on real commodities and away from credit money, including fiat currency.
Already in Marx's time -- and in the very chapter you cite Marx is talking about this -- the gold reserves are an insigificant fraction of the nominal amount of credit money in circulation. Full redemption of credit money, the medium of exchange and the unit of account, is already, as Marx writes, impossible.
You cited Capital v3 ch 35:
"and in the second place, because capitalist production forever strives to overcome this metallic barrier the material and phantastic barrier of wealth and its movements, in proportion as the credit system develops, but forever breaks its head on this same barrier."
Yes, exactly. Capital drives commodity money from circulation in favor of credit money but as soon as credit is expanded beyond credibility, there is a run on real commodities in preference to credit money.
Credit, likewise a social form of wealth, crowds out money and usurps its place. It is faith in the social character of production which allows the money-form of products to assume the aspect of something that is only evanescent and ideal, something merely imaginative. But as soon as credit is shaken — and this phase of necessity always appears in the modern industrial cycle — all the real wealth is to be actually and suddenly transformed into money, into gold and silver [il.e., into objectively quantified value in the form of real, fixed capital -tl] — a mad demand, which, however, grows necessarily out of the system itself. And all the gold and silver [i.e. real, fixed capital -tl] which is supposed to satisfy these enormous demands amounts to but a few millions in the vaults of the Bank. [i.e. available on the exchanges]
No, this is just militant irrationality.Delete
Marx says money can never become detached from a commodity standard and you deny basic facts about he said.
"Fiat money can and does circulate as currency but the commodity money standard can not be abolished."
lol.. commodity money standard WAS abolished first in the 1930s and then in 1973 totally for international payments. Are you really so fanatically dishonest, or so ignorant you don't know this fact?
"as soon as credit is expanded beyond credibility, there is a run on real commodities in preference to credit money."
No, Marx says money can't ever be severed from a gold standard. That fact that it has been and money continues to function and capitalism goes on and on proves Marx was wrong.
Marx says money can never become detached from a commodity standardReplyDelete
[...] Marx says money can't ever be severed from a gold standard.
Again, you have quoted from a chapter in which Marx lays out how credit money does in fact become detached from a "commodity standard" and also how, when the credit system is shaken, the importance of objective value reasserts itself. This has, in fact happened since the 30s and it continues to happen.
Are you aware Jehu responded to this?ReplyDelete