2. Medium of Circulation

Interesting that Marx has discussed all of these properties of money as measure of value, unit of account and so on, without getting into circulation. Thus, in Marx’s system, money arises out of the nature of the commodity itself, out of the social relations of commodity production, not out of some abstracted notion of circulation. This roots Marx’s concept of money and circulation in a theory of production, firmly establishing the primacy of the social relations of production in our analysis.

Marx tells us that circulation will both present and solve the contradictions of exchange that are inherent in commodity production. Circulation is the change of form of commodities. Commodities enter exchange with an ideal price which their sellers hope to realize. If this price is realized they become use-values to the new owner and a sum of money to the seller. Thus the change of form corresponds to the two sides of the commodity: it’s use-value and exchange-value (or value, in Marx’s later formulations.)

Circulation implies a continual renewal of transactions and that commodities enter exchange with an ideal price.

a. Metamorphosis of commodities:

Marx is dealing here exclusively with C-M-C (the form of exchange where a commodity-C- is traded for money-M- and then this money is used to buy another commodity-C-.) He is setting aside M-C-M, the process whereby capitalist’s make profit. He is setting M-C-M aside because this entails more advanced relations of production, specifically capitalist relations of production (M-C-M implies M-C-M1, or production for profit which implies wage labor). Marx is here dealing merely with social relations of simple circulation. Later, in Capital, he will show that simple circulation masks capitalist social relations.

In C-M-C, the ideal price of a commodity becomes real social labor. Ideal money becomes actual money. Exchange values were ideal gold. Now they are actual gold.

Here gold’s value is a formal use-value, its ability to measure value, rather than an actual use-value (it’s ability to be jewelry or something). Thus the antithesis of exchange value (or value!) and use-value splits into the antithesis of commodities and money. The antagonisms within the commodity form is externalized to the antagonism between commodities and money. Each extreme (C and M) represents the other ideally. Commodities are ideally money and vice versa. And this solves the contradiction inherent in exchange.

…what was that contradiction again? It was that a commodity with an ideal price must exchange for money with an ideal use-value. By representing the commodity and gold as one-sided polar opposites we can finally see how this exchange becomes logically possible. We return to this point after noting…

When we discuss C-M-C we get into a viscous circle of assumptions where we assume purchases and sales at each end of the circuit. The presence of money implies the metamorphosis of other commodities elsewhere in the economy. It implies an infinity of interlinked circuits.

When we said that we can only solve the mystery of exchange if we consider commodities and money one-sidedly this means that though money is a commodity and the the commodity has an exchange-value, money must take the form of pure, one-sided exchange-value. Gold is not bartered as a simple commodity. It is money. And commodities are already estimated in ideal money prices. The exchange value of a commodity is determined by the price of the commodity and the value of gold, not vice versa. This is in contrast to the view that gold and commodities enter circulation as simple commodities to be bartered and that their values are determined in this process of bartering. For Marx, money and commodities have values before they enter circulation.

Parenthetically here Marx tells us that discussions of price-value divergence do not belong in the analysis at this point since we are only talking about simple circulation. Nonetheless it is still appropriate to discuss the separation of purchase and sale, though at this point it is merely a formal possibility. (The reason that price-value divergence do not belong in this analysis at this point is not because Marx has an equilibrium view of exchange as is sometimes argued. Rather, since he has abstracted from production relations and is merely treating relations of circulation his analysis at this level of abstraction lacks a discussion of the dynamism of capitalist productive relations and the way they manifest in price-value divergence.) Marx then discusses the isolated sides of each part of the metamorphosis.

When we look at C-M we see that there is no quantitative limit to the alienability of gold, but only a quantitative limit. In other words, anything can be sold for cash. Each isolated exchange is part of a vast intertwined web of exchanges.

Marx relates C-M-C to S-U-I or Species-Universality-Inidivuality. I can’t say the meaning of this is perfectly clear to me, but I assume me means that Money is the link that connects the individual laborer to the species. Money is the universal measure of value and hence the universal gateway which connects the two extremes.

The role of buyer and seller are not eternal to human nature but part of a specific organization of production. In C-M-C capitalist relations are expressed merely as formal relations of buying and selling. The origin of profit and the specific capitalist form of circulation (M-C-M) are obscured. The formal equality of markets and civil society is established.

In the antagonism of M-C we see the possible separation of purchase and sale. Just because one person turns C into M doesn’t mean that they will turn around and turn M back into C. The possibility for crisis is opened up. Say’s Law if refuted. Say’s Law is bullshit because it leaves out the role of money!

B. Circulation of M

As a means of circulation money always appears as a means of purchase. Commodities change form while money changes its place. The metamorphosis of commodities take the form of the circulation of money.Through its special function acquired in the sphere of circulation money acquires a new function which Marx must now examine.

The constant movement of money could appear chaotic unless we see the order imposed upon it by production (or by banks which we abstract from here.) The amount of gold required for circulation is determined by the sum of all prices and the velocity of money (and the value of gold.) The velocity of money refers the amount of transactions a unit of money can make in a day. The velocity of money can substitute for the amount of gold required for circulation only up to a limit. The volume of money required is set by the prices of commodities not vice versa, as in the quantity theory of money. The quantity of gold required depends on its own value. And Money must be capable of expanding and contracting is supply so that it can adjust its volume to the needed price level.

Since all of the determining factors here originate in production, the analysis of strict simple circulation is shallow and limited.

c. Coin and Symbol of Value

As medium of circulation gold becomes coin. It is coined according to money of account, or unit of account. In other words money takes the form of coins which are coined in specific unit names (shillings, pounds, pennies, whatever.) Coins are gold pieces stamped with weight names. This shows the obvious role of the state in money. The state gives money its local and political character. A new contradiction emerges, that between the national sphere of circulation of a coin and the universal sphere of commodity circulation (and gold circulation as world money…)The difference between coin and bullion is the difference between coin denomination and weight denomination. The technical conversion between the two forms consists of either stamping or melting.

When a coin is debased its ideal value is greater than its real value. It becomes fictitious gold. It is idealized in practice! (It is important that Marx always bases these theoretical moves in real practice, in historical development.This doesn’t mean that the logical succession of categories is the same as the history of concrete money relations. It just means that the logical ordering of these categories is not merely a matter of idealist philosophizing but rather that logical categories can and do take concrete form in specific historical examples.) This means that the mint value of money comes into conflict with the bullion value, or, in another way of putting it, the medium of circulation comes into conflict with the standard of price. Of course, both medium of circulation and standard of price are properties of money and so we are talking about a contradiction/antagonsim/conflict within the money form itself. We can expect that this contradiction will be too volatile to be contained in one form of money and that it will have to be resolved by splitting the various functions of money into different types of money in the same way that the contradiction in the commodity form between use-value and value is externalized into the separation of money and commodities.

As explained above, when the market price of gold rises above its mint price this means that the ‘reckoning name’ of coins begins to denote smaller and smaller quantities of gold. The standard of price changes. Future money must be coined to adjust to this change in the standard of price. Thus the same money name, the same standard of price, stands for a constantly diminishing quantity of gold. In other words we could have a coin that has “I am a pound of gold” written on it but it is not actually a pound of gold. The mint price/the reckoning name/unit of account has been devalued. If we are talking about gold coins then this devaluation is probably the result of clipping of coins. The ideal value of the coin (“I am a pound of gold”) has become less than the actual value of that coin (perhaps it is only .9 pounds of gold.) The gold coin is fictitious gold. It has become ‘idealized in practice’! This contradiction between mint value and bullion value is another name for the contradiction between medium of circulation and standard of price.

Thus the market value of gold rises above its mint price. The reckoning names of coins begin to represent a smaller and smaller quantity of gold. A ‘pound’ comes to mean less and less than an actual pound of gold. This means that the standard of money has changed. Future coins are minted to this new standard. Thus the same money name (one pound of franc or dollar, etc.) stands for a constantly diminishing quantity of gold! This is a contradiction between coind and standard of price. It is also a contradiction between coin and universal equivalent.

If it seems that we are drowning in a lot of different contradictions we could probably step back for a moment and realize that all of these contradictions in the money form seem to be variations on a theme. Money has a use-value and a value. It’s value is universal (the representation of abstract labor, universal wealth.) It’s use-value takes particular forms: coins, paper money, credit money, etc. Perhaps all of these contradictions are all variations of a universal-particular contradiction. (Alan Freemen makes this point in a paper called ‘GELD’).

This absurdity of measuring gold in gold coins of lesser value leads to the replacement of gold coins by symbols of value, tokens of value like copper coins or paper money. Thus coins become symbols of ideal money. While only gold can be the measure of value anything can be a means of circulation. Gold doesn’t actually have to be physically present in order to measure the value of a commodity or in order to realize this value in exchange. We already know that commodities have ideal prices. They don’t need gold to be present in order to form these prices. And we know that a symbol of value, like a copper coin, can serve the purpose of realizing the value of the commodity.

The state is important here because the state must guarantee the value of the symbolic money. Marx mentions that copper coins are legally kept within the sphere of circulation by not over minting (not producing too many of them). Over production of copper coins would lead to people hoarding them to melt down and sell for metal. In fact, because copper, silver, nickel, etc. coins still have values as metals this leads to the use of paper money. Thus the medium of circulation becomes purely symbolic. We have moved from a commodity with a use-value and value to money to coin to subsidiary metal to paper. The separation of commodities from the representation of their own value has become completely separated.

Still, despite this separation, the value of the symbol relies on the value of the gold it represents. Thus exchange value has an ideal expression in price and an imaginary, symbolic existence in money. The only real existence of value is in the commodity itself (the gold commodity and all other commodities.) The token appears to represent value directly but it does not. It only represents value indirectly through gold.

Credit money, Marx tells us here, operates under different laws which he does not take up in this volume, or elsewhere. This is because credit money assumes more advances relations of production, which we are abstracting away from at this level of analysis. Unfortunately, Marx did not get around to fleshing out a credit theory of money so it lies up to others to construct one based on his framework.

While Marx leaves a big role for the state in most of his value theory he likes to deduce the categories from each other without relying on some exogenous force like the state. While the state is often caught up in the regulation of token money Marx has shown us how token money evolves logically from the structure of simple circulation. Thus monetary politics which seek to change the role of token money in capitalism (say the movement to bring back the gold standard) will fail to change the fact that token money evolves ‘naturally’ in capitalism into purely symbolic money.

A change in the value of gold effects the value of paper money. The value of paper money depends on the quantity of paper money relative to the gold needed for circulation. In other words divide the quantity of paper by the value of all commodities to be circulated (measured in gold). This tells us the value of paper currency. This is an extremely important point and relevant to debates over the theory of paper money.

The state seems like it can escape the laws of money but it can’t. It seems like the state can just print more money to solve the problems of capitalism. But this just causes inflation. The state can only control the nomenclature of the standard of price. It can control how much money to print but the underlying values of commodities and gold determine the value of these tokens. Circulation forces these tokens to have a relation to gold.

For the measure of value the substance of money is important. Not so for medium of circulation. The measure of value depends on the quality of the money. The medium of circulation depends on the quantity of tokens. The quantity of gold present in the economy is determined by the total price level and the value of gold. The quantity of token money depends on the quantity of tokens and the value of the gold they represent. Thus all laws appear reversed in circulation. It appears that the quantity of money determines the value of money and that this determines the price level. This would be the Quantity Theory of Money. In actuality the process works the other way around.