Letter: Funny Money? (2013)

Letter to the Editors from the October 2013 issue of the Socialist Standard

Funny Money?

Dear Editors

Kaz’s interesting article ‘Propaganda Power… in your pocket’ in September’s Socialist Standard sparked a mischievous thought: How ironic it would be to find bank notes defaced with the briefest of messages: ‘Abolish money – see SPGB’.  I’m not suggesting a thing, mind.

Andy Cox (by email)

Reply:

Maybe that’s why they’re thinking of changing  to plastic notes? – Editors.

Thoughts on money (2025)

From the March 2025 issue of the Socialist Standard

Money has been around for thousands of years but only in capitalism, which overcame prior feudal and slave relationships, has it come to dominate all human and natural life.

Money exists in the modern world as a means of rationing the wealth available to most people while allowing it to exist in hyper-abundance for the few. On a planet with finite resources, approaching minimalism in our ownership of possessions may be a treasured ideal, however the rationing imposed by money on the majority does not derive from such idealism or concern. The very focus of the minority making money is to monopolise as much of the wealth as possible from the majority, and to exploit the natural world far beyond not just what is sufficient to meet our needs, but beyond the carrying capacity of the planet. The money system works hard to convince working people that it promotes freedom, liberty, and incentive, but this ideology is always the exact mirror image of the truth. It is the thinking of the rich, its liberty to exploit the majority and the planet with impunity, with minimal legal obstructions. But for those whose meaning in life is to provide that leisure class with a life of indolence and obscene indulgence, life is the very opposite of liberty, and can best be described as a modern form of subservience and oppression.

History illustrates powerfully the impressive creativity, imagination, reasoning, and persistence of the human species. It is therefore a great insult to the human race that most of it must spend its life with the primary objective of sustaining the elite’s extravagant lifestyles. The rich will hire this ingenuity, problem-solving and perseverance for its own ends, but these are wasted, when they could have served humanity as a whole. Money is without doubt a form of power. Today, money’s empire greatly rivals those of the kings of Versailles. It has found its way into all corners of the earth, leaving no stone untouched.

Money has also destroyed the family, sending adult offspring far from their original homes to find jobs, and financial worries fuel the mental ill health of both workers and the instability of their marriages. Once in place, the market system’s wheels just turn, blindly, irrespective of the damage they do in grinding up human lives and relationships, regardless of the dying planet they spin upon. Money, representing the commodity in which the value of all others is reflected, possesses no human values. We have surrendered and entrusted our entire lives and our living world to an institution that is the least responsible, the least flexible, the least stable.

Because the accumulation of money is an impersonal motive for production, it leaves a mountain of waste in its trail. Companies attempt to seduce demand by tempting people into oftentimes useless objects through vast expenditures of resources in advertising. Buildings, equipment, land, and professions require a massive infrastructure of insurance, which as with advertising firms, globally taking up millions of workers, energy, equipment, office and parking space, all for a completely unproductive cause. The same is true for professions devoted to buying and selling stock, to opening doors or sitting at reception desks, to assisting administrators, and such entire professions as lawyers, lobbyists, ticket sellers, marketers, and the military. These agencies, departments and professions, listed in Bullshit Jobs (2018) by anthropologist David Graeber, but also by socialists for over a century, illustrate the unnecessary complexity of a system based on money, one marked by an eye-boggling degree of waste of human lives and precious energy and resources.

Money also brings out the worst sides of human beings. By offering temptation, since it has the power to satisfy needs and wants, it invites built-in corruption in companies and governments everywhere, requiring vast policing resources to monitor and arrest a minority of offenders. Drug-dealing and theft are themselves primary examples of how a money system can trigger leeches at best, and potential murderers at worst, depriving society of even the best minds and bodies of a generation who turn into addicts, career criminals, and prison inmates.

Most people, even economists, cannot even imagine a world without money. Professionals whose specialty is the monetary system insist that incentive, entrepreneurship, and meeting a seemingly endless rainbow of needs, requires a monetary system. However, psychology knows otherwise. Our needs and wants are not infinite and, if anything, are artificially enhanced by the monetary system.

The complexity of the money system boggles the imagination. Right now, every individual and family in the tall building in which I live must spend time shopping for items that could easily be shared among a few hundred people. We all go out to shop because a money society has destroyed our collective natures and lifestyles (which were quite evident even in late feudalism, in which humans enjoyed, on average, rich relationships with extended family and other town residents). We must all do our food shopping even though in one go we could procure sufficient ingredients to cook a meal for a room of several dozen residents or neighbours. We look at any city street and see a long line of unused cars.

A human world consisting of billions of citizens should probably encourage a minimalist home, especially if the well-studied factors that most determine our happiness and meaning are such psychological variables as freedom, work, health, relationships, solitude, creativity, feeling part of the community. Without doubt hobbies require resources and possessions (musical instruments, books, screwdrivers) but it is not clear what little we could get by with if most items were shared and our lives could return to the collective form which is our archaic nature.

Our economists are failing us if in the face of today’s problems, including a dying world, they are not devoting their science (if it is one at all) to devising improved economic systems in which humans and the living world might thrive.

The money system has its obvious problems for those of us who must work in the Western world for an employer, but the system did not evolve similarly throughout the world. The institution of money is even more brutal in countries which still have theocracies, military juntas, one-party governments, or autocracies. Wars over resources or the competing ideologies and sense of entitlement of power-hungry rulers, starvation, extreme poverty, cartels, and environmental despoliation, are the symptoms of a monetary institution that fails because it is not based on meeting needs, although its ideology insists it does. It is time for economists to devise outlines of possible non-monetary systems that might better meet our needs. Until such a time, it is down to ordinary citizens such as ourselves to keep promoting such a vision. It may be hard to imagine such a future at this time; we may even at times feel crazy doing so. But our world is so rife with insecurities that alternatives are desperately needed.

Dr. Who

What is this money thing? (2001)

From the January 2001 issue of the Socialist Standard

Below is a report of how members of a society which had evolved beyond primitive communism but still retained some of its features and attitudes reacted to their first contact with the money economy.

The Treatment and Customs of the Governor’s House at Botany Bay as told by Tongan Chief Páloo Máta Moinga and his Wife, Fataféhi to Finow King of Tonga and Chief Filimóëátoo. Recorded by William Mariner, Resident of the Islands for 4 years, to John Martin M.D. Author of “The Natives of Tongan Islands”. Published 1818:

“The first thing he and his wife had to do, when they arrived at the Governor’s House, where they went to reside, was to sweep out a large court yard, and clean down a great pair of stairs; in vain they endeavoured to explain, that in their own country they were chiefs, and, being accustomed to be waited on, were quite unused to such employments: their expostulations were taken no notice of, and work they must, at first their life was so uncomfortable, that they wished to die; no one seemed to protect them; all the houses were shut against them; if they saw anybody eating, they were not invited to partake: nothing was to be got without money, of which they could not comprehend the value, nor how this same money was to be obtained in any quantity; if they asked for it nobody would give them any, unless they worked for it, and then it was so small in quantity, that they could not get one-tenth part of what they wanted with it.

One day, whilst sauntering about, the chief fixed his eyes upon the cook’s shop, and, seeing several people enter, and others again, coming out with victuals, he made sure they were sharing out food, according to the old Tongan fashion, and in he went, glad enough of the occasion, expecting to get some pork; after waiting sometime, with anxiety to be helped to his share, the master of the shop asked him what he wanted, and, being answered in an unknown language straightaway kicked him out taking him for a thief, that only wanted an opportunity to steal.

Thus, he said even being a chief did not prevent him being used ill for when he told them he was a chief, they gave him to understand, that money made a man a chief, after a time, however, he acknowledged that he got better used in proportion as he became acquainted with the customs and language, he expressed his astonishment at the perseverance with which white people worked from morning till night, to get money: he could not conceive how they were able to endure so much labour.

After having heard this account, Finow asked several questions regarding the nature of money: what is it made of?—is it like iron? can it be fashioned like iron into various useful instruments? If not why cannot people procure what they want in the way of barter?—but where is money to be got?—if it be made, then every man ought to spend his time in making money; that when he got plenty, he may be able afterwards to obtain whatever else he wants.

In answer to the last observation, Mr Mariner replied that the material of which money was made was very scarce and difficult to be got, and that only chiefs and great men could procure readily a large quantity of it; and this either by being inheritors of plantations or houses, which they allowed others to have, for paying so much tribute in money every year; or by their public services; or by paying small sums of money for things when they were in plenty, and afterwards letting others have them for larger sums, when they were scarce: and as to the lower classes of people they worked hard, and got paid by their employers in small quantities of money, as the reward for their labour: &c. That the King was the only person that was allowed to make (to coin) money, and that he put his mark upon all that he made, that it might known to be true; that no person could readily procure the material of which it was made, without paying money for it; and if contrary to the taboo of the King, he turned this material into money, he would scarcely have made as much as he had given for it.

Mr Mariner was then going on to shew the conveniences of money as a medium of exchange, when Filimóëátoo interrupted him, saying to Finow, I understand how it is:- money is less cumbersome than goods, and it is very convenient for a man to exchange away his goods for money; which, at any other time he can exchange again for the same or other goods that he may want; whereas the goods themselves may perhaps spoil by keeping (particularly if provisions) but the money he supposed would not spoil; and although it was of no true value itself, yet being scarce and difficult to be got without giving something useful and really valuable for it, it was imagined to be of value; and if everybody considered it so, and would readily give their goods for it, he did not see but what it was a sort of real value to all who possessed it, as long as their neighbours chose to take it in the same way. Mr Mariner found he could not give a better explanation, he therefore told Filimóëátoo that his notion of the nature of money was a just one.

After a pause of some length, Finow replied that the explanation did not satisfy him. He still thought it a foolish thing that people should place a value on money, when they either could not or would not apply it to any useful (physical) purpose: if, said he it were made of iron, and could be converted into knives, axes, and chisels, there would be some sense in placing a value on it; but as it is I see none: if man he added, has more yams than he wants, let him exchange some of them away for pork or gnatoo (cloth); certainly money is much handier, and more convenient, but then as it will not spoil by being kept, people will store it up, instead of sharing it out, as a chief ought to do, and thus become selfish; whereas, if provision were the principal property of a man, and it ought to be, as being both the most useful and the most necessary, he could not store it up, for it would spoil, and so he would be obliged to either exchange it away for something else useful, or share it out with his neighbours, and inferior chiefs and dependants for nothing. He concluded by saying ‘I understand now very well what it is that makes the Papalangis (Europeans) so selfish; it is the money!’ When Mr Mariner informed Finow that dollars were money, he was greatly surprised, having always taken them for Páänga (a kind of bear used in one of their games, they supposed dollars to be used among us for a similar purpose), and things of little value; and he was exceedingly sorry he had not secured all the dollars out of the ship Port au Prince before he had ordered her to be burnt: I had always thought said he, that your ship belonged to some poor fellow, perhaps King George’s cook (at these islands a cook is considered one of the lowest of mankind in point of rank); for Captain Cook’s ship which belonged to the King, had plenty of beads, axes, and looking glasses on board, whilst yours had nothing but iron hoops, oil, skins and twelve thousand Páänga as I thought: but if every one of these was money, your ship must have belonged to a very great chief indeed.”

Voice From The Back: Not too blessed (2001)

The Voice From The Back Column from the July 2001 issue of the Socialist Standard

Not too blessed

From the pulpits at the Church of England, the passionate clergyman thunders on about the Sermon on the Mount. The hushed congregation hear the famous words “Blessed are the poor…" ; but not too blessed, apparently. “More than half of the Church of England clergy feel that they are not being paid enough, with one in ten demanding an increase in their stipend of up to 50 per cent according to an independent survey…" A spokesman for the Manufacturing, Science and Finance Union, which represents 1,500 clergy said: “We have never said that the majority of vicars are on the breadline or are having to sell the Big Issue. But they are not being remunerated according to their professional status…”, Times, 16 May. How far from selling the Big Issue can be gathered when the same report informs us that the Archbishop of Canterbury has a salary of £57,000 per annum.

Hit for six

In our youth we used to thrill to boys stories of “sizzling sixes over the tuck shop roof”. The game of cricket, we were led to believe, was the embodiment of sportsmanship and decency. Alas, like everything capitalism touches, cricket is prey to corruption and deceit “Lord Condon’s findings on corruption in cricket, published yesterday may come as a nasty shock to lovers of the game, but hardly a surprise. Ever since Hansie Cronje, the former South African captain, admitted taking money to fix matches, there has been a cloud over the game. Australia, Pakistan and India have had to deal with allegations touching some of their leading players. In asking a former Metropolitan Police Commissioner to look into this, the International Cricket Council took an unprecedented step, but it plainly had no choice. The findings, bluntly, are worse than most people expected. According to Lord Condon, allegations already in the public domain represent only “the tip of the iceberg”. He declares that some players are still acting dishonestly and to the orders of the bookmakers. He links a murder and a kidnapping to cricket corruption, and reports that some witnesses were evidently afraid to speak out. Daily Telegraph 24 May.

Filthy lucre

Socialists are always arguing that capitalism with its wars, poverty and insecurity has outlived its usefulness; but we’ve just found another reason to get rid of it. “US dollar bills are home to dozens of potentially dangerous pathogens. Most US dollar bills are bacteria farms, cultivating dozens of potentially dangerous pathogens, a study in Ohio has revealed. The findings raises the possibility that paper money could be transporting antibiotic resistant bacteria from one area to another, say the researchers.” New Scientist, 24 May.

What is socialism?

We thought our readers might be interested in our socialist email discussion forum, so here we give you a little taster It is from a comrade in New Zealand referring to a comrade’s ideas in the USA in reply to an enquirer in the UK. The American Harry Morrison, writing for the Western Socialist, explained some years ago what socialism is not. “If workers work for wages, it is not socialism. If goods are bought and sold in a market, it is not socialism. If the world is divided into countries, it’s not socialism. Unless every man, women and child has free access to the means of living, it is not socialism.” The comrade in New Zealand, Bob Malone, makes a good point, when he says, “Socialism will only be realised when the majority of people realise that our quality of life is not improved by just how much wealth can he consumed, and that collectively we can build a much better society based on co-operation within and between communities.” (See page two of this issue to get involved).

Soliciting solicitors

The heartfelt cry of the butcher in Shakespeare’s Henry VI — “First thing we do, let’s kill all the lawyers” — would seem somewhat severe, but maybe Old Will had a point when we read about the goings-on in modern Israel. “Israel brothel keepers have the right to buy and sell prostitutes in the same way that football clubs transfer players, a lawyer claimed last week. ‘There is no difference between trading football players, hi-tech programmers, or surgeons, and selling women for purposes of prostitution’, Yaacov Shklar, who specialises in defending pimps, told a Knesset committee.” Observer 10 June.

Intensive mortality

“Thousands of people are dying because they are being moved out of intensive care too quickly, according to a study by two London hospitals. Just two more days in intensive care would be enough to save many seriously ill patients, researchers from St. Thomas’s and St. George’s found after analysing the cases of almost 14,000 patients from across Britain". Times 25 May. So, next time that you hear that a friend or a relative is being moved from intensive care into the general ward, don’t heave a sigh of relief, be worried — very, very worried Unless of course your friend or relative happens to be a millionaire receiving the best medical care that money can buy; in that case the move has been dictated by best medical practice and not, as the report says, for purely economic reasons. “One in four of the patients identified as being at greatest risk died on the ward after being released from intensive care. Using a computer, the research team concluded that 39 per cent of these would have survived had they been given two more days special care. But that would require a 16 per cent increase in intensive care beds, which would cost more than £100 million a year.

Inflation: twentieth century scandal (1981)

From the October 1981 issue of the Socialist Standard

The cost of living is not rising—it is the value of money which is going down.

To understand this statement it is necessary to be clear about the origins and function of money. The first trading was undoubtedly in the form of barter, that is, an exchange of one kind of desired produce for another. The restrictive nature of this form of trading hardly needs explanation. The finding of someone who has a surplus of what you want and at the same time is in need of what you have to spare would be difficult enough even today. Moreover, the system of barter makes it almost impossible to exchange a large surplus of one commodity for a variety of different items for which the trader has a need.

The invention of the idea of “money” solved both these problems. Bushels of corn, for example, could now be exchanged for coins of a precious metal which could subsequently, and at convenient times, be exchanged for a variety of items such as clothing, tools and jewellery. The important thing to remember is that the metal used for the coins had an intrinsic value every bit as much as the corn, the clothing, the tools or the jewellery.

Gold and silver coins were early adopted as convenient units of value for exchange with other items of value. Gold in particular was suitable because it was durable, unaffected by time or ordinary chemical agents and so precious that large values were easily portable. Silver, of rather lower value per unit of weight, was adopted for the exchange of items of smaller value or in conjunction with gold to arrive at a more exact evaluation. The word “pound” originally meant a pound weight of silver.

Debasing the Coinage

The first requirement of “money” is that the recipient can be assured that the coins he is receiving in exchange for his goods are of a known weight and purity. This soon became the responsibility of the sovereign ruler of the country of origin of the coins—the king or emperor. Our word “sovereign” for gold coins is a reminder that they bore a relief of the monarch’s E head—his “seal of approval”. Coins were produced at the Royal Mint to a controlled weight and purity. A small amount of base (inferior) metal was normally used in the making of coins to produce a more durable alloy but from time to time monarchs abused their control over the money supply by increasing the proportion of base metal to their own advantage or to meet their debts. The most flagrant example of this came to light quite recently when Roman coins minted in the third century AD were discovered in a field in Lincolnshire [1]. Analysis of some of the coins revealed that their silver content varied from 18 per cent to rather less than one per cent. As recently as the reign of James I gold coins were debased from 11/12 pure gold to 8/12 in order to meet debts incurred by the exchequer [2].

For most of the 19th century the gold content of the "sovereign” was fixed by law at just over a quarter of an ounce and it should be noted that from 1815 to the beginning of the First World War prices remained more or less stable [3]. However, by that time there had been a further development: the general substitution of paper money for coins.

Paper Money

The idea of paper money really had its origin in the receipts or “notes of hand” given by goldsmiths as early as the 17th century to those who wished to deposit their gold with them for safe-keeping. These receipts came to be accepted as a means of payment and, when banks were formed, they too issued “notes” against the deposit of gold in their vaults. Such notes also had the advantage of being light compared with gold coins (gold is almost twice as heavy as lead) and for large sums this was a consideration.

The important thing to notice in this context is that these bank notes were readily “convertible” into gold coins on presentation at the bank. This was still the case when the issue of notes became a government monopoly along with coins— in this country by the Bank of England. The first such notes were for £5—the “fivers” which the modern reader may come across in the literature of the period. These bore the words: “I promise to pay the bearer on demand the sum of five pounds”—that is, five gold sovereigns—and the signature of the Governor of the Bank of England. Later, £1 notes were also issued and for a time these also were fully convertible into gold. Then at the outbreak of the First World War convertibility was suspended, resumed in 1925, and abandoned during the depression of 1931 [4].

Released from the obligation to redeem notes for gold coins, the Bank of England could issue bank notes to meet the demands of the exchequer—well beyond the amounts collected in taxes. Printing money became an easy source of finance, not only in wartime but when in peacetime the call for increased public expenditure could not be resisted. This action on the part of successive governments was “currency inflation” and inevitably resulted in increases in prices.

Currency Inflation

By the operation of the market—if, for example, the number of pound notes in circulation is by this means doubled, the price of commodities will also be doubled. The pound notes will be worth only half their previous value so that twice as many will now be required to purchase the same good or services. This increase in prices docs not occur immediately; there is a time lag while the effect of currency inflation works its way through the system.

Other economic factors, such as trade depressions, poor harvests, import controls, monopolies and changes in the technology of production, can cause price fluctuations but these are minor compared with the effect of currency inflation in recent years. This was shown very clearly in a graph produced by the Treasury at the end of 1980 and published in the Daily Telegraph [5]. We reproduce it here. The solid line shows the annual increase in the money supply, that is, currency inflation. The broken line shows the annual percentage increase in prices.

It will be seen that major increases in the money supply in 1968, 1973 and 1978 were followed by increases in prices of the same order in 1971, 1975 and 1980. Below the graph we indicate the governments in office and responsible for currency inflation which was seldom below 5 per cent and topped a staggering 25 per cent in 1973. It should be noted also that the term “inflation” is these days used to describe increase in prices. This is quite incorrect and confuses the issue. In the writer’s dictionary the monetary definition of “inflation” is:

increase in the amount of money, especially paper money, in circulation leading to an increase in prices [6]. 

This mis-use of terms, whether intentional or not, opens the door to the suggestion that there are other causes for the major increase in prices in recent years—the most insidious being that of an increase in wages.

This reason for price increases was favourite with the last Labour government in spite of all evidence to the contrary. It is still being repeated in some quarters, most notably by leaders of the Confederation of British Industries. A recent report in The Times states that:

In informal talks with ministers, CBI leaders have underlined their strong belief that a tight rein on pay increases in the coming round (of pay negotiations) is vital if inflation is to be reduced to the single-figure target the Government has set . . . [7].

Inflation and Wages

It cannot be over-emphasised that increased wages do not cause a general increase in prices. There is no such thing as the “wages-prices spiral”. Nor is it a “chicken and egg situation” in which no-one knows which comes first. The sequence is quite clearly: currency inflation by the government-general increase in prices—demands for increased wages, as prices rise, and final wage settlements.

In an article headed “Prices and Taxes Rising Faster than Earnings” a contributor to The Times reports that:

Prices and tax stoppages are now rising faster than pay. Although the typical worker has seen his average earnings rise by about 14 per cent over the last year, he would have needed an increase of 15.7 per cent in order to maintain the real purchasing power of his pay packet [8].

This is based on the Government’s tax and price index published on May 22 1981. It hardly looks from this as if wages are pushing prices up. Again, the Treasury seems in no doubt about the sequence of events. In a recent study entitled The Role of Money in Determining Prices, the conclusion is:

Generally we could accept the strict monetarist proposition that a 1 per cent change in money would lead to a 1 per cent change in prices in the long run, with the main effect coming after a lag of between six quarters and three year [9].

If the reader still has any doubts as to the truth of the statement at the head of this article he has only to enquire about the present day value of a sovereign, or a quarter of an ounce of gold. He will find it is about £55. If our wages were today paid in sovereigns we would have no need to worry about the cost of living.

Why then Inflation?

The expenditure by governments in the industrially more advanced countries has reached colossal proportions. In the financial year 1979-1980 in this country, total “public spending” was little short of £80,000 million and rising [10]. Such expenditure was on defence, housing, education, health, social security and similar areas of government responsiblity.

When this country was on the gold standard the money had to be collected in the form of taxes of one kind or another—or borrowed. Borrowing normally only postponed the day of reckoning when the money plus interest would have to be found by increased taxation. Taxes are of two kinds; those related to income (direct taxation) and those unrelated to wealth (indirect taxation). Income tax is an example of the former and tax on beer an example of the latter.

Currency inflation opened up another source of finance. In the House of Commons recently Keith Joseph made the .matter quite clear:

The Government had to obtain the money it spends from taxing, borrowing or printing. There is no other source [11].

From a capitalist point of view the problem with increases in income tax is that they reduce profits. Even those taxes apparently paid by wage-workers are actually indirectly paid by their employers. In the last analysis, pay negotiations are based on “take-home pay”.

This is not to say that governments are unaware of the dangers inherent in currency inflation. Their hope has been that by this means the economy could be stimulated by the additional demand created by the increased money supply. The failure of this policy has led to what has become known as the “monetarist” school of thought by which the attempt is made to reduce the increase in the money supply by economies in public spending. But such economies can have no effect on the current trade recession— another dilemma which cannot be resolved within the economic framework of capitalism.

John Moore

REFERENCES

[1] Daily Telegraph 24/6/1980

[2] Harmsworth Encyclopaedia

[3] Socialist Standard Feb. 1979

[4] Socialist Standard Mar. 1980

[5] Daily Telegraph 29/12/1980

[6] Universal Dictionary of the English Language 1932

[7] Times 12/6/1981

[8] Times 23/5/1981

[9] Times 29/6/1981

[10] Times 18/6/1981

[11] Times 27/1/1981

Cooking the Books: Who invented money? (2021)

The Cooking the Books column from the May 2021 issue of the Socialist Standard

Whenever goods are systematically exchanged and so become ‘commodities’, one commodity evolves as what Marx called the ‘universal equivalent’ that can be exchanged for any other commodity. So nobody invented money; it came into being spontaneously. At first this money-commodity was gold or silver measured by weight. The next stage in the evolution of money was coinage, where a state stamped an amount of metal to authenticate its weight. In the European tradition this is attributed to King Croesus of Lydia, an area now in western Turkey, in the sixth century BC.

Historical research now suggests that coins may have been invented in China and at a much earlier date, as pointed out by the Mises Institute in an email note of 15 March:

 ‘China was one of the first countries to develop a metallic money that was valued and exchanged by weight. Evidence suggests that this monetary regime originated during the Shang Dynasty (1766–1122 BC) or the Zhou Dynasty (1122–221 BC). China was also one of the first countries to use precious metals as money and may have invented coined money.’

Also:

  ‘While ideas about the development of money were expressed as early as the seventh century BC, the most prevalent view of money’s origin is attributable to a politician of the sixth century BC. Shan Qi (b. 585 BC) contended that money was invented by one of the ancient philosopher-kings to measure the value of goods. However, several Chinese writers later disputed this story and argued that money originated as a market phenomenon. Sima Qian (104~91 BC) [sic: actually 145~86 BC], Luo Mi (1165~1173 AD) and Ye Shi (1150~223 AD)[sic: actually 1223] basically argued that money grew out of the trading of commodities and could not have emerged in the absence of commodity exchange. Money was only later adopted by kings as an aid in ruling their countries’ (bit.ly/3dc24Sm).

This same debate took place in Europe, with some arguing that coins were introduced by states to enable taxes to be paid in that form and others that they evolved out of commodity exchange. The debate is still ongoing with the proponents of so-called ‘Modern Monetary Theory’ and David Graeber in his book Debt arguing for the former, a position known in the literature as ‘Chartalism’. The other view is defended by Marxists and the Austrian school of economics as represented by the Mises Institute – strange bedfellows as Ludwig von Mises was an arch-enemy of socialism as well as of state capitalism (which he tended to confuse with socialism).

The case for the state being the inventor not just of coins but of money as a ‘universal equivalent’ is given some plausibility by the fact that today the currency – money as a means of exchange – is entirely the creation of the state, ‘fiat’ money as it is known. Gold and silver coins have long ceased to be used as a means of exchange; this is now made up of paper notes and metal discs issued by the state and which have no value in themselves. They are just tokens or counters that can be used to buy things.

However, the commodity-exchange origin of money is still there. Commodity production and exchange is basic to capitalism and the ratios in which they exchange for each other are still related to their labour content. The state issuing more money tokens than needed to carry out these exchanges does not increase the amount of values in existence or to be exchanged. What it changes is the unit in which the price of goods is expressed, reducing it and so raising the number of them to express prices, i.e., increasing prices all round. Which is why the ‘chartalists’ of MMT would come unstuck if ever their policy was to be implemented.

Coining it in (2000)

TV Review from the September 2000 issue of the Socialist Standard

Viewers of the 1970s retrospective series currently running on BBC2 would have done well to tune in to Secret History (17 August) on Channel Four instead. If studied wackiness is your thing, there was nothing to beat this particular programme—called “Funny Money”—about the joys of Britain’s move over to decimalised currency. It was an entertaining and well put together journey through the various research proposals, government White Papers and newspaper campaigns which acted as a prelude to the abolition of the old pound shillings and pence monetary system that was in use in Britain until 1971.

The programme included interviews with the politicians and civil servants in charge of the changeover, most notably the impish-looking civil servant who led the research into decimalisation in Britain and who then led the team whose task it was to prepare British business and consumers for the move over to the new system. At the time it was clear that he found the fuss surrounding the entire thing hilarious, and looking back on it more hysterical still—in fact, he can barely stop laughing.

It is difficult indeed to get inside the minds of people whose attachment to an inanimate object of little intrinsic worth is such that they will launch campaigns to “save” and “protect” it. We are not talking seals or whales here, but sixpences and ten bob notes. Such was the attachment to the old system that many proposed replacing it with a ten shilling system which would have abolished the old pound completely and replaced it with a ten shilling unit of currency called something like “The Royal”. Given their current political stance it is ironic that foremost amongst those in favour of this system of abolishing the pound was the Conservative Party. Indeed, the programme contended that the majority of MPs were probably in favour of it and the decimal system we now have was only pushed through on the Labour whip at the time because it was Harold Wilson and his Chancellor of the time, Jim Callaghan, who was driving it. When the Tories under Heath won the 1970 general election they implemented the proposal they had previously campaigned against and Britain adopted the system of one hundred new pence to the pound, replete with an oddly-shaped fifty pence piece and minus the sixpence and ten bob note.

Money, money, money 

If Secret History’s interviews with the top civil servants of the time are anything to go by they expected little short of blood on the streets when the changeover finally came. They had run a low budget public information campaign aided by Max Bygraves and periodic, pertinent references to decimalisation in Coronation Street. Instead, on “D-Day” itself, 15 February, the phones of the decimalisation task force stopped ringing and they sat in their offices laughing as one of the greatest fusses over nothing in British economic history fell into place. Soon the newspaper campaigns stopped, the silly season stories about young children swallowing the new two pence piece were put to rest and even the barmy bloke on the south coast whose gents outfitters shop refused to recognise the new currency eventually gave up the ghost. All that was left was the residual suspicion that decimalisation had increased inflation, though new scapegoats for that (the trade unions) were just around the corner.

The one possible failing of the programme, delightfully made as it was for the most part, was that it failed to explore the obvious modern parallel: the potential introduction of the Euro as a currency to replace the pound sterling. If the public could grasp the operation of the decimal system within a relatively short period of time and with few lasting complaints, the euro should be no problem, especially as it is also a decimal currency and doesn’t therefore mean a changeover to a completely different system of monetary accounting.

Today, of course, there are another breed of “save-the-pound” pranksters in our midst. This time they have managed to achieve something that decimalisation couldn’t—they’ve split the historically dominant political party of capitalism in this country, the Conservative Party. The modern “save-the-pound” campaign may have sounder basis in the reality of capitalism than opposition to decimalisation ever did (for some sections of the capitalist class at least) but its petty nationalist and parochial rhetoric is almost identical.

Of course, Secret History failed to touch upon the fact that while all this controversy about Britain’s currency has been raging over the last thirty or forty years, the alternative campaign for the complete abolition of all money and monetary exchange has been ongoing—in the pages of this journal and elsewhere. We must concede that it is an educative process that is certainly taking longer than the changeover to decimal currency did, but it will be worth the wait. Unlike decimal currency or the euro, the abolition of money really will be something worth waiting for and eventually, a source of real joy for billions and not just for a handful of Treasury civil servants.

DAP

Editorial: Let’s have free access (1971)

Editorial from the February 1971 issue of the Socialist Standard

“Abolish money? That’s impossible.” Is it? Surely all we need to produce wealth are human beings who are prepared to work and materials from nature. So if it is impossible to abolish money, it cannot be because money is an essential ingredient of the production process.

Before we go any further let us establish what money is. The metal discs and coloured paper which people carry around with them are not money. They are only almost worthless tokens for the real thing— gold. Gold of course is itself wealth in that it is the product of human labour on nature-given material. This is an important point since many people assume that money itself is not wealth, but merely a voucher entitling a person to so much wealth of his choice.

Money is useful wherever wealth is exchanged. Exchange is a simple word whose meaning should be clear —when things are exchanged one is given in return for the other—but it is commonly confused with distribution. When things are distributed they are not exchanged; they are merely being taken from one place to another. The work involved in this is strictly speaking part of the process of producing wealth. Money, then, does not distribute wealth. Wealth is distributed by men loading and driving lorries or trains or ships or planes.

Perhaps this confusion arises because the word “Distribution” means sharing-out as well as dispersing and so fits in well with the mistaken view that money is a voucher entitling a person to such-and-such a share of the wealth that has been produced.
Historically, the most common kind of exchange has been that of equivalents and this is the only kind that need concern us now. So much wheat would be given in return for so many sheep or so many pots in return for so much cloth. This process of barter is cumbersome and becomes impractical when exchange grows to any extent. At this stage the need is felt for something that can be exchanged for anything else — money, for that is what money is, an item of wealth that can be exchanged for any and every other item of wealth. We can now see why money is itself, and must be, wealth. For, with the exchange of things of equal value, nobody is going to give his wheat or sheep or pots or cloth in return for something that is not worth the same.

Exchange implies something else, too. It implies that the wealth to be exchanged is owned by different people. After all, if one person or one community owned all the wheat as well as all the sheep, the question of exchanging them just would not arise. Exchange presupposes the private ownership of wealth.

This is why the establishment of the common ownership of the means of production and distribution will mean the end of exchange and so the disappearance of money. All the wealth that is produced, as well as the means and instruments for producing and distributing it, will belong to the whole community so that the problem will be simply to distribute it to where it is needed. This is just a question of organisation. When the wealth has reached the stores then people can freely take of it what they need. This — free access — is our alternative to money.

We are witnessing how the other alternative works in the present upset over the introduction of a decimal coinage in this country. The official propaganda, a vastly expensive advertising campaign, has been directed at getting us to understand the new system and to accept it. We have seen the photo-strips of the crotchety old lady being won round to a decimal enthusiast. We have had, coming through the door with the detergent coupons, the booklet from the Decimal Coinage Board.

And we have been told that it is all to do with efficiency. Decimals will be easier to work, the system will save money in the long run. It will bring the British currency somewhere into line with those of other countries and, as we point out elsewhere in this issue, is a step towards a common European currency. What this amounts to is that decimal coinage is an efficiency measure designed to benefit British industry and commerce, by which is meant the owners of industry, by which is meant the British capitalist class.

It has yet to be demonstrated, how “efficiency” helps the other side, the people who have to bumble through the shops with the unaccustomed coinage, the people who have to worry about whether they are being swindled in the changeover, the people whose lives depend on the wage which comes in the form of money. The interests of these people — the working class, the vast majority of society — are not concerned with “efficiency” or export drives or international trading tie-ups or rearrangements of currencies.

What the change to decimals does show up is the basic inefficiency of capitalism. The apologists for the system tell us that money is itself an efficient thing, that it oils the wheels of production and distribution. Yet here we have had a situation in which those same apologists have been telling us that money is a hindrance, that the different currency systems lead to inefficiency and we need a huge, expensive, time consuming propaganda campaign and a mighty upheaval to adjust it all.

Yet if we are interested in efficiency (as we are) there is something which is of top priority. If we want a society where wealth can move around the world freely, where it can be produced as human beings need it, we must think about a system which excludes money. The capitalist social system hinders distribution and restricts production. Its priority is not efficiency but profit for a minority. It must be swept away and replaced by Socialism, the world of free production and access.

Propaganda Power . . . in Your Pocket (2013)

From the September 2013 issue of the Socialist Standard

Hooray for People Power! Faced with a petition of some 35,000 signatories, the Bank of England has caved in and will keep a female face on ‘our’ banknotes. Elizabeth Fry, currently on the fiver, will still be replaced by Winston Churchill, however, the new face of the ten pound note is to be Jane Austen. The leader of the campaign, Caroline Criado-Perez, said ‘This is a brilliant day for women’, whilst Zoe Williams in the Guardian celebrated the victory of the ‘determined and lethal . . . new generation of feminists’.

Will this do anything to stem the world tide of rape, torture and oppression of women? Will it do anything to alter the vast blanket of everyday sex objectification, the portrayal of women as mere products for use, which lies heavy upon us all? Will it do anything for the single mothers, who above all others have been targeted by the current round of cuts of this especially vicious regime? Will it heck. Is this the sort of tokenistic gesture which does nothing but tickle the pleasure centres of the privileged female few? You tell me.

The government-owned Bank of England has promoted national figures on paper currency for some forty years. Since that time the following have appeared:

Unlike America, which has long celebrated its national heroes on paper currency, such crass displays of personalised patriotism were a bit of a departure for Britain, which has mostly relied on the monarchy and its trappings as the symbol of national unity. Generally speaking, however, the individuals portrayed were fairly uncontroversial figures of notable personal achievement. As such the clear purpose was to show the state in a positive light as the guardian of the arts and promoter of science by means of association. The inclusion of reformers is particularly noteworthy, reflecting the ‘progressive’ colouring of the post-war settlement.

The current F Series marks an interesting turn. Reformers, scientists and engineers are out. Adam Smith, arch-apostle of capitalism, is in. As is Conservatism, in the form of self-publicist and outstanding military strategist (responsible for such strokes of genius as the Gallipoli Campaign) Winston S Churchill. The founders of the modern Mint, representing the banking interest, occupy pride of place on the £50 (not in general use as any poor sucker who has the misfortune to be lumbered with one soon finds out). As a double sop for culture vultures and the ladies is the mildly critical observer of upper class manners, Jane Austen. The odd (wo)man out, perhaps, but still well within the confines of the privileged elite. So the face of Britain today, as its money reveals, appears to be a nakedly capitalist one with no pretence of utility, boasting of its class domination, proud of its warlike heritage.

In addition to its main function (for the capitalist class as a means of rationing its slaves), money has long been a bearer of messages (see here). The issuing of money being, by and large, a state prerogative, the ideas transmitted are those the state wishes to transmit. The design of money shows the state as it wishes itself to be seen – an embodiment of common values, promoter of gallantry, endeavour, culture and learning – rather than as it really is – the bastion of unmerited privilege for the few, oppressor of the many.

One of the most prevalent state myths is the myth of national unity – that we are ‘all in it together’. As such, in the modern situation, it must be all inclusive. The modern British banknotes have usually included a female figure. Doubtless a gentleman of colour would also be an asset, but unfortunately there are very few suitable candidates, with most historical figures of African or Asian ancestry, such as the Chartist William Cuffay or the brave ultra-Radical William Davidson, being decidedly unrespectable.

By means of a counter to the state’s propaganda, individuals and groups have struck back by vandalising money. Defacing banknotes is illegal (traditionally French notes bore hair-raising threats of punishment for ‘contrefacteur’) and, more importantly, they can be refused as payment if vandalised. Despite this, the Iranian Green Movement has a substantial campaign writing anti-regime slogans on notes. In Canada anti-NDP slogans have been inscribed on banknotes. Many other examples are suspected fakes or have been produced as ‘art’. Politically motivated defacement is largely confined to coins. A recent example shows the Spanish King Juan Carlos, whose remoteness from the harsh realities of modern life on the peninsula has generated considerable hatred, rendered as the buffoon Homer Simpson.

In Northern Ireland in the 1970s rival claimants to state power struck their initials on coinage. It is a pity in a sense that the IRA, which defaced UK coins, and the Loyalists, defacing coins of the ROI, could not just have confined their activities to a coin war. The Second World War also had a coinage counterpart with the Free French countermarking Vichy coins with the cross of Lorraine and the Azad Hind counter-stamped British India coins (see here).

Before the First World War the Suffragettes also carried out a coin campaign, stamping pennies with the slogan ‘Votes for Women’. They may have been inspired by the keepsakes brought back by soldiers who served in the Boer War, a decade or so earlier. British soldiers engraved a top hat and meerschaum pipe on coins depicting ‘Oom Pol’ Kruger to illustrate their contempt for the leader and icon of the ZAR.

Although American Abolitionists associated with the Free Soil movement are known to have inscribed coins, the origins of the practice seem to lie with the Radical Thomas Spence (1750-1813). Spence famously issued politically motivated tokens. He and his followers also vandalised coins for propaganda purposes. Spence is particularly interesting as he was arguably the first in the modern era to recognise the need for the radical reorganisation of the economic structure of society, not merely political reform or regime change. Although we may criticise the overly formulaic approach, Spence, his plan and methods of propaganda are worthy of a place in the socialist pantheon.

Kaz

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.

What is money? (2018)

Book Review from the June 2018 issue of the Socialist Standard

‘Money’.  By Yuval Noah Harari. (Vintage Minis. 130 pages. £3.50)

This short book is made up of extracts from two books by Harari, though only the first section, from his best seller Sapiens, is on money.

He makes the point that money is not just a thing – something you can exchange for whatever you want – but that it is also a social relation between those producing different things for sale within the context of the division of labour. However, he confuses the use-value and the exchange-value of the various things – silver, gold, cowrie shells, metal and paper tokens, electronic data – that have served as money over time.

He writes that ‘the silver shekel had no inherent value’ and that the value of silver and gold is ‘purely cultural’.  Their use-value, apart from serving as money, as ornaments and status symbols does indeed depend on culture, but they do have an ‘inherent value’ in the sense of an exchange value  when bought and sold or used as money. This is as a result of being the product of work; which allows them to be exchanged with other products which took the same amount of labour to produce. The same applies to cowrie shells which were used for trade in parts of Africa and Asia; besides as ornaments they could be used as money because amounts of them were easily divisible and not too bulky and, being rare, labour was required to find them.

So, money does not rely simply on trust, as Harari argues. Originally, it was a product itself, one  that could be exchanged for any other product of equal exchange value. Today, when the things that are used as the medium of buying and selling are practically worthless metal or paper tokens, trust is more involved but more important is the backing of the state that issues them and decrees them ‘legal tender’.

When it comes to banking, Harari is confused. He writes:

  ‘Banks are allowed to loan $10 for every dollar they actually possess, which means that 90 per cent of all the money in our bank accounts is not covered by actual coins and notes.’

It is true that (in the US) 90 percent of total bank accounts is not covered by cash, but not for the reason he states. It results from banks lending only $9 of every $10 deposited and retaining $1 as cash.

The second part of the book, taken from his Homo Deus, is speculation about future possible interactions between Artificial Intelligence and humans. It is not all that imaginative as it assumes the continued existence of capitalism. In a book on money you might have expected that the possibility be considered that the widespread application of AI might lead to abandoning the use of money rather than to mass unemployment.

Adam Buick

Marx, Money and Prices (1967)

From the January 1967 issue of the Socialist Standard

We are often asked why we continue to make use of the writings of Karl Marx, who died over eighty years ago and whose theories have been so generally rejected by economists.

So many things have happened, they say, that Marx could not know about; capitalism has undergone such unforeseen changes; and was not Marx responsible for the rise of Russian State Capitalism? Unaccountably the questioners forget to put it to themselves. If Marxian theories have long been disproved and discredited why do the opponents of Socialism go on, year after year, making new attempts to disprove and discredit them? Why don’t they just forget?

Still it is a fair question. The answer is that capitalism has not changed in its essentials: it is still a system of society in which the means of production and distribution are class owned, in which commodities are produced for sale and profit by a non-owning working class which lives by selling mental and physical energies to employers, including the state-capitalist, so-called nationalised industries. As for Russia, the course of events there completely vindicates Marx’s view that Socialism could not precede the development of capitalism; Marxian theories no more determine the actions and policies of the Russian government than does theology determine those of the governments in nominally Christian countries.

And when we come to economic theory, Marx’s analysis of capitalism in operation, value, prices, unemployment, banking, crises and so on is more valuable in depth and scope than anything done by his detractors.

And is Marx out of date? What is the present incomes policy of the Labour Government but yet another attempt to deal with the trade cycle which Marx described and explained—and in particular the fact to which Marx drew attention, that in a certain phase of the boom prices rise and wages rise faster than the production of consumer goods?

And one sphere in which Marxian theories hold their own is in the explanation of price changes, including the prices of individual commodities, the price of labour-power (wages), the general upward movement in booms and the downward movement in slumps, the general movements related to changes in the value of gold and finally the general movements related to the volume of currency.

Leaving aside the day to day fluctuations of price caused by market fluctuations of supply and demand and the fact that some commodities normally exchange above or below their value, Marx postulated that the basic element in the exchange of all commodities in capitalist society is value, measured by the amount of socially necessary labour in all the operations required in the production of a given commodity. From which it follows, firstly, that if one commodity requires twice as much socially necessary labour as another, its value will be twice as great, and secondly, that in gold all other commodities find their “universal equivalent”, again related to value. This explains what is behind the value of gold coinage; the coin is a weight of gold representing the value of gold. In concrete terms the Pound or sovereign which circulated in Britain in the nineteenth and into the present century was, by law, a fixed weight (about one quarter of an ounce) of gold.

The next proposition is that in order to carry on the sales and purchases of commodities and other payments a certain amount of gold coin (and subsidiary silver, copper etc., coinage) would be needed. A number of factors enter into the determination of what volume of currency will actually be needed; the volume of transactions, the prices of commodities and the rapidity of circulation etc., for a description of which the reader is referred to Marx’s Capital Vol. 1. Chapter 3. “Money, or the Circulation of Commodities”.

The next stage in Marx’s explanation is that a circulating gold coinage can, without any alteration of the proposition, be replaced by a convertible paper currency, that is freely convertible into a legally fixed and unchanging weight of gold. In 19th century Britain, Bank of England notes, which circulated alongside the gold coins, were by law convertible on demand into gold.

Then comes a completely different situation, the replacement of gold coin and convertible bank notes by an inconvertible paper currency—the situation in Britain today. The Marxian proposition, still based firmly on the concept of value, is that if the inconvertible paper currency exceeds in amount the amount of gold coinage that would be needed, the general price level will correspondingly rise.

 If the quantity of paper money issued is, for example, double what it ought to be, then, in actual fact, the pound, has become the money name of one-eighth of an ounce of gold instead of about one-quarter of an ounce. The effect is the same as if an alteration had taken place in the function of gold as a standard of price. The values previously expressed by the price of £1 will then be expressed by the price £2. (Capital Vol. 1 page 144 Kerr edition).

But what have the other economists to say about this? Most of them reject the old theory outright. The late Lord Keynes wrote in his Treatise on Monetary Reform forty years ago:

  Thus the tendency of today—rightly I think—is to watch and control the creation of credit and to let the creation of currency follow suit, rather than, as formerly, to watch and control the creation of currency and to let the creation of credit follow suit.

In the meantime in keeping with this changed attitude (and in keeping with mystical ideas on “credit creation” referred to in the Socialist Standard (December 1966) the meaning given to the word “money” changed. Some writers wanted to regard as money, not only the note issue and coinage but also those bank deposits which are withdrawable on demand, and others have extended it to cover all bank deposits.

And the 1959 Committee on the Working of the Monetary System capped it by declaring that they regarded the note issue as in effect no more than “the small change of the monetary system” (page 118).

But the proof of the pudding is in the eating. The economists who reject Marx have to explain why events—that the price level is more than three times what it was before the war—are explicable on the lines of Marx’s proposition about the effects of an excess issue of currency, but quite inexplicable on their theory that the amount of currency can be disregarded.

Edgar Hardcastle

Editorial: The Money System (1988)

Editorial from the September 1988 issue of the Socialist Standard

Money dominates our lives. It is universal under capitalism. It speaks all languages and opens all doors. Virtually everything all over the world has a price. Practically every kind of activity we engage in, and every sphere of human endeavour, is measured against what it costs. There are money barriers erected between people and their attitudes towards each other. Respect and kudos are accorded to the money not the person.

In a thousand similar ways money falsifies human values. It perverts the judgment of people by raising phoney standards. And as the have-nots slavishly seek to imitate the possessions of the haves, trashy substitutes become a commonplace and the general culture pattern sinks to the level of the unreal. For those in poverty, social recognition is sought through the showy accumulation of inferior junk. While money expresses the values of property society, it has in itself nothing useful to contribute to human lives It is a social growth and its existence is secondary to the basic property division in society.

The rich are rich because they own the means of production and thereby accumulate money in the form of rent, interest or profit. It is the real wealth created by workers which constitutes their fortunes. The workers are relatively poor because they own no means of production, not because their wages are low but because they have to work for wages at all. The wages system represents the social dispossession of the working class and assures their continuing appearance in the factories, mines and offices to turn out wealth for the owning class.

Every facet of existence is affected by money. How we live, where we live, the kind of food, clothing and shelter consumed, all hinge on how much can be afforded. With our talents, we have mastered many natural forces and even bent them to our will, through our store-house of scientific knowledge we have transformed the face of the earth; we have produced wonders of communication and transportation and covered the world with technical achievements undreamed of a hundred years ago; with mechanisation applied to agriculture, our capacity to produce food is abundant. Yet none of this is readily available to us The social straitjacket of the money system stifles our every move.

There is obviously nothing that can be done to resolve this contradiction within the framework of a money based society. Money is so revered and sought after that a world without it is extremely difficult for most people to conceive. Yet there is nothing natural about it. All that we need to survive and flourish are our physical and mental energies and the resources of nature. Money developed out of the exchange of goods.

Where things are held in common and freely available, money is irrelevant and superfluous. Many things have been used as money in the history of its existence, including human slaves. The substance behind world currencies today is gold. Gold is ideal for the purpose because it does not perish and it concentrates a large amount of value into a convenient form. When buying and selling takes place, it is therefore values exchanging one with another and this only happens because there are exclusive property rights—owners and non-owners. It is people's attitudes that sanction the powers of money. It serves as a standard of price, as a measure of value and a means of exchange. That is to say its operation is confined to the buying and selling of commodities. This commercial process is part of the profit making system which exploits and devours the life force of productive labour.

All the contortive juggling of Chancellors of the Exchequer and world bankers and the voluminous writings of the so called economics experts and financial columnists are so many dreary acts in an over-long farce They are like the motions of a ritual to appease the wrath of some supernatural power, where people make obeisance to gods of their own creation.

Today we are confronted with hundreds of millions of people in chronic need of food, but unless they constitute a profitable market they will remain hungry. In the same way, a money barrier exists between the millions living in slums all over the world and the provision of adequate housing. These are simple aspects of poverty, and poverty is incurable as long as the means of wealth production are monopolised by a class.

The socialist analysis of capitalism and its money set-up points the way to a new society where people would use the earth's resources for their common good—without money.