From the March 1974 issue of the Socialist Standard
Socialist Economics Series
Socialist Economics Series
The whole financial edifice of capitalism at first sight appears incomprehensible to the average person. Ignorance concerning the financial and monetary system has given rise to many unsound theories, and consequently has prevented a proper understanding of what it is, how it came into being, and the circumstances which will make the monetary system unnecessary. This is not an intellectual exercise but a vital element in exposing the nature of capitalism.
The monetary system has evolved gradually and has been in existence as a system for about 250 years in England and for a much shorter period abroad. We make a distinction between the ancient coinage of Greece, Carthage and Rome, which although used to effect the exchange of commodities was at that period incidental to the main stream of an exchange system which was based on surpluses and barter. As a general social form, money developed alongside the development of commodity production, and at the point in history when all wealth was produced in the form of commodities money became the universal medium or equivalent through which all exchange transactions were carried out.
The first condition for the introduction of a monetary system is when social products become commodities, i.e. articles produced for sale and exchange. It is quite obvious that commodities cannot go to the market on their own. As they are owned by someone or other, he is the person who will take or send them there. Likewise, there are other owners of commodities carrying out a similar function. Each will recognize the other as a private proprietor — that is, they respect each other’s rights to dispose of the social product to their own immediate advantage. Eventually they embellish their right through a set of legal relations:
This juridical relation, which thus expresses itself in a contract, whether such contract be part of a developed legal system or not, is a relation between two wills, and is but the reflex of the real economical relation between the two. It is this economical relation that determines the subject matter in each such juridical act. (Marx, Capital Vol. I, p. 96. Kerr edn.)
The capitalists who are the owners of commodities have to appropriate the wealth of society before they can sell it. Once having done so, they create a juridical system backed up by the State machine which politically safeguards their position and consequently the whole institution of private property.
When exchange becomes a normal social practice, and the volume of transactions is being constantly repeated, inevitably one commodity emerges — either through custom or the stamp of legality — in which all the others can represent their value or express their price, which is the money-name for Value. This one commodity, which is historically acceptable, becomes the recognized universal equivalent: it becomes money — it becomes the measure of Value.
All commodities will therefore express their price through the agency of this single commodity, whatever it happens to be at any given point historically. Gold became the universal equivalent and still is for international transactions. Gold evolved as such because of the facts that it had a certain amount of social labour in it; that it was relatively durable; easily divisible; and kept its value for a long period.
The fact that currency notes without gold backing have replaced gold as the means of circulation within individual political states, does not materially alter the function of the universal equivalent. Symbolic money, introduced by state compulsion, can only circulate within the political sphere which created it. We are not concerned here with the interminable international squabbles between capitalist powers who refuse to take each other’s bad money. The fact that symbolic money is now used does not remove gold as the measure of Value, as eventually all symbolic currencies will require to be related to one another at some point, and are finally adjusted through the medium of gold.
Let us assume that 1 oz. of gold contains 100 hours of social labour, and that 40 gallons of wine also contain 100 hours. In that case 1 oz. of gold would be equal to 40 gallons of wine, or ½ oz. equal to 20 gallons of wine, or ¼ to 10 gallons — and so on. The same thing would apply to every other commodity. For example, if 4 washing machines also contained 100 hours of social labour, then 4 washing machines would be equal to 40 gallons of wine, or 1 washing machine to 10 gallons of wine or ¼ oz. of gold. The change from one universal equivalent to another does not, nor cannot, alter the exchange value, or the proportion in which one commodity exchanges with another. Gold, as the money commodity, or currency, as the recognized legal form, are really external factors. Different products of labour are being equated with one another, and the function of money is to facilitate this equation for practical commercial purposes. The law of Value, like the law of gravity, is not subject to amendment by Acts of Parliament. Currency is not Value.
The amount of currency notes needed to carry out exchange transactions depends on the number of transactions, the speed with which they are conducted, and the volume of commodities to be exchanged. If for example £5 million (currency) was required to circulate £50 million worth of commodities, and the Government decided to print £10 million, then the purchasing power of the £ would have fallen and it would take £2 to purchase what would previously be purchased for £1: prices would rise accordingly. The value of the commodities has not changed, but merely that their standard of measurement has altered. You do not alter temperature by changing the numbers on a thermometer. Prices will rise because the measure of price has fallen. Prices will rise higher, and in direct ratio to the depreciation of the symbolic standard of measure. This is the main factor in rising prices. The exchange of commodities is not based on legal promises to pay or arbitrary standards which alter according to political expediency. Therefore they will express their value, as they have always done, on the amount of socially-necessary labour contained within them.
Supply and demand do not determine prices, although they influence them. A shortage will create higher prices, a surplus low prices. But invariably, throughout most fields of production and distribution, through repetition the supply of commodities becomes equal to the demand for them and the two therefore cancel each other out. These are accidental factors and do not determine value, any more than a train driver can determine the route between London and Glasgow.
Other factors which influence price are monopoly and subsidy. Monopoly action by certain groups of capitalists with-holding supplies of a given commodity can cause prices to rise. The Arab oil sheikhs demonstrated this recently. Monopoly does not add to the surplus wealth but merely redistributes it. Capitalism cannot run on the basis of permanent monopoly anymore than it can run on the basis of permanent subsidy. Subsidy is the action which is carried on by certain governments to keep prices below the current market level, from time to time. For many years the prices of food and housing were kept artificially low deliberately in order to keep wages down.
The introduction of an excess of currency notes over and above those required to circulate will undoubtedly cause dislocation not only in the marketing process but also in the productive process. This we are now witnessing. You cannot print Value. If governments could only follow the example of King Midas how happy they would be. Like the old Canadian bum, they have the button of inflation if only someone would sew a shirt on to it.