Small is … small

From the May 2025 issue of the Socialist Standard

LETS, or local exchange trading systems, boil down to being localised barter clubs each of which has its own purely digital or recorded currency or credit system. Participants keep their own individual accounts which are, in effect, a register of the credits they earn or spend depending on the goods or services exchanged.

An important difference between this and a conventional money system is that we are not talking about a quid pro quo exchange being effected between participants. In some ways it resembles or aligns with a model of generalised reciprocity which lies at the heart of a socialist society but there are important differences as well.

Timebanks, unlike LETS schemes, do not have their own local currencies as a metric for keeping tabs on transactions. The only metric used is time spent in making a labour contribution. Moreover, and again unlike LETS schemes, the way in which labour time is evaluated is strictly egalitarian. Thus, one hour of labour performed will equal one ‘time credit’, regardless of the type of service performed.

By contrast, in the case of LETS schemes, there is some scope for negotiation over the price of the service or good offered in terms of the local currency (and hence, also, the possibility of a degree of transactional inequality). This makes such an arrangement somewhat closer in certain respects to a conventional market economy than is true of Timebanks.

Both LETS schemes and Timebanks are examples of highly circumscribed, or localised, ‘exchange rings;’ by their very nature they cannot be implemented on the large-scale society-wide basis. What that means, in the case of both LETS schemes and Timebanks, is that they will be rather restricted with regard to the range of activities individuals can engage with these arrangements.

Since they basically involve face-to-face interactions, this suggests that the forms of activities this might entail would be more along the lines of some form of personal service such as repairing someone’s car or computer or tidying up their garden. Obviously, you could not really operate a modern railway system or a power station on the basis of a LETS-type arrangement.

However, this is not to detract from the value of such arrangements as a means of coping within existing capitalist society. There are also certain benefits to be gained in terms of fostering a kind of outlook more conducive to a post-capitalist society. In these cases, the emphasis is very much on forging relationships with other individuals and building local communities. Thus, the underlying logic is radically different from that pertaining to market transactions which are quid pro quo by nature and socially atomising in their consequences.

Workers’ co-ops

Most of the advocates of so-called ‘market socialism’ have seen its basis as the state ownership of the means of production. However, that particular version needs to be distinguished from earlier versions, such as ‘Proudhonian socialism’ or ‘mutualism’, that go back to the 19th century and which have enjoyed somewhat of a revival following the collapse of Russian state capitalism

These versions envisage a role for the market in ‘socialism’ but emphasise, instead of state ownership, various kinds of worker-owned institutions – such as co-operatives and credit unions – as the instruments through which such a system of ‘market socialism’ would operate.

Nevertheless, it is difficult to see quite how they connect with the basic ideas of socialism as a post-capitalist society. The classical or Marxian concept of socialism derived from the observable fact that the process of production was becoming increasingly socialised. There is nothing that is produced today that does not involve, directly or indirectly, the labour inputs of countless numbers of workers right across the world. Hence socialism – at least as it was traditionally conceived – entailed bringing the pattern of ownership of society´s productive resources into line with the character of modern production itself.

In other words, social ownership of the means of production is the logical expression of the social character of production. But social (or common) ownership also, of course, logically entails the complete exclusion of buying and selling since the latter implies private, or sectional, ownership of these means.

It does not matter that the members of a co-operative, say, might own it in common amongst themselves (and hence, to the exclusion of everyone else). It is still a form of sectional ownership. The relationship of such a co-operative to the world around it is, essentially, a capitalist one since it has to purchase its inputs and sell its outputs – not to mention, generate profits in order to effectively compete as well as compensate its workforce in the form of wages. These are all, needless to say, the tell-tale indicators of a capitalist mode of production.

In effect, what the exponents of this form of ‘market socialism’ advocate is the continuation of private, or sectional, ownership of the means of production as far as the wider world is concerned — even if one might grant that, internally, the set-up pertaining to a co-operative, say, may well be a lot more equitable compared to a conventional business and that working for such an institution may likewise be a lot more congenial.

There is also the point to consider that the scope for co-operatives is quite limited in the context of the pattern of capital ownership within the larger capitalist society and may even diminish should the increasing concentration of capital in the hands of a few giant corporations become more pronounced than it already is.

Robin Cox

Letter: Meeting each others needs (1995)

Letter to the Editors from the February 1995 issue of the Socialist Standard

Meeting each others needs

Dear Editors,

As I run a LETSystem in Canterbury I was amused to read Adam Buick’s article "LETS Abolish Money" in your December issue.

Despite Mr Buick’s evident dismissal of the very concept of LETSystem I was amused rather than perturbed, because even with the research that he had evidently undertaken it is clear that Mr Buick simply fails to understand either their ethos or their future potential. This is not at all unusual. LETSystems are so simple that a great many people have difficulty in understanding them.

Mr Buick dismisses LETSystems for being small, or rather for the twin reasons that they are small and that the range of goods and services that they offer is limited. That they are is undoubtedly true, but there is a very good reason for this. LETSystems are a new phenomenon. most individual ones are very young, even the oldest in Britain is no more than four or five years old. I don’t suppose that even Mr Buick was a towering and influential socialist intellectual at the age of five.

Having grown to a membership of 200 in less than twelve months the Canterbury LETSystem is beginning to attract the interest of "high street" businesses whose own involvement is likely to increase the system’s appeal, even to ordinary people (i.e. other than middle-class hobbyists and New Age dreamers).

As the system grows in size it will become more rather than  less able to pay people to run it and still be far more efficient than the conventional, money economy which requires approximately 10 percent of its workforce to be employed in "financial services".

There may well be an optimum size for any given LETSystem, the bigger they are the more services they are likely to offer and the stronger and more credible they are likely to be perceived, the smaller they are the more intimate they are and the quicker will a person's spending come back to them as earnings. But we do not need to arbitrarily impose limitations upon a system, its natural dynamics will enable each system to find its own optimum size, which may number in the hundreds, the thousands or even the millions.

Beyond these matters, which essentially pertain to the practical aspects of establishing and running a system. Mr Buick's most striking failure is his inability to understand the long-term potential that LETSystems have for converting the present-day market-dominated society into an egalitarian one where everyone’s needs can be met, their dignity maintained and where the environment can be protected. Trading with a LETSystem is not barter, Indeed, use of cash is actually closer to barter than is use of a LETSystem. The Pound Sterling is derived from an entity of intrinsic value — a pound of Sterling silver. So when you use cash you are exchanging one item of intrinsic value (or rather a paper representation of it) for another, which is precisely what bartering involves. By contrast, the credits that one earns or spends in a LETSystem are purely abstract measurements. That they are given a nominal value, usually in relation to the Pound Sterling, is solely to enable everyone to share a common valuation.

This purely abstract nature of their units of currency underlies one of the great advantages of LETSystems. Whereas if you are exchanging cash for goods or goods for cash you have to have one or the other with LETSystems you don’t. You can spend LETS units before you earn them, even before you are able to earn them. Given the strongly inculcated resistance that most people have towards going "into the red" new members of the Canterbury LETSystem are positively encouraged to spend, spend, spend!, for by doing so they are putting credits into other people's accounts which will further encourage them to spend and so increase everyone's opportunities to earn.

Within a LETSystem the sum total of everyone’s accounts at any one moment will always be 0. So for some people to be in credit it is necessary for others to be "in commitment", this differs from debt within the conventional economy because it is not seen as being irresponsible, it is necessary if trading is to take place.

It is this feature of LETSystems that will enable the market economy to continue to meet people's needs (or rather be the means by which people will continue to meet each other's needs) whilst causing it to cease to be a means by which some people can attain power over others.

Mr Buick’s statement that "A hoard of cash is no more useful than a large LETS credit balance" is an extraordinary one to come from anyone other than a contrite capitalist apologist, if some people have a large hoard of conventional money (in whatever form), given that there is a finite amount of it, other people must have little or none, and given that one must have it even to meet one's basic material needs, clearly those who have the stuff in large quantities have enormous power over those who haven’t. By contrast, given that LETS credits are purely abstract measurements with no limit and given that one can spend freely even with a “negative" balance no one with a large LETS credit has any power over someone else who might, at a given moment, be in commitment.

If, as Mr Buick proposes, the elimination of want is to be achieved by the elimination of the market system whereby people exchange goods and services to meet their needs, how will these needs be met? By a central economic authority with complete power over everyone's lives? Mr Adam Buick?

We can retain the benefits of a market economy whilst removing its current absolute dominance and less benign aspects, we can enable individuals and their local communities to secure greater power and responsibility for their own lives, we can remove the inefficiencies and environmental destructiveness of an excessively competitive society and so achieve the type of society that is the dream of many, whether socialists or not. by the very simple idea that is the LETSystem.

After a myriad of Utopian dreams have come to nought down the centuries we now have the means of creating a just and egalitarian society.

Anne Belsey, 

Faversham, Kent

Reply:

Your letter illustrates perfectly the point we were trying to make: the exaggerated claims of the benefits and possibilities of LETS made by some of its enthusiasts. You see LETS as a means towards creating "an egalitarian society where everyone’s needs can be met. their dignity maintained and where the environment can be protected". We are all for creating such a society, but say that LETS schemes will only ever play a marginal economic role.

For LETS to replace "the present-day market-dominated society” they would have to spread out of their present field of personal services, repairs, home cooking and gardening into, and the list is not exhaustive, farming, the generation of electricity. the provision of water, gas. sewage and telephone services. the manufacture of the cookers, fridges, heaters, cars, bikes. TVs. radios, computers (that LETS members merely repair not produce), not to mention the manufacture of the machines and equipment to make these consumer goods and the maintenance of a transport system to move them. They've got to take on and beat economically the public utility companies, the supermarkets, the multinationals and Big Business generally. We are sorry to have to break the bad news to you, but LETS schemes are not going to do this. They are never going to spread outside their present restricted field and even there they are never going to predominate.

This is because LETS are essentially an arrangement for conducting multi-sided barter amongst self-employed individuals. This means they are going to be restricted to the sort of things an individual can do. It also means that they have little interest for those in full-time employment with an adequate wage or salary. (For such people it is always going to be more convenient to pay someone to repair their TV out of the money they have earned than to commit themselves to a couple of hours extra work to exchange for this.) In addition, as the article stated, above a certain size LETS schemes become more cumbersome than resorting to ordinary money. This is not a defence of conventional money, merely recognition of a fact of life within "the present- day market-dominated economy”.

Our answer to the market economy is not to reform it as you want but to abolish the market. No, this does not mean some central economic authority deciding what people need. We envisage a self-regulating system of production for use. in accordance with the principle “from each according to their abilities, to each according to their needs", with individuals deciding what their needs are. On the basis of the common ownership and democratic control of all land and industry, individuals would set the productive system in operation by what they actually took from the common stores to satisfy their needs under conditions of free access; this would then be transmitted to the stores' suppliers and from them to their suppliers and so on down the line and throughout the whole network of productive units.

Finally, don't get us wrong. We are not saying people shouldn’t join LETS schemes, nor that they are a complete waste of time within the present economic system. What we are saying is that they are merely one mechanism for surviving within the present system, on a par with housing associations, coops, building societies. Christmas Clubs, etc. People can join them if they want, but they should be under no illusion that they contain the germ for the transformation of society.

For this to happen, the large-scale socially-operated industry where the bulk of the wealth of society is produced today must first be taken into common ownership and democratic control. And this requires society-wide political action, not what our next correspondent calls "practical small-scale change” which leaves the commanding heights the economy in capitalist hands. - Editors.

LETS Abolish Money? (1994)

From the December 1994 issue of the Socialist Standard

If you listen to the enthusiasts they can recreate communities, cure unemployment, undermine the multinationals and even provide an alternative to the global capitalist economy. What can? LETS or Local Exchange and Trading Schemes.

This is what the enthusiasts say. First, Harry Wears from Haverfordwest:

  “I’m really enthusiastic about LETS. I think it’s the most exciting mechanism for social change I have ever come across. In LETS, debts don’t accrue interest and there is no pressure to pay. A LETS cheque can’t bounce, nor a LETS business go bust. LETS sees money as a symbol but, unlike sterling, it can’t be manoeuvred to the detriment of people using it” (Woman & Home, October 1993).

Then Donnachadh McCarthy from Southwark:

  “It is a system to recreate a community economy which we were losing because of multinational companies and big supermarkets. Money which comes into Southwark is used once and then leaves via the banks which use it to finance projects elsewhere” (Independent, 13 December 1993).

And Ed Mayo of the New Economics Foundation:

  “With mass unemployment in Britain many people have the time but not the cash. LETS gives them access to things they would not otherwise have” (Guardian, 12 March 1994).

Finally, from the same Guardian article by John Vidal:

  “The implications, say the theorists, are enormous. In a cash-starved economy (one in five British households is severely in debt), despite the existence of wealth in the form of skills and resources, traditional exchange is hijacked by a lack of cash. With local currencies, as long as people make their goods and skills available, their exchange can go round and round. ‘The community therefore becomes richer,’ says Paul Ekins, a green economist”.

It is, of course, absurd that people who need things should go without even though the skills and resources to provide for them exist. We can go along with the LETS enthusiasts in denouncing this scandal of unmet needs alongside unused resources. The difference between Socialists and LETS enthusiasts is that, while both of us criticise money, they answer “yes” to the question “So, you want to go back to barter?” while we answer “no”. They want to retain exchange and trading with some new kind of money; we want a society based on common ownership geared to producing things directly for people to take and use in which exchange and trading, and money as the means of exchange, would be redundant.

Back to Barter
LETS schemes are essentially local barter clubs. A group of people with varying skills get together and agree to exchange the services they can provide with any other member without using money.

Records, however, have to be kept. Each member has an account and when one member’s services are used their account is credited with the exchange value of that service while that of the user is debited by the same amount. What normally happens is that each member is given a sort of cheque book which they can use to pay for other members’ services either at a published price or as agreed between the two. Clearly for all this a unit of account is needed.

Some schemes define this unit in terms of labour time. Others tie is to the pound. The accounts could in fact be done in pounds but generally the unit is given a special name. In Bath it is an “oliver”; in Brixton it is a “brick”; in Reading a “ready”, and so on.

Do LETS schemes really allow people, as is claimed, to by-pass money and so have “access to things they would not otherwise have”? Two unemployed people with different skills can always barter their services. Thus an unemployed plumber can repair an unemployed electrician’s central heating in exchange for some rewiring by the electrician. Neither needs money for this. A LETS scheme is merely an extension of this: the plumber or electrician joins a barter club and so gains access to a wider range of potential clients as well as access to a wider range of reciprocal services (too often, though, things not normally needed by the unemployed like aromatherapy, holistic massage, acupuncture, tarot reading and other such New Age fads). So, it’s an alternative to placing cards in newsagent’s windows or relying on the grapevipe to learn about work opportunities. As such, like the black economy, it’s one way of surviving in the capitalist jungle but that’s all. But don’t LETS schemes help create a “local community spirit”? Maybe, but no more than any other local club.

Small is Small
The trouble is that the idea has been hijacked by all sorts of currency cranks and funny money theorists who see it as the basis for an “alternative money” and an “alternative economy”. But they overlook two important facts.

First, the nature of the activities covered by LETS schemes. They are all activities that can be carried out by a single individual such as repairs and personal services, and which in the normal money economy could be done by self-employed people working on their own. In fact, from an economic point of view, LETS club members are acting as self-employed; a LETS scheme is a club in which self-employed individuals barter their services. It could never extend beyond this to productive activities that require expensive equipment and plant and a large workforce—such as, precisely, the manufacture of the things that LETS members and the self-employed repair.

Secondly, there are definite limits to the size a LETS scheme can attain. The biggest in Britain only has 300 members. If they got much bigger than this the administrative work of recording all the transactions would grow and could no longer be done by voluntary or part-time labour; people would have to be employed to do it, which would add to the running costs of the scheme and have to be shouldered by the members. The membership fees and transaction charges already levied by the scheme would rise. At a certain point this would cancel the advantages of being in the scheme and members would find it more convenient to re-enter the money economy and resort to newsagent’s windows and contacts.

Funny Money
What most of the currency cranks who have latched on to the LETS idea envisage is converting the units of account the schemes use — olivers, bricks, readies, etc—into a real money that would circulate.

In fact most commentators, like John Vidal in the Guardian article, refer to the LETS units of account as “currencies”, but this is misleading. They are not money; they do not circulate. They only exist on paper or computer disk as a record of transactions. LETS schemes are in fact more cumbersome than money. After all, with a real money that circulates an individual account of a person’s exchange transactions doesn’t have to be kept.

Some of the advantages claimed for LETS units also apply to cash. So when Harry Wears says “a LETS cheque can’t bounce”, this is true but neither can cash. Similarly, when it is argued that people have an incentive to use LETS credits—and that when they do accumulate them this doesn’t give them any power to manipulate other people—as they don’t pay interest, the same applies to cash as such. A hoard of cash is no more useful than a large LETS credit balance.

What is being advocated as the ideal is a money that can’t be accumulated and can’t be lent at interest, with LETS units being seen as the formula to achieve this. But such an “alternative money” is never going to come into being, because it would be worse than existing money. If you have an exchange economy (which the LETS enthusiasts accept, as is seen by the full name Local Exchange and Trading System) then conventional money is the best means of exchange. Not only does it allow many more exchanges to take place than barter or a modified form of barter like LETS schemes, but the payment and receipt of interest also facilitates more exchanges.

Banks are not, as some LETS theorists (along with the traditional currency cranks) suggest, the villains of the peace who interrupt the normal circulation of money and goods by not making money available to match needs and resources unless they are paid a tribute in the form of interest. Banks are financial intermediaries which borrow money from people who have some but don’t want to spend it immediately, and then lend it those who have something to spend money on but no money of their own. Naturally the banks take precautions to ensure that they are going to get back any money they lend, but the overall result that they help keep money circulating and exchange going.

To want to keep exchange but do away with banks and the taking of interest is unrealistic in the extreme. It is typical currency crankism.

The way to end the scandal of unmet needs alongside unused skills and resources is not to retain the exchange economy while trying to get rid of some of its effects by reforming the money system. It is to get rid of the exchange economy altogether by establishing a society based on the common ownership of productive resources where goods and services would be produced directly for people to take and use and not to be exchanged, or bought and sold, at all.

Adam Buick

Debt, Money and Marx (2012)

Book Review from the August 2012 issue of the Socialist Standard

  David Graeber’s much talked of Debt: The First 5,000 Years is what the title suggests –a history of debt since ancient times. Debt, that is, in the broadest sense, since Graeber discusses theological conceptions of debt as something humans owe to gods or to God or to society, which is rather remote from the more usual sense of owing money.

The myth of barter
Graeber sets out to refute the idea put forward by Adam Smith and followed by others that money arose out of barter. Smith argued that all humans had a “propensity to truck, barter, and exchange one thing for another”and so that barter would have been the original way in which they exchanged the products of their different trades. As barter has the inconvenience that those wanting to exchange have to have what each wants, at some stage money is invented as something that can be exchanged for anything.

As an anthropologist, Graeber is able to show that there never have been any economies based on barter. It’s a myth, but the founding myth of conventional economics and still adhered to in modern economics textbooks. In a footnote (p. 395) Graeber suggests that “the idea of a historical sequence from barter to money to credit…reappears at least in tacit form in Marx”. This is fair enough to an extent, as in his ‘critique of political economy’ (the subtitle of Capital) Marx did accept some of the historical facts as perceived by Adam Smith and others whose ideological conclusions he was critiquing.

One of these historical assumptions was that barter preceded money. The theory of money that Marx expounds in the opening chapters of Capital, however, is that money is a commodity that can be exchanged for any other commodity, i.e. it is what he called a ‘general equivalent’. This is not a theory of money as an invention or social convention to overcome the inconveniences of barter. It is, rather, a theory of the way in which the social relationship that links separate commodity producers appears externally as a thing.

Marx’s analysis of money was not a historical description of how money evolved but a theory of what money is, irrespective of how it evolved. It is therefore not affected by later researches such as Graeber’s which suggest that money as a general equivalent did not in fact evolve out of barter. This said, Marx is very much with the money-as-commodity school as opposed to the money-as-credit theorists with whom Graeber seems to have more sympathy.

Social currencies
But if money didn’t arise from barter, how did it arise? In fact, what is money? Most would say that money is something that can be exchanged for anything else, i.e. that it is a means of exchange, typically (but not exclusively) coins and, these days, notes. Graeber accepts that this is one aspect of money, but emphasises another: its function as a general unit of account allowing different products to be compared. Once again as an anthropologist, he is able to show that money in this form existed before coins.

The first example he gives is of human groups where dowries and compensation for killing or injuring someone or impugning their honour are quantified. The general unit in which these are measured can be anything and has varied from cowrie shells to cattle. As these items do circulate (pass from one person to another) he calls them “social currencies”and the groups which practice this he calls “human economies”. But these cowrie shells, etc were not used to acquire items of everyday use:

  “All of this, it is important to emphasize, can happen in places where markets in ordinary, everyday goods –clothing, tools, foodstuffs –do not even exist. In fact, in most human economies, one’s most important possessions could never be bought and sold for the same reasons that people can’t: they are unique objects, caught up in a web of relationships with human beings”(p. 208).

But if they are not used, and cannot be used to buy things are they really money?

Shekels and the State
Graeber’s second example is of the states that existed in the Middle East from 3500 to 800 BC, especially Sumer (the area between the Tigris and Euphrates rivers, now part of modern Iraq). Here there were both taxes (debts to the state) and commercial and personal loans to acquire things. These were also expressed in a common unit (a shekel which was a weight of silver) but this rarely changed hands as debts and taxes were settled in kind with such useful things as wheat, whose quantity was determined by its silver equivalent. There were no coins, but was there nevertheless money? Can money be said to exist if there is just a general unit of account without the circulation of the material which is its substance? In any event, Graeber proves his point that before there were coins there wasn’t just barter.

Coins, i.e. uniform pieces of metal stamped according to their weight by the rulers of a state, are generally accepted to have first come into existence in the kingdom of Lydia (in what is now Turkey) around 600 BC. Graeber makes a good case for saying that this was to pay the soldiers the state employed. The use of coins, he says, then spread to Miletus, a Greek city and port on the Ionian coast of the Aegean Sea:

  “It was Ionia, too, that provided the bulk of the Greek mercenaries active in the Mediterranean at the time, with Miletus their effective headquarters. Miletus was also the commercial center of the region, and, perhaps, the first city in the world where everyday transactions came to be carried out primarily in coins instead of credit”(p. 245).

Thus states (not barter) were at the origin of money. Graeber goes further and argues that markets too, as places where everyday things can be acquired in exchange for coins, were also the creation of states. In other words, markets were dependent on states from the start. This allows him to refute the free-marketeer idea that government-free markets have existed or could exist (which in fact is part of the barter myth).

Commercial credit
Commerce (merchant’s capital) existed long before industrial capital (capital invested in production) and many of the arrangements for paying for goods that were traded over long distances were developed in pre-capitalist societies: arrangements for clearing payments at mediaeval fairs in Europe, for instance, and ‘paper money’ (actually, paper trade bills: credit given to merchants till they sold their goods) in China in the 10th century AD. Cheques, Graeber points out, were in use in the Islamic world in mediaeval times, the Arabic word saqq being the origin of the English word ‘cheque’.

These are all credit arrangements which Graeber uses to back up the thesis advanced in his book that there is a historical cycle of periods during which trade is based on credit and when it is based on bullion. According to him, after the USA finally went off the Gold Standard in 1971, we may have entered another age in which the credit will come to be regulated, as it was in previous credit ages.  During these times debts were periodically cancelled (the original meaning of the word “jubilee”) and the charging of interest on loans for consumption was banned.

What is capitalism?
When discussing relatively modern times (1450 to 1971) Graeber asks “So, what is capitalism anyway?” Socialists in the Marxist tradition define capitalism as an economic system based on the production of surplus value by wage workers. These are employed by capitalists or capitalist corporations that have invested money in producing things for sale on a market with a view to profit. Graeber challenges this definition. Marxists, he says,

  “still tend to assume that free wage labor is the basis of capitalism. And the dominant image in the history of capitalism is the English workingman toiling in the factories of the industrial revolution, and this image can be traced forward to Silicon Valley, with a straight line in between. All those millions of slaves and serfs and coolies and debt peons disappear, or if we must speak of them, we write them off as temporary bumps along the road”(p. 351).

Graeber should read the chapter in Capital on “The Genesis of the Industrial Capitalist”. In it Marx deals with how the capital to launch the industrial revolution was originally acquired: “so-called primitive accumulation”(but which is better translated as “original accumulation”). He lists “colonialism, the national debt, the modern mode of taxation, and the protectionist system”as methods employed by the state in Spain, Portugal, Holland, France and England “to hasten, hothouse fashion, the process of transformation of the feudal mode of production into the capitalist mode, and to shorten the transition”. That Marx fully realised what a brutal process this was can be seen from the concluding words of the chapter where he wrote that capital came into the world “dripping from head to foot, from every pore, with blood and dirt.” This is hardly ignoring the sufferings of pre-industrial producers.

Graeber sees capitalism as this rather than as the investment of money capital in production with a view to extract surplus value from wage-labour. He has confused what states did to hasten capitalism’s coming in being with capitalism. He wasn’t the first, as Marx notes in the same chapter:

  “The great part that the public debt, and the fiscal system corresponding to it, has played in the capitalisation of wealth and the expropriation of the masses, has led many writers, like Cobbett, Doubleday and others, to seek in this, incorrectly, the fundamental cause of the misery of the modern peoples.”

People are not exploited today because they are the debt-slaves of the financial system but because they are the wage-slaves of capitalist corporations.

Graeber’s view of capitalism as the exploitation of the real economy by some military-financial complex gives credence to those who see the way forward in abolishing the supposed power of banks to create credit out of nothing (a mistaken view Graeber seems to share). Outside his profession as an anthropologist, Graeber is an anarchist and a member of the IWW and so wants to go to a society in which there will be no wage-labour. However, his inadequate theory of capitalism could lead to any growing anti-capitalist movement getting diverted into mere banking and monetary reform.

Adam Buick

Blogger's Note:
David Graeber replied to this review in the October 2012 issue of the Socialist Standard.

The Evolution of Money: From Barter to Inflation (Pt. 1) (1980)

From the February 1980 issue of the Socialist Standard

Since inflation is a monetary question and nothing but a monetary question, it cannot be understood without first knowing what money is. To most people money is the notes and coins they use to buy things, a convenient technical device for ensuring the smooth exchange and distribution of goods. While it is indeed such a medium of exchange, the currency we use today is not, strictly speaking, money at all, but only tokens for it. But to explain money it is convenient to start with this role of medium of exchange.

Exchange, as the exchange of goods, only exists in societies where there is private property: the goods involved pass from one property owner to another. In societies where there is no private property, where wealth is regarded as the common property of all the members of society, there is no exchange. People don't get what they need through exchange but directly, either by being given it or by taking it in accordance with established rules for sharing wealth. The original human societies were organised on this basis, without property and without exchange –and without money.

Exchange probably originated not within such primitive communistic societies but between them, and would have been on the basis of barter, the direct exchange of so much of one good for so much of another. Barter is the most primitive form of exchange and has obvious problems which don't need explaining at length. A person with two pots who wants a blanket must find another person with a blanket who wants two pots before any exchange can take place. At a certain stage in the evolution of exchange, the need becomes apparent for a good which can be exchanged for all goods. Then the person with the two pots can exchange them for this good and then later exchange this good for a blanket. The good that can be exchanged for all other goods is precisely money, and this gives us the basic definition: money is the good or commodity that can be exchanged for all others.

Various goods have functioned as money in the history of humanity, from cowrie shells to cattle (the word 'pecuniary' comes from pecunia, the Latin word for cattle), but in the end the most convenient have proved to be the precious metals, silver and gold. With barter, goods exchange in proportions determined by the amount of time it took to make them. Primitive people would have had a pretty shrewd idea of how long it took to make particular goods and would have regarded an exchange as fair where the goods involved had taken more or less the same period of time to make (or to gather from nature). Thus, if two pots habitually exchanged for one blanket, a blanket took twice as long to make as a pot.

In other words, commodity exchange is essentially an exchange of equivalents. When one good becomes money, this is not altered. The person with the two pots is not going to exchange them for the money-good unless both goods are considered equivalents. The money-good itself must therefore have value, must be the product of labour. This leads us to the second function of money, that of being a store of value. Someone who has exchanged their goods for the money-commodity is not obliged to exchange the latter straight away for some other good. They can keep and, if wanted, store and accumulate the money-good.

The money-commodity can best perform its role if it is not too bulky — if, in other words, it concentrates a relatively large amount of value in a relatively small bulk. This is precisely what the precious metals do. They are 'precious', or valuable, because it takes considerable labour to obtain a small amount of them. This feature would be a disadvantage had the precious metals not another characteristic — that of being easily divisible. A precious stone such as a diamond also concentrates much value in a small bulk, but because it cannot be easily divided it can't serve as the money-commodity, since the differing values of goods to be exchanged (the different times it took to make them) demand that the money-good be available in finely distinguished different amounts.

The precious metals, gold and silver, because they possessed these two features and had a fairly stable value, eventually emerged everywhere as the money-goods. Once one good has become money then exchange becomes buying and selling. Selling is the exchange of a good for the money-good, while buying is the exchange of the money-good for a good. This is still the case today but is no longer obvious because of the complications brought about by the subsequent evolution of money. The price of a good is its labour-time value expressed in amounts of the money-good. (1) This, being the standard of price, is money's third function. Prices were in fact originally expressed directly as weights of gold or silver.

The next stage in the evolution of money is the introduction of coins. About 2,500 years ago a ruler of Lydia (now Turkey) struck the first coin by stamping its weight on a piece of precious metal (electrum, an amalgam of gold and silver). This stamp served as a guarantee that it really did weigh the amount indicated. And this is all coined money is: a piece of the precious metal which is the money-commodity stamped with a guarantee of weight. At first anybody could issue coins, merchants as well as rulers, but this soon became a government monopoly.

The names of coins were originally weights of the metal of which the coins were made. Thus a pound (£) was originally, in early medieval times, a pound (lb) of silver. But over the years, if only because coins lose weight through wear and tear (but in practice for other reasons as well, as we shall see), the names given to coins came to differ from the names of the units of weight. This did not mean that the money-commodity had ceased to be measured in terms of weight; it merely meant that the money-commodity could always be translated into the more usual unit. Indeed, the new unit of monetary weight was legally defined in terms of the general unit of weight. Thus, in Britain for most of the nineteenth century, the gold coin known as a sovereign or pound was legally defined as being slightly more than a quarter of an ounce of gold (one ounce of gold was equal to £3 17s l0½d). In other words, 'pound' was an alternative name for about a quarter of an ounce of gold. Similarly, other names of currencies – dollar, mark, franc –were also alternative names for (other) weights of gold (or silver).

Gold and silver coins can lose weight not only through wear and tear but also through people deliberately filing them down, a criminal offence generally punished in the past by death. But there was a third way which was perfectly legal and unpunishable, since the 'criminal' was the government itself! Governments discovered soon after the invention of coins that issuing underweight coins – stamping one weighing, say, only 0.24 ounces as a 'pound' or 0.25 ounces –was an easy source of finance, at least in the short term. Such debasement of the coinage, however, had an unfortunate side-effect: it led to a rise in prices, not just of some goods but of all goods, a rise in the general price level. Since exactly the same mechanism operates here as with modern inflation, let's examine it in more detail.

Exchange, remember, is the exchange of equivalents (of equal amounts of socially necessary labour), selling is the exchange of a particular good for a certain amount of the money-commodity; and price is the expression of the value of a good in terms of amounts of the money-commodity. Say that four blankets are worth the same as an ounce of gold. That means that it takes as much socially necessary labour to produce four blankets as it does to produce one ounce of gold. The price of one blanket would then be a quarter of an ounce of gold, or £l.

This is an underlying real economic relationship which remains in force whatever the government does. If the government debases its coins by stamping 'pound' (quarter-ounce) on coins weighing only one-eighth of an ounce, (2) then this economic reality does not change. One blanket will still tend to exchange for a quarter-ounce of gold. If the government, by debasing the coinage, in effect changes the weight designated by the name 'pound' from a quarter-ounce to one-eighth of an ounce, then the price of one blanket will no longer be £1, since this now signifies one-eighth not one quarter of an ounce. The price will now be £2, the new way of indicating a quarter-ounce of gold. All other prices will also rise in the same proportion of 100 per cent. Prices will in fact tend to rise in the same proportion that the coinage has been debased. This would not happen immediately and all at once but would be spread out over a period of time as the effect of the debased coinage worked its way through, but the end result will be the 100 per cent rise in prices.

What will have happened is that the government's action will have changed the standard of price. This is a purely monetary matter and is in the end just a question of definition, of the weight of the money-commodity named by the word 'pound'.

The general level of prices can also change for real economic reasons as well as through the action of a government, intended or otherwise. If the amount of socially necessary labour required to produce an ounce of gold changes — if its value changes — then the prices of all other commodities are necessarily affected. To come back to our example of four blankets equal to one ounce of gold, we saw that this meant that four blankets and one ounce of gold contained the same amount of socially necessary labour, let us say five hours. Suppose that as a result of a new mining machine the average time it takes to produce one ounce of gold falls by ten per cent, to 4½ hours, while the time taken to produce four blankets remains unchanged. Four blankets will now no longer tend to exchange for one ounce of gold but for the amount of gold that can now be produced in five hours, 1.11 ounces. Since no government monkeying with the currency is involved here, 'pound' remains the name of one ounce of gold, so the price of four blankets now rises to £1.11. This happens to the price of all other goods too. This has in fact occurred a number of times in history, the last being in the thirty years up to the First World War when the value of gold fell due to the opening up of the South African and Alaskan gold mines.

A rise in the value of gold, on the other hand, due for instance to geological difficulties in working mines as they get older, would have the opposite effect, leading to a fall in the general level of prices.

The amount of money in circulation — the total weight of the coins made of the money-commodity (say, gold) which circulate as the currency — is determined by the workings of the economy and depends on three factors and their changes in particular:

1. the number of buying and selling transactions to be carried out, or the level of economic activity;
2. the total of the prices of the goods and services involved in these transactions (reflecting their value as measured by the amount of socially necessary labour they contain);
3. the average number of transactions carried out by a single coin in a given period (since coins of course circulate and are not cancelled after use), or the 'velocity of circulation' of money.

Other factors can be introduced, such as the number of debts to be settled and taxes, to be paid, and their amounts, but the basic formula is:

• Amount of money (total weight of gold) needed =
• Number of transactions x total price Velocity of circulation

This has been expressed algebraically as M = TP/V, and is known in the history of monetary theory as the Quantity Theory of Money.

Various versions of it exist, not all of which are correct. But if it is understood not as an equation but as a formula for what determines the amount of money (weight of gold coins) needed by the economy, then it is a key concept for understanding inflation. For it is saying that the amount of money needed by the economy at any time is a real economic fact determined by other economic facts, and as such not something that can be changed at will by government action. In fact it continues to be valid even when gold itself does not circulate as the currency and has been replaced in this role by paper and metallic tokens.

Adam Buick

1. "A relation between a weight of metal and the value of an object" is how Belgium's leading economist, Fernand Baudhin, who died in 1977, defined price in his Dictionnaire de l'économie contemporaine (1973 edition).

2.  This of course is an unreal example, but the mathematics is easier to follow.

Link to Part 2.

Overproduction Baffles the Capitalists. (1931)

From the December 1931 issue of the Socialist Standard

“The Times" on September 5th, had an editorial on the present world economic situation that was strangely frank and illuminating, as the following extracts will show:—

   How disastrously the financial machinery of the world is out of gear was strikingly illustrated the other day, when, in order to effect an exchange of commodities, the Brazilian Government and the Federal Farm Board of the United States had to resort to the primitive method of direct barter. They signed an agreement exchanging 1,050,000 bags of coffee for 25,000,000 bushels of wheat. That method of meeting the situation is, at any rate., better than some of those which have been adopted. In Texas and Oklahoma the military took charge of the oil wells, not to prevent any interference with production, but to stop production, and in Kansas orders were given to stop production in specified areas  . . .
    The cotton growers of the Southern States were recently urged by the Federal Farm Board to destroy one-third of their crops, and, though they indignantly rejected this suggestion, they themselves are seriously considering proposals to prohibit the growing, gathering or ginning of cotton next year. In Brazil hundreds of thousands of bags of coffee have been draught and destroyed by the Coffee States Council.  . . .
     Every one knows that there is over-production in the sense that there is more cotton, more wheat, more sugar, more coffee, and, apparently, more of every kind of food and raw material on the market than the consumer is able to buy at prices remunerative to the grower. . . .
    Over-production is hard to imagine in the sense that more wheat, for example, is being grown than the world can use. At any rate it cannot be said to exist so long as there are people who cannot get enough bread to eat.  . . .
    Half a dozen professors of political economy, discussing the practical questions on which their studies should enable them to throw light, can disagree among themselves as wholeheartedly as any half a dozen business men in a railway carriage. But somehow or other, with or without the aid of the scientific economist, answers will have to be found for the economic riddles over which the world is now bewildered. Until they are solved, or, perhaps, solve themselves, there can be no general return to prosperity.

Detailed comment would spoil this picture.

Too much of everything, but we are poor because we can’t buy! America can’t sell so she takes to barter. The owners in the producing industries have taken fright and are destroying or restricting production! The sum total of opinion in Tory, Liberal, Labour and T.U.C. camps is that the only way out for this country is a general cut in wages or an increase in prices—a reduction in buying power! Under it all is the hope, frankly expressed above, that somehow or other things will straighten themselves out.

The capitalists, their guides and scribes, are impotent in the face of productive machinery so prolific that the wealth turned out is clogging and weighing the system down. The only real answer they have is to find a means, satisfactory to the bulk of their class, for restricting production and parcelling out markets.

Gilmac.