Universal Translator

Saturday, January 7, 2012

Reading Marx – Part XII

(Routine Introduction:  For reasons explained here, I’m in the process of slogging through Marx’s Capital.  The plan is to read it in conjunction with watching David Harvey’s free on-line lectures about the book.  I’ll be posting notes and initial impressions as I read.  This will be an extremely long-term project.)

Today:  Vol. I, Book I, Part I, Chapter III, Section 2, Subsection b

Vol. I, Book I, Part I, Chapter III “Money, or the Circulation of Commodities”, Section 2 “The Medium of Circulation”, Subsection b “The Currency of Money”

--Marx argues that the circulation of commodities (Commodity --> Money --> Commodity) is a closed circuit for commodities (one commodity ultimate is exchanged for another commodity);  but while money circulates in an economy it does not form a closed circuit, but rather always gets further and further away from its source; (well, maybe, but one could say the same thing of the linen, I suppose; the original linen never comes back to the weaver; maybe it doesn’t always move further away from the weaver because it is intended to be consumed, but then again many commodities are sold not for final consumption but for resale, i.e., wholesalers sell to retailers; I’m not sure this is a valid distinction to draw b/w money and commodities);

--the course of money continuing away from its “source” (which also seems a little arbitrary; the source seems to be wherever Marx decides to first start tracing the movement of money) Marx deems its “currency” (‘Currency’ thus is a defined term, i.e. the movement of money);

--Marx argues that in the market it appears that trade is effected by money circulating amongst traders, but in reality it is the commodities’ circulation that constitutes trade (?); Marx assumes that upon the sale of any commodity it is immediately consumed (or, maybe, transformed into another commodity, like linen being turned into a shirt), and thus in trade commodities are constantly dropping out of the market while money continues to circulate;

(NOTE:  it seems to me that Marx is using a pretty free hand here to define his terms; I’d be curious to know what it is he specifically means by “circulation of commodities,” which I am reading as “the market”; it simply is not true that in every sale of a commodity the commodity drops out of trade circulation; some commodities are incorporated into other, larger commodities (a computer chip into a laptop, for example), which are then re-sold; I suppose Marx could mean that the commodity drops out of that particular market (the market for computer chips), but it looks like he is attempting to make a more global statement and I just don’t know if that statement holds up; it doesn’t appear to)

(NOTE:  I think I understand the point Marx is attempting to reach, but I am suspicious that in order to get there he is invoking a simplified model of “the market” that does not actually correspond to real life; if the model doesn’t relate in a material way to real life then no useful lesson can necessarily be drawn from that model)

--every commodity, when sold, falls out of circulation only to eventually be replaced by other commodities (when the money acquired by selling the first commodity, i.e., the linen is used to purchase something else); but money, as the medium of commodity circulation, never leaves the system; Marx wants to know how much money the “sphere of circulation” constantly absorbs;

--Looking at the total commodities offered for sale in a nation, the amount of money that must be present in order to effect those sales is the sum total of all their prices; but while their collective Value (the socially necessary labor time to produce those commodities) always remains constant, their prices will vary with the Value of gold (the material of money) as it falls or rises;

--I think it is important to note that Marx seems to be assuming that gold is constantly entering the system as it is mined and refined around the world; this is very different than what happens now; so gold is “entering into the sphere of circulation but is never dropping out of it, as other commodities do”; of course, as more gold enters the market the Value of any individual piece of gold (expressed as a fraction of the total gold present) goes down, and so more gold is needed to equate to the Value of commodities and their prices rise; if gold were to become more rare (and how can that happen if it never drops out of circulation?) then each small piece of gold is a greater fraction of the Gold Commodity in the global market, hence more valuable, hence less is needed to equate to the Value of the commodities (i.e., prices go down);

* * *

---Hhhhmmmm . . . Marx then states: 

A one-sided observation of the results that followed upon the discovery of fresh supplies of gold and silver [the New World], led some economists in the 17th and particularly in the 18th century, to the false conclusion that the prices of commodities had gone up in consequence of the increased quantity of gold and silver serving as means of circulation. 

If I understand this correctly, what Marx is saying is that what led to the inflation Europe experienced after Spain found the riches of the New World was not just that now there was more gold and silver in circulation, but that the Value of any particular piece of gold was less because the total gold in circulation was more.  In other words, supposing there are 100,000 oz. gold total in the market.  Of the Total Value (socially necessary labor time) expended to get 100,000 oz. gold into the market, 1 oz. represents 1/100,000 of that total Value;

Let’s call SNLT a unit, and say that one SNLT unit is required to get 1 oz. gold on the market;

But suppose a treasure trove of say, another 100,000 oz. gold is discovered that requires less SNLT units to get on the market – let’s say one SNLT unit gets 10 oz. of this new gold on the market; now we have a total of 200,000 oz. gold, which collectively requires 110,000 SNLT units to produce. 

Under the original circumstances, 100,000 oz gold = 100,000 SNLTs; under the changed circumstances, 200,000 oz gold = 110,000 SNLT; So, 1 oz gold use to equate to 1 SNLT; but now, 1 oz gold equates to 0.55 SNLT; but the Value of the linen (say, 10 SNLT) hasn’t changed; so whereas before it would take 10 oz gold (10 SNLTs) to equate to the linen, now it takes 18.19 oz gold (10 SNLTs) to equate to 10 SNLT Value of linen);

I think the point Marx is trying to make here is that it isn’t just the greater amount of money in circulation that drives up prices, but that the greater amount of money in circulation reflects more gold being produced at less socially necessary labor time, i.e., its Value has decreased

* * *

--All of the foregoing notwithstanding, Marx concludes by merely asserting that for purposes of this discussion he is going to treat the Value of gold as a fixed given (as it is at any particular point in time);

--Okay, now . . . Marx is going to assume that the quantity of all commodities remains constant; he also is assuming that the value of gold is fixed; thus, the amount of money that is going to be necessary in the global market will vary depending on the fluctuations of the prices of the commodities (how can those prices fluctuate if the Value of gold is fixed? I assume because either there are differences in the socially necessary labor time needed to produce these commodities, or else changes in the supply and demand of and for each product);

--generally speaking, as the total sum of prices goes up, more money must be put into circulation, as the total sum of prices goes down, less money is needed (so, contra earlier, money can drop out of circulation – I knew it);

--now, if four articles are sold in different localities to different purchasers, and each of those articles has a price of $2, it follows that there must be $8 dollars in circulation.  But suppose each of these articles is sold as part of a chain: a farmer sells wheat for $2, and purchases 20 yds of linen for $2; the weaver takes that $2 and purchases a Bible, and the bookbinder takes the $2 and purchases 4 gallons of brandy, then we only need $2 to be in circulation; the point here is that time is required for the completion of the series;

Hence the velocity of the currency of money is measured by the number of moves made by a given piece of money in a given time.”

--suppose in this example the circulation of the 4 commodities takes a day; the sum of the prices is $8, the number of moves the money makes is 4, and the quantity of money circulating is $2.  Generally speaking, the quantity of circulating money is equal to the sum of the prices of the commodities in circulation divided by the number of moves made by money of the same denomination;

--since the total money changing hands is going to be equal to the sum of the prices of all the commodities in circulation, then the higher the velocity of money the less quantity of money is needed (because the same money can be reused more quickly), and the lower the velocity of money the more money is needed; thus, if money velocity speeds up, more money will drop out of circulation, and if money velocity slows down, more money must enter into circulation in order to keep trade going;

--although commodity prices remain constant, the amount of money in circulation may increase either because the number of commodities increases, the velocity of money decreases, or some combination of the two;

--on the other hand, money will drop out of the system when there are less commodities available or if money velocity increases, or both;

--when prices rise, the quantity of money in circulation will remain the same provided the number of commodities available decreases proportionally to the increase in prices, or provided the money velocity increases at the same rate as prices rise (the quantity of commodities in that case remaining constant);

--if prices fall, the quantity of money in circulation will remain constant provided the number of commodities increase proportionally to the fall in prices, or provided the money velocity slows down at the same rate as prices fall (the quantity of commodities in that case remaining constant);

--finally, although the monetary velocity, the quantity of commodities and their prices may all vary, they may do so in a way that mutually compensates each other such that the sum total of commodity prices in the market and the amount of money in circulation remains more or less constant; Marx suggests that – looking at the big picture – the quantity of money in circulation in any country remains more or less a constant;

FINAL POINT:  What Marx wants to get at here is that given the sum of the values of all commodities and the average velocity of money in an economy, the quantity of gold that is in circulation depends on the Value of the gold; he argues that economists’ previous understanding – which held that prices depend on the amount of money present in the system – is erroneous.  Marx argues that this opinion “was based by those who first beheld it on the absurd hypothesis that commodities are without a price, and money without a value, when they first enter into circulation . . . .”

MY THOUGHTS:  Marx wants to assign an objective Value to the money commodity – gold – equivalent to the SNLT to produce a given quantity of gold; he seems to making an argument about causation; prices go up because the Value of gold goes down, which requires more gold to enter the market; it is not that the Value of gold goes down because more gold enters the market.  I think that’s correct.

Next Up:  Vol. I, Book I, Part I, Chapter III “Money, or the Circulation of Commodities”, Section 2 “The Medium of Circulation”, Subsection c “Coins and Symbols of Value” – another subsection coming up!  And it’s a short one!  Yay for totally unjustified feelings of accomplishment after completing short segments.

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