# The International Socialist Review (1900-1918)/Volume 1/Number 1/Karl Marx on Money

Karl Marx on Money.
Karl Marx, when he comes to discuss the subject of money, shows himself to be a victim of his own philosophy. He was a product of his environment—of the conditions and circumstances under which he lived. Living under an imperfect system of bimetallism, seeing that something was out of gear, and not being able to discover what was wrong, as did Sir Isaac Newton (see "The Silver Pound," by Horton, pp. 91 and 264), he concludes that under bimetallism it is always the predominating metal alone which forms the standard of value. A great many other good men whose names sound authoritative were deceived in the same way. It was not till bimetallism had been destroyed by stopping the free coinage of silver that men's eyes were opened. They then found themselves in a condition similar to that of the Frenchman who had been speaking prose all his life and did not know what prose was. Marx and his contemporaries lived under bimetallism all their lives, and only after this was destroyed were such of them as lived long enough enabled to see that even under imperfect bimetallism one metal alone is not the standard of value.
The weight of Marx's name has carried the whole socialist party off its feet. Engels, Kautsky, Hyndman, Bax, Morris, all swallow Marx's money theories as a material and indipensable part of his economic teachings. In America comrades Gronlund, Bersford, Vail, Ladoff, Saxon, Jackson and others keep us well supplied with pamphlets and articles showing the fallacy of a fifty-cent dollar and the necessity of intrinsic value money.
The Socialist Labor Party, in its platform of 1896, declared in favor of government money. In its platform of 1900 it omitted all so-called immediate demands. The Social Democratic Party, in its platform of 1900, speaks of gold mines and public credit, but evades taking any definite stand on the subject of money.
It may be that it is inopportune at the present time, full of so many other troubles, to stir up the money question among socialists; we ourselves have thought so, and were willing to wait a while. It will stir up a good deal of bad blood. Billingsgate will flow freely where arguments are lacking. We know what to expect. We shall be looked upon, by our comrades, if not openly so called, as a silver-plated socialist, a repudiator and an inflationist in the pay of silver mine owners. But we are used to that. We will cheerfully stand the billingsgate if the editor of the International Socialist Review will bear the responsibility of allow​ing any discussion at all on the money question at the present time. If socialism is to remain a science and not degenerate into a dogma; if socialists are to maintain their proud and justified claim that they march in the front rank of scientific inquiry, they will some day have to re-examine their position and admit that Marx made a mistake about money—a mistake which is easily accounted for, and in no way lessens the general value of his economic and social teachings.
The true policy of socialists is not to attack the money reformers on their own ground and get beaten by them, but to acknowledge what is correct in their demands and point out to them the fact that the government control of money would not have the effect aimed at unless it also included government control of credit, which is now in the hands of banks; in other words, that money reform is worthless unless it includes government banking and a repeal of the laws which enable private lenders to collect interest; that such a fundamental change as they demand can never be brought about by the middle class; that nothing short of a proletarian upheaval can overthrow the money power; and that the only way to get what they seek is to join the socialist party.
Marx's views on money are found in Chapter III of Capital and in Chapter II of his Critique of Political Economy, published in 1859, which is frequently referred to in the foot notes of Capital. Our space does not permit us to quote from these works as copiously as we should wish. It is not easy to formulate clearly Marx's views. His statements frequently appear to be contradictory. If the principles we here attribute to him and criticise do not truly represent his views we are willing to stand corrected. Let us begin with Capital, page 61.
"The law that the quantity of the circulating medium is determined by the sum of the prices of the commodities circulating and the average velocity of currency may also be stated as follows: Given the sum of the values of commodities and the average rapidity of their metamorphoses, the quantity of precious metal current as money depends on the value of that precious metal. The erroneous opinion that it is, on the contrary, prices that are determined by the quantity of the circulating medium and that the latter depends on the quantity of the precious metals in a country; this opinion was based by those who first held it on the absurd hypothesis that commodities are without a price and money without a value when they first enter into circulation and that once in the circulation an aliquot part of the medley of commodities is exchanged for an aliquot part of the heap of precious metals."
We also quote foot note accompaning above statement: "Adam Smith takes the right view where he says that the quantity of coin ​in every country is regulated by the value of the commodities which are to be circulated by it; that the value of goods annually bought and sold in any country requires a certain quantity of money to circulate and distribute them to their proper consumers and can give employment to no more. The channel of circulation necessarily draws to itself a sum sufficient to fill it and never admits any more. (Wealth of Nations, Bk. IV, ch. I.)"
Explanation:—The term price level, as used by us, means the general range of prices. Marx's own word for this is Preisgrad. Price sum means the total amount of sales. Marx's word for this is Preissumme. It is the product of the total quantity of commodities sold multiplied by the price level.
Money means the money in actual circulation, not including hoards and reserves.
Commodities means the commodities actually on the market for sale, not including stored or warehoused commodities.
Products mean articles that have been produced, but have not yet been put upon the market for sale as merchandise or commodities. Products includes articles produced for use as well as those produced for sale.
These distinctions, if kept clearly in mind, will aid us to express ourselves with more brevity and precision.
The quantity theory according to Marx.
Marx admits that the quantity theory of money applies in the following cases:
First, to fiat money.
Second, to partially fiat money, as light weight silver coins under limited coinage.
Third, to times of great changes in the value of gold, which generally occur on the discovery of new and productive mines.
Fourth, to full weight free coinage gold money in gold producing countries, where the gold is coined direct for the miners' account without being first bartered for commodities. (At least this is as we understand Marx.)
Fifth, to cases where the weight of the unit is changed. But it does not apply, Marx claims, to full weight, free coinage gold money in non-gold producing countries, where the gold has to be imported after having been bartered at the mines for commodities, provided, and mark well only on this proviso, viz., that the value of gold, that is, the price level, remains unchanged during all the changes in the quantity of money! Wer lacht da? What are you laughing about? We claim that the value of money depends on its quantity. Marx claims that the quantity of money has nothing to do with its value, provided its value always remains the same. We claim that a change in the quantity of money will cause a change in its value. Marx says no, a change in the ​quantity of money will cause no change in its value, if its value remains the same; that is, if the value of money does not change, its value will remain the same.
Mark Admits the Quantity Theory of Money to be True in Case of a Change in the Value of Gold.
This is all that has ever been claimed for the theory under free coinage. It is admitted that under free coinage the value of gold metal and gold coin is the same; but it is claimed that an increase in the quantity of money by making money out of some other material than gold lessens the value of gold as long as any gold money remains in circulation. This Marx denies.
To decide whether a rise in the price level is due to a fall in the value of gold, as Marx claims, or to an increase in the quantity of money, as we claim, it is only necessary to observe that, if under free coinage the coins be dimished in weight by one-half and the same names retained, there would be a rise of the price level, as Marx admits. If on the other hand, the coins be diminished in weight by one-half, but the coinage limited in quantity to the same number of coins as previously existed, the price level will remain the same, though the value of the gold metal contained in the coins will be one-half the same as formerly. This proves that the quantity of money, and not the value of the metal in the coins determines the price level. This is to Marx a stumbling block. He cannot understand limited coinage, especially when concurrent with full weight coins. It did not exist on a large scale in his time, and it appeared to him abnormal and unnatural. He could not see that money is not a natural product, but a societary creation. That it has exchange value, but no utility. He says that money is by nature gold and silver. He denies that anything can have exchange value without utility. (Capital, p. 5.) This is the source of all his errors on the money question. He appears to have thought this claim necessary to sustain his labor theory of value. He would not make an exception of money.
He afterwards admits that there are two kinds of utility. "The use value of the money commodity becomes twofold. In addition to its special use value as a commodity, (gold for instance serving to stop teeth, to form the raw material of articles of luxury, etc.) it acquires a formal use value originating in its specific social function." (Capital, p. 39.)
That is, money may have a value and yet have no utility other than its social utility as a perpetual medium of exchange.
If Marx were living to-day, he might go to any large bank in London and buy a £'s worth of Indian rupees; he would get a certain weight of silver coins. He might then buy a £'s worth of Mexican dollars; he would get a very much greater weight of silver coins. He could then sit down and do some hard thinking, ​and might finally come to the conclusion that the value of money, whether paper, silver, or gold depends on something else than its weight; that free coinage, upon which he bases all his discussion of money, is no more a natural system of money than capitalism is the natural and eternal system of economy; that free coinage is only a method of allowing private persons, (mine owners,) to issue money the same as bank owners are allowed to do the same thing by issuing paper money; that the nationalization of all money and credits, as demanded in the Communist Manifesto would abolish free coinage and knock the bottom out of Marx's whole theory of money.
Marx cannot understand how one ounce of metal can be of equal exchange value with two ounces of the same metal; neither can we. But we can readily understand how one ounce of metallic coin can be of equal value with two ounces of metallic coin, or two ounces of uncoined metal, and the illustration of the Indian rupee under limited coinage, and Mexican dollars under free coinage will explain it.
THAT THE PRICE LEVEL IS ALWAYS CONSTANT.
All of Marx's theories about money are based upon this assumption, and it is necessary to keep this constantly in mind when reading what he has to say. Marx tells us frankly that in his reasoning he considers the value of gold as given, as fixed, which of course implies that the price level is also fixed, for the price level is the way the value of gold is indicated. Do not confound price level with particular prices; particular prices may change, and yet the general range of prices, the price level, may be stable. A clear perception of this fact is indispensable to an understanding of money.
With a fixed price level, Marx asserts that the quantity of currency or gold in circulation depends on the price sum, that is the aggregate of all prices realized, or the aggregate of sales. These terms, price level and price sum, are Marx's own words, (Preisgrad, Preissumme.) The aggregate of sales, or price sum, is made up of two factors, the price level or rate of sale and the quantity of commodities sold. As the price level is fixed, to say that the quantity of currency depends on the price sum is the same as to say that the quantity of currency depends on the quantity of commodities sold. What Marx says, therefore, amounts to this: the price level being fixed, the quantity of money depends on the quantity of commodities. So far as we can see, Marx is right; his conclusion is unassailable. It is a poor rule that will not work both ways, and we find that Marx's rule will work both ways. The other way to work it would be to say that with a fixed price level the amount of commodities sold depends on the amount of gold in circulation. This conclusion is also unassailable. Tak​ing the three terms, price level and money and commodities, and assuming one of them to be fixed, various conclusions can be drawn as to the other two terms. Let P. L. stand for price level, M. for money, C. for commodities. The whole scheme stated in tabular form would be as follows:
With P. L. fixed, M. depends on C., or C. depends on M.
With M. fixed, P. L. depends on C., or C. depends on P. L.
With C. fixed, P. L. depends on M., or M. depends on P. L.
Why Marx, out of these six forms, should pick out one only and harp on it to the exclusion of the other five, we cannot see.
Commodities are produced and sold by private individuals according to their necessities without any regard to the price level. Gold is produced and put into circulation as money by private individuals according to their necessities or interest without any regard to the price level. The price level is the result of these two forces operating against each other, and fluctuates up or down as the production of one factor increases or dimishes with referece to the other. It is about as stable as the mercury in a thermometer. These are the facts. With these facts before him, Marx puts the questions, How much money should there be in circulation? He replies by saying that, if we assume a stable price level, the quantity of money will be regulated entirely by the quantity of commodities sold. This is the sum and substance of thirty-five pages of financial philosophy in Capital, and one hundred and fifty-six pages in Critique. "The mountain labored and brought forth a mouse." It is difficult to treat the proposition with the respect due the author. When metal and coin are interconvertible and coin forms the exclusive currency with no credit, no paper money, no light weight coin, and no debased coin, these being the conditions which Marx assumes in simple circulation, and when this metal is further assumed to have a stable value, and that no change in possible in the unit of price, i. e., in the weight of the coins, then indeed the science of money becomes vastly simplified; it is simplified out of existence. Nothing remains to be said on the subject.
Let us allow Marx to make these suppositions:
1. Supposing gold to be of stable value.
2. And supposing gold metal to be coinable without limitation.
3. And supposing gold coins to be decoinable or meltable without limitation.
4. And supposing as a result of 2 and 3 that gold metal and gold coins are of equal value (disregarding abrasion) and that therefore gold coins are of stable value.
​5. And supposing that price level (prices) is only another name for gold coins estimated by unit of price fixed by government, instead of by unit of weight.
6. And supposing that the unit of price is stable and not changed by the government.
7. And supposing gold money were the exclusive medium of exchange and there were no check offsets or credit of any kind.
8. And supposing that gold could be produced evenly and regularly to an unlimited extent the same as any article of common manufacture.
9. And supposing that money were not more readily and universally exchangeable than an ordinary commodity; or that men did not act according to their self-interest, and did not prefer money to commodities as a form of stored labor; that is, supposing a change in human nature, then indeed Marx's observations on money might be in point.
But there is no such exclusive gold currency in existence as Marx assumes. The silver and fiat currency exceeds the gold currency, and the credit exceeds in efficiency the combined currency of gold, silver and fiat. We admit Marx's conclusion, but we object to the introduction of it into the discussion as irrelevant, immaterial and incompetent. The question for investigation is not the quantity of money with a stable price level, but the quantity of money as affecting the price level. A stable price level is desirable, as all admit. Governments allow the use of fiat money, light weight coins and credit, all of which affect the price level. The government pretends to keep the price level stable; all taxes are levied and salaries of government officers are fixed on that understanding. The government has no control over the production of commodities and no control over the production of gold. The only means it has of exercising a control over the price level is by regulating the amount of fiat money. This it can do and does do, though at present it does it very poorly and at haphazard.
Marx cannot shield himself behind the plea that it was not his province to suggest remedies, but to discuss facts, and explain actual phenomena. He does not discuss facts. In supposing an exclusive gold currency without silver and without credit he is drawing entirely on his imagination; no such currency has ever existed, unless he has in mind something like coon skin money or tobacco money. It is Utopian money. To say that bimetallism is impossible when it is actually in existence before your eyes, though in an imperfect form, and to assume an exclusive gold currency as the basis for a discussion of money is certainly a master piece in the art of ignoring a difficulty instead of solving it. To what desperate lengths a man is driven who ignores facts can be seen in Hyndman's Bankruptcy of India, p. 215. This ​great Marxian economist, following his master, rejects bimetallism. He ends by recommending that gold be demonetized the world over, and that silver be used as exclusive currency. This is the proposition of a hard-headed, matter of fact evolutionist, who pities bimetallists as deluded dreamers.
THAT PRODUCTS ARE DIRECTLY BARTERED FOR GOLD AT THE MINES. THAT THEREBY THEIR VALUE BECOMES FIXED SO THAT WHEN THEY COME UPON THE MARKET AS COMMODITIES THEIR PRICE IN GOLD IS DETERMINED BEFOREHAND.
Against this view it may here be observed that the products bartered for gold at the mines do not afterwards come upon the market as commodities, but pass over into use, and are consumed. Again, products before they are bartered have a price; in fact they are no longer products, they are already commodities, which means that their counterpart, money, is already in existence. Marx says that barter comes before price and fixes price. Barter does come before price in one sense; it exists before the introduction of money. Money is introduced by fixing upon unit of price. Thereupon a price at once attaches to all products offered for exchange or sale. From now on the price comes before barter; in fact, primitive barter is abolished and price barter takes its place. All barter is conducted with reference to the prices of the commodities bartered. A commodity bartered for gold at the mines brings just as much gold as if sold for a price in money, no more and no less. It is price that fixes barter value, not barter value that fixes price. Gold itself has a price expressed in units of valuation.
Mr. Hyndman sees this: "So completely has the idea of valuation apart from money disappeared that insensibly those who wish to obtain other articles in place of their own, estimate the value of their possessions which they propose to transfer, not with reference to the need which they have of the other articles they desire to possess in place of these, but with regard to the price that either would realize if brought into the open market. An exchange of commodities may be directly effected between individuals in this way; but still in spite of all they can do, the vision of the price current is ever before them." (Hyndman, Economics of Socialism, p. 1 14.)
THAT A COUNTRY REQUIRES A CERTAIN QUANTITY OF MONEY TO CIRCULATE ITS COMMODITIES, NO MORE AND NO LESS.
This is true on the assumption made by Marx that the price level is stable. It is not the conclusion that we object to but the assumption on which it is based.
This claim is closely interwoven with the question of interna​tional parity of exchange, free coinage and meltage, and the recoinage of foreign coins into domestic coins, all matters to which Marx gave little attention, though they are of fundamental importance.
Let us see if this rule will work both ways. If a country requires only a certain amount of money to correspond with its commodities, then the converse must be true, viz., that with a stable price level a country requires only a certain amount of commodities to correspond with its money; that the money of a country will carry only so much merchandise and no more, and when the channel is full the surplus will overflow. Where will it overflow to? To foreign countries by way of exports. But considering the whole world as one commodity producing country, as in fact it is, for commodities are international, where would the overflow go to? Marx does not answer. He cannot answer because his famous stable price level would break down.
Marx complains of Ricardo that he gives the discussion of the money question an international tinge. (Critique, p. 184.) So did Marx give the labor question an international tinge. Science is international. When the money under consideration is made of an international metal subject to free coinage, recoinage and decoinage, no other method of consideration, except from the international standpoint, is worth anything.
To claim that gold has an intrinsic value, and that therefore only so much can circulate in a country as corresponds with the quantity of merchandise in that country is to confuse concrete labor value with social labor value, and implies that the social labor value of a product can never change. The concrete labor expended in producing a product is ascertained at the time of production of that particular product, and, of course, never changes for that particular article. But the social labor value of that particular article when it becomes a commodity and mingles with other like articles produced at different times and under different conditions, is subject to constant fluctuations. If it has an intrinsic value or value of its own, as Marx expresses it, such value is at any rate not fixed.
Now, gold differs from other articles in several particulars; first, it is not produced normally in indefinite quantities, but is discovered accidentally in uncertain and irregular, but always comparatively small quantities; second, it is indestructible, and there being a large stock on hand the annual output affects the total quantity but little, an dthe social labor value of the annual output, considered apart from the old stock on hand, is a matter of almost no consequence; third, it is an article endowed by law, through free coinage, with the peculiar and unique quality of universal salability, so to speak. This quality can be given only to a comparatively scarce article. To give it to an article capable of in​definite and universal protection would defeat the object sought; fourth, being thus universally salable, and its production being in the hands of private individuals, each working for his own private interest regardless of what others are doing and regardless of the public requirements, its production is always carried on at a maximum, just as banks of issue, when free to do so, issue their notes to the utmost limits. Yet in spite of these striking features, which distinguish gold under free coinage from all other articles, Marx implies that gold miners regulate their output to correspond with the volume of commodities, so as to maintain a stable price level; that if they do keep on mining beyond the requirements of a stable price level, they are mining for use and not for profit. It is not because the production of gold can to a slight extent be controlled by individuals that makes it usable as money; it is rather in spite of that fact.
THAT ALL THE GOLD IN A COUNTRY DOES NOT ENTER INTO CIRCULATION.
This is superficially true; but essentially it is utterly false and misleading. In every country a certain amount of gold is needed for the arts, for plate, ornaments and jewelry; some is also kept as hoards and reserves; all the rest circulates as money, and this money volume can in no way be increased, except within very narrow limits out of hoards and reserves, but by no means to correspond with the increase of commodities. So that it is perfectly correct, speaking broadly, to say, that substantially all the gold in a country enters into circulation, and this would be true in principle even though a much larger proportion were used in the arts than now. Just as there is a minimum standard of living at any one time and place, but not always and everywhere the same, which determines the value of labor power, so there is in every country a minimum quantity of gold needed for non-monetary purposes, out of which no increase of the circulating medium can be derived. The relative amount of such hoards differs in different countries. It is greater in India than in France, and greater in France than in England.
Gold metal stands in the same relation to gold money that products do to commodities. To say, therefore, that all the gold in a country does not circulate as money is analogous to saying that all the products of a country do not circulate as commodities. This is superficially true. But in substance it is false. A certain minimum of the products are consumed by the producers as utilities without ever becoming commodities, but everything above that, in short, the vast bulk of the products is thrown upon the market as commodities. No one demonstrates this so clearly as Marx. All his economic writings go to show that the prevailing system of production to-day is the production of com​modities not utilities. But when he comes to gold he falls down, whether out of reverence, or fear, or ignorance, we know not which. With him gold is an exception. It is produced for use, not for exchange. It is a utility, not a commodity. Although gold is mined for profit, and not for use, yet he implies that it is not thrown upon the market. Money is the chief form which gold takes when it is thrown upon the market. It is either a utility, or it takes the form of money instead of becoming a commodity. It is apparent, then, at a glance how absurd it is to claim, as Marx does, that only a certain modicum of gold can be put upon the market as money, and that all above that is produced for use and not for exchange.
THAT THE QUANTITY OF MONEY DEPENDS ON THE QUANTITY OF COMMODITIES SOLD.
That is, if more commodities are sold they will call forth more money, so that the price level will remain the same.
This statement appears to us to rest upon some contradictory and impossible assumptions. Marx first assumes that the price level is and remains stable. This implies that there is a given quantity of money and a given quantity of commodities. He next assumes that more commodities are sold. But this is an impossibility. With a given amount of money and a fixed price level more commodities cannot be sold. If sold, they would have to be sold at a lower price level, which is contrary to the first supposition. The increased sale of commodities, therefore, cannot be the cause of an increase in the quantity of money. It cannot precede the increase in money, but must be simultaneous with it. One cannot be the cause of the other. Commodity producers do not regulate their activity by that of money producers. They act privately, each individual according to his own supposed interest. Money producers do not regulate their activity by that of commodity producers. They act privately, each individual according to his own supposed interest, regardless of the effect of his activity when combined with that of other individuals on the world's market as a whole.
To suppose that money and commodities increase simultaneusly, so as to maintain a stable price level is to assume that there is a planful and concerted action between commodity producers and money producers according to some previous agreement. Such assumptions belong in the land of dreams. They are Utopian.
The assertion that to manufacture commodities is to manufacture additional money, or that to manufacture money is to manufacture additional commodities, only needs to be plainly put before the mind to appear in all its naked absurdity. But the assertion that to manufacture more commodities lowers the price ​level, or that to manufacture more money raises the price level, is a self-evident truth to every one who is not glued to the idea that nothing, not even money, can have exchange value unless it has utility in addition to its function as a medium of exchange.
THAT PRIVATE HOARDS SERVE AS EQUALIZERS.
They do perhaps to a limited extent, but by no means to the extent of supplying the amount of currency needed in proportion to the commodities, as Marx claims. Just as gold is mined entirely to suit the interest of the individual mine owner and regardless of whether the volume of commodities is increasing or diminishing, so hoards are accumulated and paid out to suit the interest of the individual owner regardless of the volume of commodities; and so also where banks are allowed to issue notes, they are issued entirely to suit the interest of the particular bank regardless of the public requirements. If hoards accomplished what Marx claims for them, there would never be any rise or fall of the price level. If the government should maintain a large reserve and expand or contract it in the interest of the public solely for the purpose of keeping the price level stable it might do some good. We have recently had a fine example of how our officials manage such things. In November, 1899, at a time when the price level was rising, and had been rising for months, and when, therefore, money instead of being issued should rather have been hoarded, Secretary Gage, regardless of the public welfare, and solely in the interest of a small clique of stock exchange speculators issued from the reserve $25,000,000 by buying bonds, so far as offered, thereby expanding the currency. He did for his friends exactly what a bank does for itself when it issues bank notes for its own profit regardless of the state of the currency, and exactly what a gold miner does when he works a rich mine to the utmost in his own interest, even though the public welfare requires that it be shut down. If the government owned the gold mines, the private hoards and the banks of issue, and operated them with reference to maintaining a stable price level, something might be accomplished. But to claim, as Marx does, that private mines and private hoards are now managed so as to have that effect is to claim something which can be supposed or assumed, but it is not in accordance with the actual facts.
THAT THE VALUE OF GOLD IS NOT AFFECTED BY THE USE OF FIAT MONEY.
The same principle would, of course, apply to the use of light weight coins, bank bills, credit and bimetallic money; it also implies that if gold were entirely demonetized, its value would remain the same.
Marx complains bitterly that Ricardo and James Mill set out ​to prove that the use of fiat money affects the value of gold and end by assuming it without proof. (Critique, p. 193.) Marx demands proof of it. The quantity theory of value applies not only to money, but also to the money commodity.
It is true that fiat money does not increase the total quantity of gold. But the fact that gold coin and gold bullion are inter-convertible does not make them the same thing at the same time; when gold is money it is not bullion, and when it is bullion or is hoarded even in the form of coin it is not money. A product cannot be money and a commodity at the same time. Herein lies one of Marx's vital errors. He regards gold coin when hoarded as the same thing as gold coin in circulation, only performing a different function. Therefore, he argues, fiat money, although it will drive gold money out of circulation, will not lessen the quantity of gold money, and will not increase the quantity of gold bullion compared with gold money, and, therefore, will not lessen the value of gold. This is what Marx claims in one place.
Let us pit Marx against Marx. Take the three factors, gold in circulation, price level and commodities. With a fixed value of gold, which means a fixed price level, Marx says the quantity of gold in circulation will vary with the quantity of commodities. If this be true, then with a fixed quantity of commodities the quantity of gold in circulation will vary with the changes in the price level, and the changes in the price level will vary with the quantity of gold in circulation; nota bene, the price level is directly connected with the quantity of circulating medium, and has no connection with the quantity of coin in hoards. Here Marx shows very plainly that so far as price level is concerned gold coin in hoards and gold coin in circulation are two entirely different things; that hoards have no effect on the price level, which is determined wholly by the quantity of the circulating medium, assuming the quantity of commodities to be fixed. But what is the price level? The price level is the value of gold. The value of gold, therefore, so long as it continues to form any part of the circulating medium, depends on the quantity of that circulating medium.
Marx distinguishes between price and value. Price depends on supply and demand, that is on quantity; value depends on amount of labor power. Price fluctuates around value, sometimes above and sometimes below it, the temporary price depending on the quantity of the commodity in the market. (Marx: Value, Price and Profit, p. 36.)
Applying this line of reasoning it might also be claimed that in barter things are exchanged according to their temporary value which might be either above or below their real labor value. It might also be claimed that the price level does not indicate the true value of gold but only its temporary value. In short that ​there are two kinds of exchange value, temporary exchange value and true exchange value and that every one is free to decide for himself when a thing is exchanged for its temporary value and when for its true value. All you need to do therefore to save yourself in a debate is merely to remark that what your opponent calls value is not after all true value, (of which you are the sole judge) but only temporary value.
The labor theory of value may apply to the relative value of commodities as among themselves. It does not apply as between all commodities on one hand and the money commodity or money on the other. The relation between these two is never anything else than a temporary relation. Therefore the necessity for Marx to assume that gold has a stable value and thereby remove the discussion from this world to Utopia.
Let us again make use of Marx's favorite language, mathematics. Let P—price, or price level ; Q—quantity, scarcity or supply and demand; V—value; L—labor or labor power. Now, price says Marx, varies as quantity, but value varies as labor power, that is:
Now suppose with Marx that the value of gold is stable and the unit of price or weight of coin is stable, then price and value will coincide and be equal. So will quantity and labor power coincide and be equal. There will be no fluctuations between price and value. Then we will have:
Now, says, Marx, do you not see that price varies as labor power? Yes, we see it. We also see that this is only one quarter of the whole truth. Why does Marx ignore the other three forms, especially the fourth one, which shows the remarkable fact that value varies as quantity, and not as labor power? In supposing that price and value coincide Marx has abolished the difference between his labor theory of value and the quantity theory.
THAT FIAT MONEY REPRESENTS GOLD.
There are two kinds of fiat money; first, fiat money concurrent with gold; second, fiat money with gold demonetized. In the first case, it may be said in one sense that fiat money represents gold, inasmuch as it coalesces with gold money, and its movements conform to the movements of gold money, so long as any of that is left in circulation in the sphere in which fiat money circulates; when all the gold is driven out of this sphere, fiat money can no longer be said to represent gold. Neither does fiat money represent gold when gold is demonetized. The present fiat silver money of India does not represent gold and has no connection with gold. Neither does it represent silver bullion.
It is frequently claimed that California during the civil war of 1861 to 1865 formed an exception to the power of the state to create fiat money. The money in that case was a partial legal ​tender greenback with gold monetized, and the state government working at cross-purposes with the federal government. Suppose at that time both gold and silver had been demonetized and full legal tender fiat money had been issued, supported by both state and nation, how much gold would have circulated as currency?
Marx admits that the value of fiat money depends on its quantity, but claims that the value of gold money does not depend on its quantity, but on the barter value of gold; that its barter value, however, does depend on its quantity, because it is bartered for commodities on the basis of its quantity. We are unable to see any essential difference between saying that the value of gold money depends on its quantity, and saying that the value of gold metal depends on its quantity, metal and money being inter-convertible. Marx's answer would probably be that although metal can be converted into coin, this coin cannot be put into circulation and become money, so as to change the price level, without breaking his assumption that the price level is always the same. Here is where he has us. In one place he says that fiat money, though it will drive gold out of circulation, will not lessen the quantity of gold money, i. e., it remains money after it has gone out of circulation. In another place he says that metal, though converted into coin, is not money unless it is put into circulation. If a man is at liberty to shuffle the facts to suit his convenience at different times he can prove almost anything.
THAT MONEY SHOULD NOT BE TREATED INTERNATIONALLY.
Commodities are international and their counterpart money, when the material of it is a commodity as gold, is necessarily also international. It is true that the coins of one nation do not circulate in another, but the gold of one nation does circulate in the coins of another. Marx says international trade is barter. But what kind of barter? Barter is of two kinds; first, primitive barter without price; second, price barter, which is an exchange made on the basis of price, but without the actual intervention of money, though it presupposes the existence of money. International trade between gold using countries is barter of the second kind and does not differ in substance, though it does in form, from domestic trade. International trade is not even barter between countries having entirely disconnected money systems, as for example, between an exclusive gold country and an exclusive silver country, or an exclusive paper country, or between two exclusive paper countries having different paper money systems. Even here it is not barter properly speaking. It takes place on the basis of price according to whatever rate of exchange happens to prevail at the time, there being no fixed par of exchange.
If this should fall under the eye of some monometallist, who ​also claims to be an international socialist, it would be interesting to have him explain on what theory he advocates disparity of exchange, or defends the existing disparity of exchange as being beneficial to the proletariat; if a falling price level benefits the proletariat of gold countries, how does a rising price level benefit the proletariat of silver countries? Or conversely, if a falling price level injures the proletariat of gold countries, how can a rising price level injure the proletariat of silver countries? And if disparity of exchange between the gold group and the silver group is a good thing for the proletariat why not have disparity of exchange between the different countries of each group? Universal monometallism might be a good thing, but until that comes it is advantageous to have the money of different countries interchangeable at a fixed par of exchange; and it appears to us inconsistent in the monometallist, who claims to be the friend of the working men of the world to ride rough shod over all those who do not happen to live in gold using countries.
International parity of exchange, even without an international unit of account, but especially combined with such a unit, would be a most powerful bond of union between the working men of all countries. It would facilitate comparisons and tend to equalize economic conditions in all countries and pave the way for uniform wages, hours, etc. It is one of those steps which capitalism will take in its own interest, but which will prove to be a step towards its own overthrow.
WHERE WE DIFFER.
Marx says the quantity of money is regulated by the quantity of commodities.
We say the quantity of money, with simple gold circulation, is not regulated at all, but is accidental and irregular, depending on the output of the mines.
Marx says the total quantity of gold in existence cuts no figure, because it does not all circulate as money.
We say that after deducting a certain percentage for ornaments, for use in the arts and for hoards, all the rest circulates as money, and that other things being equal, an increase in the total quantity of gold means an increase in circulation. The total quantity of gold does cut a figure.
Marx says that price level is the cause and money is the effect. We say that money is the cause and price level is the effect. That until money is created there is no such thing as price level.
Marx says that the relative value of gold and commodities is fixed by barter at the mines before the gold is coined.
We say that after the establishment of free coinage there is no such thing as barter for gold, except with reference to the coinage value of the gold.
​Marx says that under bimetallism one metal only is the measure of value.
We say that metal is never the measure of value, not even under monometallism; but that the total quantity of money which circulates is the measure of value in all cases whether under monometallism, bimetallism, paper money, or counterfeit money.
Marx says that commodities enter circulation with a fixed price.
We say that although the price of a particular article is fixed at the moment of sale, yet that same article immediately thereafter, or another article of the same kind, may have a different price; that when goods are put upon the market for sale their asking price is continually changing.
Marx says that gold enters circulation with a given value
We say that although at the moment of a particular purchase the value of gold is fixed, yet between purchases the value of gold may be continually changing.
Marx says that although gold may be mined and coined, it can not be put into circulation, unless commodities exist to correspond with the gold; and implies that although products may be produced, they cannot be put upon the market as commodities and sold, unless enough money is in circulation to enable them to fetch a given price.
We say that commodities are sold for what they will fetch, be it much or little, and that gold when coined will be put into circulation for what it will buy, be it much or little.
Marx admits that the quantity of money is directly connected with price sum, or respectivly price level. One is the cause, the other is the effect. But which is which? Marx says price sum is the cause and quantity of money is the effect.
We say that money is prior in time, and must first exist before there can be any such thing as price, or price sum or price level; that money is the cause and price sum is the effect.
Marx says with Adam Smith that a country needs only so much money and that no more will circulate.
We say that a country will use all the money that the law permits to be made (except customary hoards). In one sense Marx's claim is partially true, but only partially—just enough so to show that it is thoroughly false. For instance, i. several countries are on a gold standard each one can circulate only its proportionate share of money to keep its price level the same as in the other countries. But take all these countries together, let them increase their money simultaneously and they can increase it tenfold or a hundredfold. Again, one of these countries alone, as long as it has gold to export, can by exporting it increase the money of the other countries and thereby make it possible to increase its own circulation over what it was before, without losing its parity of exchange with the other countries.
​Marx says that fiat money will drive out gold.
We say, don't you believe it. It will do no such thing. This is what is called Gresham's law, and as commonly applied is false. Bad money, that is, fiat money, will no more drive out good money than good money will. As between several countries on a gold basis fiat money will drive gold from one country to another, provided it is issued in one country alone and not in all. But it will drive no gold out of circulation; if the gold does not circulate in one country it will in others. So will good money drive out good money if it is issued in one country alone. It will drive out just as much as fiat money would, no more and no less. But it will not drive it out of circulation. It will reappear in the circulation of other countries. But if additional money whether good or bad be issued in these different countries simultaneously, each receiving its proportionate quota, they would preserve a par of exchange, no gold would be driven out of circulation and none would be exported from one country to another.
Marx says that under fiat money there is no standard. (Capital, p. 65.)
We say that the total quantity of money of all kinds, even including counterfeit money, forms the standard of value.
Marx says that fiat money represents gold.
We say that so far as a standard of value is concerned fiat money no more represents gold than it represents hay or potatoes. With reference to a scale or standard of price it may be admitted that among modern nations fiat money has been developed historically out of commodity money and its representatives; and that it retains the old names for the units even after it has become entirely separated from and independent of commodity money.
"This Odilon Barrot was appointed president of the inquiry commission and drew up a complete indictment against the February revolution, which ran as follows: March 17, Manifestation; April 16, Conspiracy; May 15, Attack; June 23, Civil War. Why didn't he extend his learned criminal researches back to February 24th? The Journal des Debats gave the true answer: the 24th of February is the date of the founding of Rome. The origin of states is lost in a myth which we must accept by faith, but may not discuss." (Marx. Class Struggles in France, p. 44.)
Well said, comrade Marx, excellently well said! As with states so with price level. You extend your learned researches as to price level back to some point subsequent to the introduction of money or the fixing of the unit of valuation. But why not go back to the origin of money when the quantity of money or the weight of the unit was fixed? Because the origin of money you assume to be lost in a myth which we must accept by faith, but may not dis​cuss; it would be sacrilege; because forsooth we should there discover the wonderful secret, the key of all knowledge on the money question, that the quantity of money determines the price level at the starting point, and at all times thereafter.
But this is only tautology, some one will say. Very well; if it is only tautology why not frankly admit it? Why be at such pains to refute what is only a tautology?
So it is also a tautology to say that with an exclusive commodity money of stable value under free coinage and no credit the quantity of money depends upon the value of the metal. It is not only a tautology; it is a supposition contrary to existing facts.
Comrades, what kind of a hearing do you expect to get on the weightier matters, when such Utopian dreams are put forth as the science of money and as an indispensable part of the economics of socialism? "Aussprechen das was ist!"
Marcus Hitch.