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CHAPTER 3: MONEY, OR THE CIRCULATION OF COMMODITIES

By now it’s clear that a particular notion of money has been crystallizing out of Marx’s account of commodity exchange. It was implicit in the opposition between the relative and equivalent forms of value and this, with the proliferation of exchange into a general social act, led on to the emergence of a universal equivalent that took the form of a tangible money commodity that represented value even as it disguised the origins of value in socially necessary labor-time. We now inspect this money-form more closely.

Chapter 3 is long and quite intricate. It tells a simple story, though, in what by now should be a familiar fashion. Money is a unitary concept, but it internalizes dual functions that mirror the duality of use- and exchange-value within the commodity. On the one hand, money operates as a measure of value, as a golden representative, as it were, of socially necessary labor-time. In this role it must possess distinctive qualities so as to provide, as far as possible, an accurate and efficient standard measure of value. On the other hand, money also has to lubricate the proliferation of exchange and do so with the minimum of fuss and difficulty. In this way it functions as a mere medium and means for moving an increasingly vast array of commodities around.

There is a tension, a contradiction, between these two functions. As a measure of value, for example, gold looks very good. It is permanent and can be stored forever; one can assay its qualities; one can know and control its concrete conditions of production and circulation. So gold is great as a measure of value. But imagine if every time you went for coffee, you had to use a grain of gold to purchase it. This is a very inefficient form of money from the standpoint of the circulation of myriad small quantities of commodities. Imagine everyone with a little pouch with grains of gold in it—what if somebody sneezed while counting out the grains? Gold is an inefficient means of circulation, even as it is excellent as a measure of value.

So Marx contrasts money as a measure of value (section 1) and money as a means or medium of circulation (section 2). At the end of the day, though, there is only one kind of money (section 3). And the resolution of that tension between money as an effective measure of value and money as an efficient means of circulation is partially given by the possibility, or—and this is controversial—the necessity, of another form of circulation, which is the existence of credit moneys. The consequent relation between debtors and creditors opens up not only the possibility but also the necessity for another form of circulation, that of capital. In other words, what emerges in this chapter is the possibility for the concept, as well as the fact, of capital. In the same way that the possibility of money crystallized out of processes of exchange, so the possibility of capital crystallizes out of the contradiction between money as the measure of value and money as the means of circulation. This is the big story in this long chapter. If you keep it steadily in mind, a lot of the intricate and sometimes confusing details fall more easily into place.

Section 1: The Measure of Values

There is a distinction between “money” and “the money commodity.” To consolidate his earlier argument—namely, that value is not in itself materially measurable but needs, rather, a representation to regulate exchanges—Marx begins by assuming gold to be the singular money commodity. This is “the necessary form of appearance of the measure of value which is immanent in commodities, namely labour-time” (188). Value gets expressed (or perhaps we should say “resides”) in the relationship between the money commodity as “a form of appearance” of value and all the commodities that exchange with it. The value of commodities is unrecognizable and unknowable without its form of appearance.

This poses, however, some complications—and reveals some contradictions—that require close scrutiny. Marx focuses first on how prices get attached to commodities. Prices are, he says, imaginary, or ideal (meaning a product of thought or logical principle, as opposed to “real” or empirically derived conclusions) (189–90). He’s referring to the fact that when I make a commodity, I have no idea what its value is before I take it to market. I go to the market with some imaginary, ideal notion of its value. So I hang a price tag on it. This tells the potential purchaser what I think the value of my commodity should be. I have no idea whether I’ll get that price for it, though, because I can have no prior idea of what its value is “on the market”:

In its function as measure of value, money therefore serves only in an imaginary or ideal capacity. This circumstance has given rise to the wildest theories. But, although the money that performs the functions of a measure of value is only imaginary, the price depends entirely on the actual substance that is money. (190)

A relationship arises between the imaginary, ideal prices and the prices actually received in the marketplace. The received price should, “ideally,” indicate true value, but it is only going to be the appearance, a representation—and an imperfect one, at that—of value.

We would obviously prefer the quantitative representation of value to be a stable standard of measurement. Gold is a specific commodity, though; its value is given by the socially necessary labor-time embodied in it, and this is not, as we have seen, constant. Fluctuations in the concrete conditions of production affect the value of gold (or any other money commodity). Since, however, such changes affect “all commodities simultaneously,” then “other things being equal … the mutual relations between their values [are] unaltered, although those values are now all expressed in higher or lower gold-prices than before” (191–3, emphasis added).

Marx also introduces silver as a potential alternative money commodity in order to make a simple point: although gold seems to be a solid standard of value for comparing the relative values of all other commodities, it is insecure when it comes to establishing the absolute value (192–3). If, as in the gold rush of 1848, an influx of gold floods the market, then suddenly the value of gold—the representative measure of socially necessary labor-time—declines, and all the commodity prices have to adjust upward (hence the grand inflation in the sixteenth century when the Spaniards brought in gold from Latin America). We are always dealing with the money commodity as something that has a concrete use-value, and the conditions of its own production have an impact on the way value is represented. In recent years, gold prices have been yo-yoing all over the place (for reasons we will come to shortly). What Marx wants to emphasize here is that even though any money commodity makes for a shifting measure of value, its inconstancy makes no difference to the relative values of the commodities being exchanged in the marketplace (192–3, see also 146).

Marx goes on to observe that, “as measure of value, and as standard of price, money performs two quite different functions.” Here, a sub-duality within the theory of money emerges, not to be confused with the grand distinction between money as a measure of value and as a medium of circulation. The money commodity “is the measure of value as the social incarnation of human labour”—this is the “ideal” representation—but it is also “the standard of price as a quantity of metal with a fixed weight.” It is the latter aspect that allows us to say that this commodity is really “worth” so many ounces of gold. This quantity, the weight of gold, is what we have in mind before, and hopefully in hand after, the exchange of the commodity. “For various reasons,” though—and these turn out to be historical reasons—“the money-names of the metal weights are gradually separated from their original weight-names” (192–3).

Now, there is no explicit theory of the state in Capital, but if you trace its many appearances throughout the text, it becomes clear that the state performs essential functions within a capitalist system of production (we have already tacitly invoked this in imagining the institutions of private property and a properly functioning market in chapter 2). One of the state’s most important functions, as we will see, has to do with organizing the monetary system, regulating the money-names and keeping the monetary system effective and stable.

These historical processes have made the separation of the money-name from the weight-name into a fixed popular custom. Since the standard of money is on the one hand purely conventional, while on the other hand it must possess universal validity, it is in the end regulated by law. (194)

The money-name is, however, a fetish-construct. “The name of a thing is entirely external to its nature. I know nothing of a man if I merely know his name is Jacob. In the same way, every trace of the money-relation disappears in the money-names pound, thaler, franc, ducat, etc.” That is, the relationship to socially necessary labor-time is further disguised by these money-names. “Price,” Marx concludes, “is the money-name of the labour objectified in a commodity” (195). The money-name (pounds, ducats) is not the same as the money commodity (gold), and its relation to value as socially necessary labor-time becomes ever more opaque; but the definition of price as the money-name of the labor embodied in a commodity is important to remember.

Marx goes on to make two more important observations. The possibility exists, he writes, “of a quantitative incongruity between price and magnitude of value, i.e. the possibility that the price may diverge from the magnitude of value,” and this possibility belongs inherently to the price-form itself. “This is not a defect, but, on the contrary, it makes this form the adequate one for a mode of production whose laws can only assert themselves as blindly operating averages between constant irregularities” (196). What he is saying here is this: if I take my commodity to market and hang a price (a money-name or proposed representation of value) on it, you bring a similar commodity to market and hang your price on it, somebody brings another and hangs a different price on it, we will have a marketplace full of different prices for the same commodity. The average price that will actually be achieved on a particular day will depend on how many people want the commodity and how many people come to market wanting to sell it. So, the average realized price will jump around depending on fluctuations in supply and demand conditions.

It is through this mechanism that an equilibrium price emerges. This equilibrium price, or what the classical political economists called the “natural” price, is the price achieved when supply and demand have come into equilibrium. At this equilibrium point, Marx will later claim, supply and demand cease to explain anything. Supply and demand do not explain why a shirt, on average, costs less than a pair of shoes and what the average differential price is between shirts and shoes. It is Marx’s view that this average differential price is reflective of value, of the socially necessary labor-time congealed in the different commodities. On a given day, though, price fluctuations will tell you the state of demand and supply for shoes on that day and why it has gone up or down from yesterday. So the fact that we put money-names on commodities and convert the measure of value into this ideal form, the price-form, allows price fluctuations to equilibrate the market, and this brings us closer to identifying a proper representation of value as equilibrium or natural price. What the fluctuations in prices achieve is a convergence on the average social labor necessary to produce a commodity. Without this quantitative incongruity there would be no way of smoothing out demand and supply variations in the marketplace and converging on the social average price that represents value.

The second observation is even more difficult to absorb:

The price-form … is not only compatible with the possibility of a quantitative incongruity between magnitude of value and price, i.e. between the magnitude of value and its own expression in money, but it may also harbour a qualitative contradiction, with the result that price ceases altogether to express value, despite the fact that money is nothing but the value-form of commodities. Things which in and for themselves are not commodities, such as conscience, honour, etc., can be offered for sale by their holders and thus acquire the form of commodities through their price. Hence a thing can, formally speaking, have a price without having a value. The expression of price is in this case imaginary, like certain quantities in mathematics. On the other hand, the imaginary price-form may also conceal a real value-relation or one derived from it, as for instance the price of uncultivated land, which is without value because no human labour is objectified in it. (197)

Once you can hang a price tag on something, you can in principle put a price tag on anything, including conscience and honor, to say nothing of body parts and children. You can hang it on a natural resource, on the view of a waterfall; you can certainly put a price tag on land and speculate on shifts in land prices. The price system can operate in these other dimensions to produce qualitative as well as quantitative incongruities. Which then raises the question: if prices can be put on anything independently of their value, and if they can in any case quantitatively fluctuate all over the place independently of value, then why is Marx so fixated on the labor theory of value? Aren’t the conventional political economists—even to this day—correct to say that all we can observe and all that can have real meaning is contained in the concept of price, and that the labor theory of value is therefore irrelevant?

Marx does not defend his choice here; he didn’t particularly have to, given that the labor theory of value was widely accepted by his Ricardian contemporaries. But today, with the labor theory widely questioned or abandoned, even by some Marxist economists, it behooves us to construct some sort of response. Marx would, I think, appeal to the concept of the material base: if everybody tried to live off the spectacle of waterfalls or through trading in conscience and honor, no one would survive. Real production, the real transformation of nature through labor processes, is crucial to our existence; and it is this material labor that forms the basis for the production and reproduction of all human life. We can’t dress in conscience and honor (remember the fable of the emperor’s new clothes), we can’t dress in the spectacle of a waterfall; clothes do not come to us that way, they come to us through human labor processes and commodity exchange. Even in a city like Washington, D.C., where a vast amount of trading in conscience and honor seems to occur, there is always the question of where everybody’s breakfast comes from, as well as the electronics, the paper, the automobiles, the houses and the highways that sustain daily life. To pretend this all arrives magically through the market, facilitated by the magic of the money that happens to be in our pocket, is to succumb totally to the fetishism of the commodity. We need the concept of value as socially necessary labor-time in order to break through the fetishism.

Whether or not you believe that Marx was right to take a position such as this is up to you to decide. To understand Capital on Marx’s own terms, though, you have to be prepared to accept an argument somewhat along these lines, at least until you get to the end of the book. It is also important to recognize that Marx is, nevertheless, conceding something here that is terribly important. That is, the price system is indeed a surface appearance that has its own objective reality (it really is “as it appears”) as well as a vital function—the regulation of demand and supply fluctuations so that they converge on an equilibrium price—and this system can easily get out of control on its own terms. As we will later see even in this chapter, the quantitative and qualitative incongruities have serious consequences for how market systems and money-forms work. (They can even yield not only the possibility, but also the inevitability, of financial and monetary crises!)

But Marx’s presumption—and if you are to understand him, you must bear with him on this point—is that value as socially necessary labor-time lies at the center of things. If we assume that values are fixed (though perpetual shifts in technology and social and natural relations constantly remind us that in fact it’s quite the contrary), then we’ll see prices fluctuating over time around “natural” prices, the state of equilibrium between demand and supply. This equilibrium price is merely an appearance, a representation of socially necessary labor-time that generates the value crystallized in money. And this value is what the market prices are actually fluctuating around (196). Market prices perpetually and necessarily deviate from values; if they didn’t, there would be no way of equilibrating the market. As for the qualitative incongruities, some of them (such as speculation in land values and land rents) have an important material role to play (not to be taken up until Volume III) in processes of urbanization and the production of space. But this is something that cannot be considered here.

Section 2: The Means of Circulation

It is useful to study Marx’s introductory paragraphs carefully since they often signal a general argument or theme that needs to be borne in mind. Here he reminds us that “we saw in a former chapter that the exchange of commodities implies contradictory and mutually exclusive conditions” (198). What is he referring to? Look back at the section on relative and equivalent forms of value. There, he identified three peculiarities of the money commodity. First, that “use-value becomes the form of appearance of its opposite, value”; second, that “concrete labour becomes the form of manifestation of its opposite, abstract human labour”; and third, that “private labour takes the form of its opposite, namely labour in its directly social form” (148, 150, 151).

Gold is a particular commodity produced and appropriable by private persons, with a particular use-value, and yet all those particularities are somehow buried within the universal equivalent of the money commodity. “The further development of the commodity does not abolish these contradictions,” Marx observes, “but rather provides the form within which they have room to move.” There are some clues here—pay particular attention to that phrase, “the form within which [contradictions] have room to move”—as to the nature of Marx’s dialectical method. There is, he says, a general “way in which real contradictions are resolved. For instance, it is a contradiction to depict one body as constantly falling towards another and at the same time constantly flying away from it. The ellipse is a form of motion within which this contradiction is both realized and resolved” (198, emphasis added).

Earlier, I described the dialectic as a form of expansionary logic. Some people like to think about the dialectic as being strictly about thesis, antithesis and synthesis, but what Marx is saying here is that there is no synthesis. There is only the internalization of and greater accommodation of the contradiction. Contradictions are never finally resolved; they can only be replicated either within a perpetual system of movement (like the ellipse) or on a grander scale. Yet there are apparent moments of resolution, as when the money-form crystallizes out of exchange to resolve the problem of how to circulate all those commodities efficiently. So we might breathe a sigh of relief and say, thank God, we have money, that’s a nice synthesis, we don’t have to think anymore. No, no, says Marx, we now have to analyze the contradictions that money-forms internalize—contradictions that become problematic on a much grander scale. There is, as it were, a perpetual expansion of the contradictions.

For this reason I get impatient with people who depict Marx’s dialectic as a closed method of analysis. It is not finite; on the contrary, it is constantly expanding, and here he is explaining precisely how. We only have to review what we have already experienced in reading Capital; the movement of its argument is a perpetual reshaping, rephrasing and expansion of the field of contradictions. This explains why there is so much repetition. Each step forward requires Marx to return to an earlier contradiction in order to explain where the next one is coming from. Reflecting on introductory passages like this one helps to clarify Marx’s meaning; it gives us a better idea of what he is trying to do in each section as his argument unfolds.

We see this process at work in the second section of the chapter on money, where Marx examines what he calls the “social metabolism” and “metamorphosis of commodities” through exchange. Exchange, as we have seen, “produces a differentiation of the commodity into two elements, commodity and money.” When we put these into motion, we see that commodities and money move in opposite directions with each change of hands. While the movement of one (the exchange of money) is supposed to facilitate the other (the movement of commodities), there is an oppositional flow, which creates the possibility for the rise of “antagonistic forms” (198–9). This sets the stage for the analysis of the metamorphosis of commodities.

Exchange is a transaction in which value undergoes a change of form. Marx labels this chain of movements—commodity into money, money into commodity—the “C-M-C” relation. (This is different from the “C-C” or commodity-to-commodity movement of bartering; all exchanges are now mediated through money.) This process is a twofold metamorphosis of value from C into M and of M into C (199–200).

It would seem on the surface that these are mirror images and therefore in principle equivalent, but in fact they are asymmetrical. The C-M side of the exchange, the sale, involves the change in form of a particular commodity into the universal equivalent, the money commodity. It is a movement from the particular to the universal. In order to sell your particular commodity, you must find somebody in the market who wants it. What happens if you get to market and nobody wants your commodity? This provokes a whole series of questions about how need—and the production of needs through, for example, advertising—influences the exchange process:

Perhaps the commodity is the product of a new kind of labour, and claims to satisfy a newly arisen need, or is even trying to bring forth a new need on its own account … Today the product satisfies a social need. Tomorrow it may perhaps be expelled partly or completely from its place by a similar product. (201)

So the transformation from C into M is complicated in large part by supply and demand conditions that exist in the market at a particular time:

We see then that commodities are in love with money, but that ‘the course of true love never did run smooth’. The quantitative articulation … of society’s productive organism, by which its scattered elements are integrated into the system of the division of labour, is as haphazard and spontaneous as its qualitative articulation. (202)

That is, the hidden hand of the market—the chaos of market exchange, the chronic uncertainty of it all—places all kinds of barriers in the way of a direct conversion of the commodity into the universal equivalent.

C-M-C is a single process—an exchange—that can be viewed from either of its two “poles” (203). The M-C side of exchange, the purchase, is a transition from money to commodity; it entails a movement from the universal to the particular. This is not, however, simply C-M in reverse. Changing money into a commodity is in principle much easier: you enter the market with your money and buy anything you want. To be sure, potential buyers may on occasion be frustrated by not finding what they desire; but in that case, thanks to the universal equivalence of the money commodity, they can always buy something else.

So in the process of exchange, value in effect moves from one state (that of the commodity) into another (that of money) and back again. Viewed as a whole, this process

appears in the first place [to be] made up of two opposite and complementary movements, C-M and M-C. These two antithetical transmutations of the commodity are accomplished through two antithetical social processes in which the commodity-owner takes part, and are reflected in the antithetical economic characteristics of the two processes … While the same commodity is successively passing through the two inverted transmutations … the owner of the commodity successively changes his role from seller to buyer. (206)

Marx’s emphasis on antithesis signals a potential contradiction, but not one between buyers and sellers because these are “not fixed roles, but constantly attach themselves to different persons in the course of the circulation of commodities.” The contradiction has to lie in the metamorphosis of commodities taken as a whole, i.e., within the circulation of commodities in general, since “the commodity itself is here subject to contradictory determinations,” being at once a non-use-value from the standpoint of its owner and, as a purchase, a use-value to the buyer (206–7).

This process—the circulation of commodities—is increasingly mediated by money. Again, notice how important the proliferation of exchange relations is to Marx’s argument:

We see here, on the one hand, how the exchange of commodities breaks through all the individual and local limitations of the direct exchange of products, and develops the metabolic process of human labour. On the other hand, there develops a whole network of social connections of natural origin, entirely beyond the control of the human agents. (207)

So where in the process of the circulation of commodities is the contradiction? Whereas a purchased commodity, being a use-value to its consumer, might “fall out of circulation,” the money does not drop out and disappear. It keeps on moving such that “circulation sweats money from every pore” (208). With this, Marx launches a definitive and violent attack upon something called Say’s law, which was a powerful idea within classical political economy and continues to this day to be a strong tenet of belief among monetarist economists.¹ The French economist J. B. Say held that there can be no such thing as a general crisis of overproduction within capitalism, because every sale is a purchase and every purchase is a sale. By this logic, there is always some sort of aggregate equilibrium between purchases and sales in the market: while there may be an overproduction of shoes relative to shirts, or oranges relative to apples, a generalized overproduction in society is impossible because of the overall equivalence of purchases and sales.

Marx objects as follows:

Nothing could be more foolish than the dogma that because every sale is a purchase, and every purchase a sale, the circulation of commodities necessarily implies an equilibrium between sales and purchases. If this means that the number of actual sales accomplished is equal to the number of purchases, it is a flat tautology … No one can sell unless someone else purchases. But no one directly needs to purchase just because he has sold … To say that these mutually independent and antithetical processes [i.e., C-M and M-C] form an internal unity is to say also that their internal unity moves forward through external antitheses. These two processes lack internal independence because they complement each other. Hence, if the assertion of their external independence … proceeds to a certain critical point, their unity violently makes itself felt by producing—a crisis. There is an antithesis, immanent in the commodity, between use-value and value, between private labour which must simultaneously manifest itself as directly social labour, and a particular concrete kind of labour which simultaneously counts as merely abstract universal labour, between the conversion of things into persons and the conversion of persons into things; the antithetical phases of the metamorphosis of the commodity are the developed forms of motion of this immanent contradiction. These forms therefore imply the possibility of crises, though no more than the possibility. (208–9)

For the full development of this possibility of crises, I am sorry to say, you are going to have to read Volumes II and III, along with the three volumes of Theories of Surplus Value, because, as Marx points out, we need to know a lot more before we can explain in detail where crises might come from. For our purposes here, though, it’s worth noticing how the “the conversion of things into persons and the conversion of persons into things” echoes the fetishism argument from the first chapter.

At the heart of Marx’s objection to Say’s law lies the following argument. I start with C, I go to M, but there is no force that compels me to spend the money immediately on another commodity. I can, if I want, simply hold on to the money. I might do that, for example, if I felt there was some insecurity in the economy, if I was worried about the future and wanted to save. (What would you rather have in your hand in difficult times: a particular commodity or the universal equivalent?) But what happens to the circulation of commodities in general if everybody suddenly decides to hold on to money? The buying of commodities would cease and circulation would stop, resulting in a generalized crisis. If everybody in the world suddenly decided not to use their credit cards for three days, the whole global economy would be in serious trouble. (Recall how we were all urged to get out our credit cards after 9/11 and get back to shopping.) Which is why so much effort is put toward getting money out of our pockets and keeping it circulating.

In Marx’s time, most economists, including Ricardo, accepted Say’s law (210, n. 42). And partly due to the influence of the Ricardians, the law dominated economic thinking throughout the nineteenth century and up until the 1930s, when there was a generalized crisis. Then followed the (typical, to this day) chorus of economists saying things like, “There would be no crisis if only the economy would perform according to my textbook!” The facts of the Great Depression made a dominant economic theory that denied the possibility of generalized crisis untenable.

Then, in 1936, John Maynard Keynes published his General Theory of Employment, Interest and Money, in which he totally abandons Say’s law. In his Essays in Biography (1933), Keynes reexamines the history of Say’s law and what he considered its lamentable consequences for economic theorizing. Keynes made much of something he called the liquidity trap, in which some ruction occurs in the market, and those with money get nervous and hold on to it rather than invest or spend it, driving the demand for commodities down. Suddenly people can’t sell their commodities. Uncertainty increasingly troubles the market, and more people hang on to their money, the source of their security. Subsequently, the whole economy just goes spiraling downward. Keynes took the view that government had to step in and reverse the process by creating various fiscal stimuli. Then the privately hoarded money would be enticed back into the market.

As we’ve seen, Marx similarly dismisses Say’s law as foolish nonsense in Capital, and since the 1930s there has been a dialogue about the relationship between Marxian and Keynesian theories of the economy. Marx clearly sides with those political economists who did argue for the possibility of general crises—in the literature of the time, these economists were referred to as “general glut” theorists—and there were relatively few of them. The Frenchman Sismondi was one; Thomas Malthus (of population-theory fame) was another, which is somewhat unfortunate, because Marx could not abide Malthus, as we will later see.

Keynes, on the other hand, praises Malthus inordinately in Essays in Biography but scarcely mentions Marx—presumably for political reasons. In fact, Keynes claimed he never read Marx. I suspect he did, but even if he didn’t, he was surrounded by people like the economist Joan Robinson, who did read Marx and certainly told Keynes about Marx’s rejection of Say’s law. Keynesian theory dominated economic thinking in the postwar period; then came the anti-Keynesian revolution of the late 1970s. The monetarist and neoliberal theory that is predominant today is much closer to an acceptance of Say’s law. So the question of the proper status of Say’s law is an interesting one worthy of further inquiry. What matters for our purposes here, though, is Marx’s emphatic rejection of it.

The next step in Marx’s argument is to plunge into an analysis of the circulation of money. I won’t spend much time on the details of this, because Marx is basically reviewing the monetarist literature of the time. The question he is posing here is: how much money does there need to be in order to circulate a given quantity of commodities? He accepts a version of what is called the “quantity theory of money,” similar to that of Ricardo. After several pages of detailed discussion, he arrives at a supposed law: the quantity of the circulating medium is “determined by the sum of the prices of the commodities in circulation, and the average velocity of the circulation of money” (219). (The velocity of circulation of money is simply a measure of the rate at which money circulates—e.g., how many times in a day a dollar bill changes hands.) He had earlier noted, however, that “these three factors, the movement of prices, the quantity of commodities in circulation, and the velocity of the circulation of money, can all vary in various directions under different conditions” (218). The quantity of money needed therefore varies a great deal, depending on how these three variables shift. If you can find some way to speed up the circulation, then the velocity of money accelerates, as happens through credit-card use and electronic banking, for example: the greater the velocity of money, the less money you need, and conversely. Plainly, the concept of the velocity of money is important, and to this day the Federal Reserve goes to great pains to try to get accurate measures of it.

Considerations on the quantity theory of money bring him back to the argument I laid out at the beginning of this chapter—that when it comes to the circulation of commodities, little bits of gold are inefficient. It is much more efficient to use tokens, coins, paper or, as happens nowadays, numbers on a computer screen. But “the business of coining,” Marx says, “like the establishing of a standard measure of price, is an attribute proper to the state” (221–2). So the state plays a vital role in replacing metallic money commodities with tokens, symbolic forms. Marx illustrates this with brilliant imagery:

The different national uniforms worn at home by gold and silver as coins, but taken off again when they appear on the world market, demonstrate the separation between the internal or national spheres of commodity circulation and its universal sphere, the world market. (222)

The significance of the world market and world money comes back in at the end of this chapter.

Locally, the quest for efficient forms of money becomes paramount. “Small change appears alongside gold for the payment of fractional parts of the smallest gold coin” which then leads to “inconvertible paper money issued by the state and given forced currency” (224). As soon as symbols of money emerge, many other possibilities and problems arise:

Paper money is a symbol of gold, a symbol of money. Its relation to the values of commodities consists only in this: they find imaginary expression in certain quantities of gold, and the same quantities are symbolically and physically represented by the paper. (225)

Marx also notes “that just as true paper money arises out of the function of money as the circulating medium, so does credit-money take root spontaneously in the function of money as the means of payment” (224). The money commodity, gold, is replaced by all manner of other means of payment such as coins, paper moneys and credit. This happens because a weight of gold is inefficient as a means of circulation. It becomes “socially necessary” to leave gold behind and work with these other symbolic forms of money.

Is this a logical argument, a historical argument or both? Certainly, the history of the different monetary forms and the history of state power are intricately intertwined. But is this necessarily so, and is there some inevitable pattern to those relations? Until the early 1970s, most paper moneys were supposedly convertible into gold. This was what gave the paper moneys their supposed stability or, as Marx would describe it, their relationality to value. Converting money into gold was, however, denied to private persons in many countries from the 1920s onward and mainly retained for exchanges between countries to balance currency accounts. The whole system broke down in the late 1960s and early 1970s, and we now have a purely symbolic system with no clear material base—a universal money commodity.

So what relationship exists today between the various paper moneys (e.g., dollars, euros, pesos, yen) and the value of commodities? Though gold still plays an interesting role, it no longer functions as the basis for representing value. The relationship of moneys to socially necessary labor-time, which was problematic even in the case of gold, has become even more remote and elusive. But to say it is hidden, remote and elusive is not to say it does not exist. Turmoil in international currency markets has something to do with differences in material productivity in different national economies. The problematic relationship between the existing money-forms and commodity-values that Marx outlines is still with us and very much open to the line of analysis that he pioneered, even though its contemporary form of appearance is quite different.

Section 3: Money

Marx has examined money as a measure of value and revealed some of its contradictions, particularly with respect to its “ideal” functions as price and the consequent “incongruities” in the relationship between prices and values. He has looked at money from the standpoint of circulation and revealed another set of contradictions (including the possibility of general crises). Now—typical Marx—he comes back to us and says, well, at the end of the day, there is only one money. This means that somehow the contradictions between money as a measure of value and money as a medium of circulation have to have “room to move” or perhaps even be resolved.

He thus begins by reiterating the foundational idea of money as “the commodity which functions as a measure of value and therefore also as the medium of circulation, either in its own body or through a representative” (227). So we are back to the unitary concept, but we must examine how the contradictions earlier identified can operate within it. The loosening of the connection between value and its expression provides room for maneuver, but it does so at the expense of contact with a real and solid monetary base. From this point, Marx probes deeper into the contradictions that characterize this evolved form of the money system. He begins by considering the phenomenon of hoarding:

When the circulation of commodities first develops, there also develops the necessity and the passionate desire to hold fast to the product of the first metamorphosis. This product is the transformed shape of the commodity, or its gold chrysalis. Commodities are thus sold not in order to buy commodities, but in order to replace their commodity-form by their money-form. Instead of being merely a way of mediating the metabolic process, this change of form becomes an end in itself … The money is petrified into a hoard, and the seller of commodities becomes a hoarder of money. (227–8, emphasis added)

(This passage foreshadows another kind of circulation process, as we’ll see, in which C-M-C is viewed as M-C-M with the procurement of money as an end in itself.)

But why would people do this? Marx offers an interesting twofold answer. On the one hand there is a passionate desire for money-power, but on the other there also exists a social necessity. Why is hoarding socially necessary for commodity exchange? Here he invokes the temporal problem of coordinating the sales and purchases of different commodities that take very different times to produce and bring to market. A farmer produces on an annual basis but also buys on a daily basis; he therefore needs to hoard reserves from one harvest to the next. Anyone wishing to purchase a big-ticket item (like a house or a car) needs to hoard money first—unless there is a credit system. “In this way hoards of gold and silver of the most various sizes are piled up at all the points of commercial intercourse” (229).

But the ability to hold the means of exchange (in defiance of Say’s law) also awakens a passion, a “lust for gold.” “The hoarding drive,” he says, “is boundless in its nature.” Witness Christopher Columbus: “Gold is a wonderful thing! Its owner is master of all he desires. Gold can even enable souls to enter Paradise” (229–30). Here Marx, quoting Columbus, returns to the idea that once you can hang a price tag on something, you can hang it on anything—even a person’s soul, as his allusion to the Catholic Church’s infamous medieval practice of selling indulgences (i.e., papal pardons that promised entry into heaven) suggests:

Circulation becomes the great social retort into which everything is thrown, to come out again as the money crystal. Nothing is immune from this alchemy, the bones of the saints cannot withstand it. (229)

The sale of indulgences is sometimes regarded as one of the first major waves of capitalist commodification. It certainly laid the basis for all that hoarded wealth in the Vatican. Talk about the commodification of conscience and honor!

So there is nothing that is not commensurable with money; in the circulation of commodities, it is “a radical leveller, it extinguishes all distinctions” (229). This idea of money as a radical leveler is very important. It indicates a certain democracy of money, an egalitarianism in it: a dollar in my pocket has the same value as one in yours. With enough money, you could buy your way into heaven no matter your sins!

But money is also “itself a commodity, an external object capable of becoming the private property of any individual. Thus the social power becomes the private power of private persons” (229–30). This is a vital step in Marx’s argument. Notice how it echoes the third “peculiarity” of the money-form revealed in the section on relative and equivalent values—i.e., money’s tendency to render private labor a means of expression for social labor. With this step, though, Marx reverses that initial formulation of the logical relation between money and labor. There, the problem was that private activities were involved in the production of the universal equivalent. Now, he is describing the way in which private persons can appropriate the universal equivalent for their own private purpose—and we begin to see the possibility for the concentration of private and, eventually, class power in monetary form.

This does not always go down well. “Ancient society … denounced it as tending to destroy the economic and moral order” (230). This is a theme that Marx explored at some length in the Grundrisse, where he writes on how money destroyed the ancient community by becoming the community itself, the community of money.² This is the kind of world in which we ourselves now live. We may have fantasies of belonging to this or that cultural community, but in practice, Marx argues, our primary community is given by the community of money—the universal circulatory system that puts breakfast on our tables—whether we like it or not:

Modern society, which already in its infancy had pulled Pluto by the hair of his head from the bowels of the earth, greets gold as its Holy Grail, as the glittering incarnation of its innermost principle of life. (230)

The social power that attaches to money has no limit. But boundless though the hoarding drive may be, there is a quantitative limitation on the hoarder: the amount of money he has at any given time. “This contradiction between the quantitative limitation and the qualitative lack of limitation of money keeps driving the hoarder back to his Sisyphean task: accumulation” (231, emphasis added). This is the first mention of accumulation in Capital, and it is important to notice that Marx arrives at it by uncovering the contradiction inherent in the act of hoarding money.

The limitless potentialities for monetary accumulation are fascinating to reflect on. There is a physical limit to the accumulation of use-values. Imelda Marcos is reported to have had some two thousand pairs of shoes, but this enormous quantity is still a finite amount. How many Ferraris or McMansions can you own? With money-power, the sky seems to be the limit. No matter how much money they earn, all CEOs and billionaires want, and can get, more. In 2005 the leading hedge fund managers in the United States received around $250 million in personal remuneration, but by 2008 several of them, including George Soros, gained nearly $3 billion. The accumulation of money as unlimited social power is an essential feature of a capitalist mode of production. When people seek to accumulate that social power, they start to behave in a very different way. Once the universal equivalent becomes a representation of all socially necessary labor-time, the potentialities for further accumulation are limitless.

The consequences of this are legion. A capitalist mode of production is essentially based on infinite accumulation and limitless growth. Other social formations at some historical or geographical point reach a limit, and when they do, they collapse. But the experience of capitalism, with some obvious phases of interruption, has been characterized by constant and seemingly limitless growth. The mathematical growth curves illustrating the history of capitalism in terms of total output, total wealth and total money in circulation are astonishing to contemplate (along with the radical social, political and environmental consequences they imply). This growth syndrome would not be possible if not for the seemingly limitless way in which the representation of value can be accumulated in private hands. None of this is explicitly mentioned in Capital, but it helps us make an important connection. Marx is setting up his argument concerning the contradiction between the limitless potentiality of money-power accumulation and the limited possibilities for use-value accumulation. This, we’ll see, is a precursor to his explanation of the growth dynamics and expansionary nature of what today we call “globalizing” capitalism.

At this point, however, he simply takes the standpoint of the hoarder, for whom the limitless accumulation of social power in the form of money is a significant incentive (leaving aside the added incentive of the aesthetic value attached to beautiful silver and gold objects). Marx notices that hoarding has a potentially useful function in relation to the contradiction between money as a measure of value and as a medium of circulation. The hoarded money constitutes a reserve that can be put into circulation if there is a surge in commodity production and can be retracted when the quantity of money needed for circulation shrinks (e.g., due to an increase in velocity). In this way, the formation of a hoard becomes crucial to moderating “the ebbs and flows” of the money in circulation (231).

The extent to which a hoard can perform this function depends, however, on whether it is used appropriately. How might hoarded money be enticed back into circulation when needed? Raising the relative price of gold and silver, for example, could tempt people to spend on commodities that have become relatively cheaper. The idea is that “the reserves created by hoarding serve as channels through which money may flow in and out of circulation, so that circulation itself never overflows its banks” (232).

Marx then considers the implications of money being used as a means of payment. Again, the basic problem addressed here arises out of the intersecting temporalities of different kinds of commodity production. A farmer produces a crop that can be put on the market in September. How do farmers live the rest of the year? They need money continuously but get their money all at one time, once a year. One solution, instead of hoarding, is to use money as a means of payment. This creates a time gap between the exchange of commodities and the money exchanges; a future date of settlement has to be set. (Michaelmas became a traditional date to settle up accounts in Britain, reflecting the agricultural cycle there.) The commodities circulate “on tick.” Money becomes money of account, written down in a ledger. Since no money is actually moving until settlement date, less aggregate money is needed to circulate commodities, and this helps resolve tensions between money as a measure of value and as a medium of circulation (232–3).

The result is a new kind of social relation—that between debtors and creditors—which gives rise to a different kind of economic transaction and a different social dynamic:

The seller becomes a creditor, the buyer becomes a debtor. Since the metamorphosis of commodities, or the development of their form of value, has undergone a change here, money receives a new function as well. It becomes the means of payment. (233)

But note well: “the role of creditor or of debtor results here from the simple circulation of commodities,” but it is also possible for it to shift from transient, occasional forms to “a more rigid crystallization,” by which he means a more definite class relation. (He compares this dynamic to the class struggle in the ancient world and the contest in the Middle Ages that “ended with the ruin of the feudal debtors, who lost their political power together with its economic basis” (233).) So there is a power relation within the debtor-creditor relation, though its nature has yet to be determined.

So what is the role of credit in the general circulation of commodities? Suppose I am a creditor. You are in need of money, and I lend it to you now with the idea I will get it back later. The form of circulation is M-C-M, which is very different from C-M-C. Why would I circulate money in order later to get back the same amount of money? There is no advantage to me in this form of circulation unless I get back more money at the end than I started with. (Perhaps it’s already clear where this analysis is leading.)

There follows a crucial passage, the significance of which is all too easy to miss, partly because of the way Marx buries it in complicated language. I cite it nearly in full:

Let us return to the sphere of circulation. The two equivalents, commodities and money, have ceased to appear simultaneously at the two poles of the process of sale. The money functions now, first as the measure of value in the determination of the price of the commodity sold … Secondly it serves as a nominal means of purchase. Although existing only in the promise of the buyer to pay, it causes the commodity to change hands. Not until payment falls due does the means of payment actually step into circulation, i.e. leave the hand of the buyer for that of the seller. The circulating medium was transformed into a hoard because the process stopped short after the first phase, because the converted shape of the commodity was withdrawn from circulation. The means of payment enters circulation, but only after the commodity has already left it. The money no longer mediates the process. It brings it to an end by emerging independently, as the absolute form of existence of exchange-value, in other words the universal commodity. The seller turned his commodity into money in order to satisfy some need; the hoarder in order to preserve the monetary form of his commodity, and the indebted purchaser in order to be able to pay. If he does not pay, his goods will be sold compulsorily. The value-form of the commodity, money, has now become the self-sufficient purpose of the sale, owing to a social necessity springing from the conditions of the process of circulation itself. (233–4, emphasis added)

Decoded, this means that there needs to be a form of circulation in which money is going to be exchanged in order to get money: M-C-M. This is a shift in perspective that makes a world of difference. If the objective is procuring other use-values through commodity production and commodity exchange, albeit mediated through money, we’re dealing with C-M-C. In contrast, M-C-M is a form of circulation in which money is the objective, not commodities. In order for that to have a rationale, it requires that I get back more money than I started with. This is the moment in Capital when we first see the circulation of capital crystallizing out of the circulation of commodities mediated by the contradictions of money-forms. There is a big difference between the circulation of money as a mediator of commodity exchange and money used as capital. Not all money is capital. A monetized society is not necessarily a capitalist society. If everything revolved around the C-M-C circulation process, then money would be merely a mediator, nothing more. Capital emerges when money is put into circulation in order to get more money.

I want to pause now to reflect a bit on the nature of Marx’s argument so far. At this point, we can say that the proliferation of commodity exchange necessarily leads to the rise of money-forms and that the internal contradiction within these money-forms necessarily leads, in turn, to the rise of the capitalist form of circulation, in which money is used to gain more money. This is, crudely summarized, the argument of Capital so far.

We first have to decide whether this is a historical or a logical argument. If it is the former, then there is a teleology to history in general, and capitalist history in particular; the rise of capitalism is an inevitable step in human history, emerging out of the gradual proliferations of commodity exchange. It is possible to find statements in Marx that would support such a teleological view, and his frequent deployment of the word “necessary” certainly supports such an interpretation. I myself am not convinced of it, and if Marx did indeed believe this then I think he was wrong.

This leaves us with the logical rationale, which I find much more persuasive. It focuses on the methodology at work as the argument unfolds: the dialectical and relational opposition between use-value and exchange-value as embodied in the commodity; the externalization of that opposition in the money-form as a way to represent value and facilitate commodity exchange; the internalization of this contradiction by the money-form as both a medium of circulation and a measure of value; and the resolution of that contradiction through the emergence of relations between debtors and creditors in the use of money as a means of payment. Now we are in a position to understand money as the beginning and end point of a distinctive circulation process, to be called capital. The logic of Marx’s argument reveals the internalized dialectical relations that characterize a fully developed capitalist mode of production (understood as a totality) of the sort that evolved (for contingent historical reasons) from the sixteenth century onward in Britain in particular.

There may, of course, be some compromise to be made with the historical rationale, simply by converting the language from “necessity” to “possibility” or even “probability” or “likelihood.” We would then say that the contradictions in the money-form created the possibility for the rise of a capitalist form of circulation, and perhaps even point to specific historical circumstances in which the pressures emanating from those contradictions might become so overwhelming as to directly cause capitalism to break through. Certainly much of what Marx attributes to “social necessity” would seem to indicate this. We could likewise point to the intense barriers that had to be developed in “traditional” societies to prevent the capitalist form of circulation from coming to dominate and the social instabilities those societies experienced as they were subjected to periodic feasts and famines of either commodity trading or gold or silver supply. Different social orders (such as China’s) have, at various times, ridden out these contradictions in their own fashion without falling under the domination of capital. Whether contemporary China has already fallen into the capitalist camp or can manage to continue to ride the capitalist tiger is, however, a matter of great import and a subject of much debate. I must, however, conclude now with a series of questions to contemplate.

In Capital, Marx passes on to more particular matters. There is, he notes “a contradiction immanent in the function of money as the means of payment”:

When the payments balance each other, money functions only nominally, as money of account, as a measure of value. But when actual payments have to be made, money does not come onto the scene as a circulating medium, in its merely transient form of an intermediary in the social metabolism, but as the individual incarnation of social labour, the independent presence of exchange-value, the universal commodity. (235)

That is, when money comes into circulation to solve this disequilibrium, those who hold it don’t do so out of the goodness of their hearts, responding to the needs of others or to the market’s need for a greater supply of money. Rather, somebody who owns the universal equivalent puts it into the market purposefully, for some reason, and we have to understand what that reason might be. But the “independence” of the universal commodity and its separation from day-to-day commodity circulation have profound consequences.

From here Marx’s argument takes a surprising turn:

This contradiction bursts forth in that aspect of an industrial and commercial crisis which is known as a monetary crisis. Such a crisis occurs only where the ongoing chain of payments has been fully developed, along with an artificial system for settling them. Whenever there is a general disturbance of the mechanism, no matter what its cause, money suddenly and immediately changes over from its merely nominal shape, money of account, into hard cash. Profane commodities can no longer replace it. (236)

In other words, you can’t settle your bills with more IOUs; you’ve got to find hard cash, the universal equivalent, to pay them off. This then poses the social question in general: where is the hard cash going to come from? Marx continues,

The use-value of commodities becomes valueless, and their value vanishes in the face of their own form of value. The bourgeois, drunk with prosperity and arrogantly certain of himself, has just declared that money is a purely imaginary creation. ‘Commodities alone are money,’ he said. But now the opposite cry resounds over the markets of the world: only money is a commodity. As the hart pants after fresh water, so pants his soul after money, the only wealth. In a crisis, the antithesis between commodities and their value-form, money, is raised to the level of an absolute contradiction. Hence money’s form of appearance is here also a matter of indifference. The monetary famine remains whether payments have to be made in gold or in credit-money, such as bank-notes. (236–7)

Back in 2005, there was a consensus that there was an immense surplus of liquidity sloshing around in the world’s markets. The bankers had surplus funds and were lending to almost anyone, including, as we later found out, people who had no creditworthiness whatsoever. Buy a house with no income? Sure, why not? Money doesn’t matter because commodities like housing are a safe bet. But then the prices of houses stopped rising, and when the debts fell due, more and more people could not pay. At that point the liquidity suddenly dries up. Where is the money? Suddenly the Federal Reserve has to inject massive funds into the banking system because now “money is the only commodity.”

As Marx amusingly put it elsewhere, in boom economies everybody acts like a Protestant—they act on pure faith. When the crash comes, though, everyone dives for cover in the “Catholicism” of the monetary base, real gold. But it is in these times that the question of real values and reliable money-forms gets posed. What is the relation between what is going on in all those debt-bottling plants in New York City and real production? Are they dealing in purely fictitious values? These are the questions that Marx raises for us, questions that are forgotten during the halcyon years but regularly come back to haunt us at moments of crisis. Once the monetary system becomes even more detached from the value system than it does with a gold standard, then all sorts of wild possibilities open up with potentially devastating consequences for social and natural relations.

The sudden shortage of circulating medium, at a certain historical moment, can likewise generate a crisis. Withdrawing short-term credit from the market can crash commodity production. A good example of that took place in East and Southeast Asia between 1997 and 1998. Perfectly adequate companies, producing commodities, were heavily indebted but could easily have worked their way out of their indebtedness had it not been for a sudden withdrawal of short-term liquidity. The bankers withdrew the liquidity, the economy crashed and viable companies went bankrupt, selling out for lack of access to the means of payment. Western capital and the banks came in and bought them all up for almost nothing. Liquidity was then restored, the economy revived and suddenly the bankrupted companies are viable again. Except now they are owned by the banks and the Wall Street folk, who can sell them off at an immense profit. In the nineteenth century, there were several liquidity crises of this kind, and Marx had followed them closely. 1848 saw a profound element of a liquidity crisis. And the people who came out of that year exceedingly enriched and empowered were—guess who?—the people who controlled the gold, i.e., the Rothschilds. They brought down governments simply because they controlled the gold at that particular moment. In Capital, Marx shows how the possibility of this kind of crisis is immanent in the way contradictions within the monetary system move under capitalism (236).

This then leads Marx to modify the quantity theory of money, by insisting that less money is needed the more payments balance each other out and the more money becomes a mere means of payment. “Commodities circulate, but their equivalent in money does not appear until some future date.” In this way, “credit-money springs directly out of the function of money as a means of payment, in that certificates of debt owing for already purchased commodities”—what on Wall Street is now institutionalized as collateralized debt obligations (CDOs)—“themselves circulate for the purpose of transferring those debts to others” (237–8).

On the other hand, the function of money as a means of payment undergoes expansion in proportion as the system of credit itself expands … When the production of commodities has attained a certain level and extent, the function of money as a means of payment begins to spread out beyond the sphere of the circulation of commodities. It becomes the universal material of contracts. Rent, taxes and so on are transformed from payments in kind to payments in money. (238)

With this, Marx anticipates the monetization of everything, as well as the spread of credit and finance in ways that would radically transform both economic and social relations.

The bottom line is that “the development of money as a means of payment makes it necessary to accumulate it in preparation for the days when the sums which are owing fall due” (240). Again, accumulation and hoarding are paired, but they have different functions:

While hoarding, considered as an independent form of self-enrichment, vanishes with the advance of bourgeois society, it grows at the same time in the form of the accumulation of a reserve fund of the means of payment. (240)

This leads Marx to modify the quantity theory of money earlier stated: the total quantity of money required in circulation is the sum of commodities, multiplied by their prices and modified by the velocity and the development of means of payment. To this must now be added a reserve fund (a hoard) that will permit flexibility in times of flux (240). (In contemporary conditions, of course, this reserve fund is not privately held but lies within the prerogative of a public institution, which in the US is appropriately designated the Federal Reserve.)

The final subsection of this chapter deals with world money. To work effectively, any monetary system, as we have seen, requires a deep participation on the part of the state as a regulator of coins and symbols and overseer of the qualities and quantities of money (and in our times as manager of the reserve fund). Individual states typically manage their own monetary system in a particular way and can exercise a great deal of discretion in so doing. There is still a world market, however, and national monetary policies cannot exempt states from the disciplinary effects that flow from commodity exchange across the world market. So while the state may play a critical role in the stabilization of the monetary system within its geopolitical borders, it is nevertheless connected to the world market and subject to its dynamics. Marx points to the role played by precious metals; gold and silver became, as it were, the lingua franca of the world financial system. This metallic base was vital both domestically and in external (international) relations (241–3).

So the security of this metallic base and the money-forms (coins, in particular) derived from it became critical to global capitalism. It is interesting to note that at the same time as John Locke was urging religious tolerance, condemning the practice of burning heretics at the stake, his close colleague Isaac Newton was being called on to defend to quality of moneys as master of the Royal Mint. He had to face the problem of the debasement of the currency through the practice of shaving some of the silver off silver coins to make more coins (an easy way to make money, when you think about it). Convicted coin-clippers were publicly hung at Tyburn—offences against God were to be forgiven, but offences against capital and mammon deserved capital punishment!

So this brings us to the problem of how relevant Marx’s arguments are in a world where the financial system works without a money commodity, without a metallic base, as has been the case since 1971. You will notice that gold is still important and perhaps wonder, in these troubled times of roiled international currency markets, whether you want to hold gold, dollars, euros or yen. So gold has not entirely disappeared from the scene, and there are some who argue for a return to some version of a gold standard to counteract the instabilities and the chaotic speculation that often trouble international financial transactions. The gold, recall, is simply depicted by Marx as a representation of value, of socially necessary labor-time. All that has happened since 1973 is that the manner of representation has changed. But Marx himself also notes multiple shifts in representational forms with coins, paper moneys, credit and the like, so in a way there is nothing in the current situation that defies his mode of analysis. What has happened, in effect, is that the value of a particular currency vis-à-vis all other currencies is (or should be) determined in terms of the value of the total bundle of commodities produced within a national economy. Plainly, the overall productivity of a whole economy is an important variable in all this; hence the emphasis placed on productivity and efficiency in public policy.

Now, if we stick with Marx’s logic, we should immediately observe the contradictions that derive from this situation. To begin with, there is the fiction of a national economy that matches the “national uniforms” of national moneys. Such an economy is an “ideal,” a fiction made real by collecting vast amounts of statistics on production, consumption, exchange, welfare and the like. These statistics are crucial for evaluating the state of a nation and play an important role in affecting exchange rates between currencies. When the statistics on consumer confidence and jobs look good, the currency rises. These data actually construct the fiction of a national economy when really there is no such thing; in Marx’s terms, it is a fetish construct. But then perhaps speculators may enter and challenge the data (much of which is organized on pretty shaky grounds) or suggest that some indicators are more important than others, and if they can prevail then they can make megabucks betting on currency moves. For example, George Soros made a billion dollars in a few days by betting against the British pound in relation to the European Exchange Rate Mechanism, by convincing the market that he had the better view on the national economy.

What Marx has built into his mode of analysis is a persuasive way to understand the fraught and problematic link between value (the socially necessary labor-time congealed in commodities) and the ways in which the monetary system represents that value. He unpacks what is fictitious and imaginary about those representations and their resulting contradictions, while showing how, nevertheless, the capitalist mode of production cannot function without these ideal elements. We cannot abolish the fetishism, as he earlier pointed out, and we are condemned to live in a topsy-turvy world of material relations between people and social relations between things. The way forward is to advance the analysis of the inherent contradictions, to understand the way they move and the ways they open up new possibilities for development (as with the credit system) as well as the potential for crises. Marx’s method of inquiry, it seems to me, is exemplary even as we have to adapt it to understand our current perilous situation.

One final point. This chapter on money is rich, complicated and hard to absorb on first reading. For this reason, as I began by remarking, many people give up on Capital by chapter 3. I hope you have found enough that is intriguing to stay with it. But you will also be glad to know that you do not have to understand everything in the chapter in order to move on. Much of what is said here is more relevant to later volumes than to the rest of Volume I. Armed with some basic, but essential, propositions from this chapter, it is possible to grasp the rest of the material without too much difficulty. From here on in, the argument becomes much easier.