[Book] Understanding Marx’s Capital: A reader’s guide

2) Chapters 2-3: Money

Gold? yellow, glittering, precious gold?…
Thus much of this, will make black, white; foul, fair;
Wrong, right; base, noble; old, young; coward, valiant.
…What this, you gods? Why, this
Will lug your priests and servants from your sides,
Pluck stout men’s pillows from below their heads;
This yellow slave
Will knit and break religions; bless the accursed;
Make the hoar leprosy adored; place thieves,
And give them title, knee and approbation,
With senators on the bench; this is it,
That makes the wappen’d widow wed again:
… Come, damned earth,
Thou common whore of mankind.

(Shakespeare, Timon of Athens, Act 4, Scene 3)

Having analysed the concepts of the commodity and value in chapter 1, Marx now turns his attention to the question of money, explaining the various roles and functions that money plays in commodity production and exchange, and the relationship between money, commodities and value.

Importantly, it should be emphasised that Marx’s analysis is based on an attempt to understand the question of money from a materialist and dialectical perspective – that is, to chart the evolution of money from its historical origins through to its current form; and meanwhile to explain the essential and dynamic role of money in terms of the general motion of commodity production and exchange that underpins capitalism.

Though money is simply a special commodity, it has a specific role and function. Commodities no longer directly face one another in exchange but are instead exchanged for money.

Dual nature

The quote from Shakespeare’s Timon of Athens, which Marx provides in Capital1 reveals how money – and in particular gold – has, throughout history, taken up a revered place within society. It seems both ubiquitous and omnipotent, a mystical force that we bow down before and which has power over us all. Our actual needs – both individual and societal – are relegated to the need for money – “thou common whore of mankind”.

However, as discussed previously, Marx explains in chapter 1 how the concept of money is the logical necessity of a generalised and universal system of commodity production and exchange; the conclusion of a system of private ownership, in which production is no longer for direct consumption but for exchange, and in which men and women confront each other no longer as people but as owners of commodities. The key to understanding the question of money, therefore, is to analyse the historical development of commodities: “The riddle of the money fetish is therefore the riddle of the commodity fetish, now become visible and dazzling to our eyes.”2

In chapter 1, Marx explains how commodities – products of labour that are produced for exchange – have a dual nature. On the one hand they are use-values – things that have a utility in society. On the other hand, such commodities must have an exchange-value – a quantitative relationship to other commodities. But this dual nature also leads to a contradiction; a tension and separation between commodities as use-values and as exchange-values.

“For the owner, his commodity possesses no direct use-value. Otherwise, he would not bring it to market. It has use-value for others; but for himself its only direct use-value is as a bearer of exchange-value, and consequently, a means of exchange…All commodities are non-use-values for their owners, and use-values for their non-owners. Consequently, they must all change hands.”3

For the owner of commodities, therefore, production is merely a means to an end – a way of obtaining other commodities that they do have a need for. What concerns the owner of a commodity is not the usefulness of the commodity per se, but that this commodity can be exchanged for other commodities. “Hence commodities must be realised as values before they can be realised as use-values.”4

In this respect, those involved in production within a system of private ownership and production for exchange – that is, within a system of commodities – are constantly alienated from their labour; the things they produce are not useful to them, but simply for others.

Within primitive communities, where production is a communal process, such alienation does not exist and commodity production is limited to the fringe, namely to those objects that are exchanged with other communities. But the dynamics and laws of commodity production and exchange have a logic of their own that, once started, imposes itself on society. As Marx notes, “as soon as products have become commodities in the external relations of a community, they also, by reaction, become commodities in the internal life of the community.”5

In other words, as soon as the products of labour are externally traded, thus comparing the labour-time contained within one community’s commodities with that contained within another’s, the same comparison necessarily begins between the products of labour internal to a community, which were previously not exchanged, but instead produced for the collective benefit of all. The laws of commodities thus begin to assert themselves within primitive society at a certain stage and the separation between use-value and exchange-value is established.

“In the course of time, therefore, at least some part of the products must be produced intentionally for the purpose of exchange. From that moment the distinction between the usefulness of things for direct consumption and their usefulness in exchange becomes firmly established. Their use-value becomes distinguished from their exchange-value .”6

Whilst the individual owner does not see their commodity as a use-value for themselves, commodities must have a use-value in order to be exchanged. “For the labour expended on them only counts in so far as it is expended in a form which is useful for others…only the act of exchange can prove whether that labour is useful for others, and its product consequently capable of satisfying the needs of others.”7 The act of exchange, therefore, is the only proof of the social usefulness of any product of labour.

Meanwhile, it is only through the multiple acts of exchange within society that quantitative relationships between commodities – i.e. exchange-values – become established. “Their quantitative exchange-relation is at first determined purely by chance…the quantitative proportion in which the things are exchangeable becomes dependent on their production itself. Custom fixes their values at definite magnitudes.”8

Marx’s analysis of the development of money, therefore, is based on an understanding of the development of the commodity, as outlined above. As commodity production and exchange becomes increasingly generalised, we see the general form of value emerge. Each individual producer wishes to exchange their particular product with the multitude of products found on the market. As this system becomes universal, there grows a social need for universal equivalent – for a single commodity that acts as a yardstick of measurement against which the value of all other commodities can be compared. This universal equivalent is the basis for money.

The concept of money, then, is the ultimate form of the alienation of producers from their labour. No longer do we see production for direct consumption; nor are commodities produced as exchange-values for the owner, to be simply traded to obtain other use-values. Now, instead, the producer demands money in exchange for their products – money that represents the most abstract and universal form of labour, devoid of any use-value for the owner, except its ability to universally represent the value of their own labour.

“Money necessarily crystallises out of the process of exchange, in which different products of labour are in fact equated with each other, and thus converted into commodities. The historical broadening and deepening of the phenomenon of exchange develops the opposition between use-value and value which is latent in the nature of the commodity… At the same rate, then, as the transformation of the products of labour into commodities is accomplished, one particular commodity is transformed into money.”9

Means of exchange

So money emerges from the development of commodity production and exchange. But what determines the emergence of one particular commodity as the universal equivalent? “The difficulty,” Marx states, “lies not in comprehending that money is a commodity, but in discovering how, why and by what means a commodity becomes money.”10

“What appears to happen is not that a particular commodity becomes money because all other commodities express their values in it, but, on the contrary, that all other commodities universally express their values in a particular commodity because it is money.”11

Although the crystallisation of one commodity as money “is at first a matter of accident,”12 Marx explains how there is, nevertheless, a material basis for the development of certain commodities as money – in particular the precious metals, such as gold and silver. Such metals did not become money due to their aesthetic qualities but because of objective factors. On the one hand they are homogeneous and uniform – gold is gold is gold. On the other hand, they can be quantitatively divided and re-assembled into weights of variable magnitude, and are thus able to represent varying amounts of value. Added to this, metals are durable – a more easily perishable commodity would clearly not suffice as a universal equivalent.

Besides these useful properties of the precious metals, there lay one other important factor in their emergence as the commodity par excellence: the fact that, due to the large amount of labour required to produce a given quantity of gold or silver, small amounts of such metals could be used to represent large quantities of other, less valuable, commodities.

Behind this fact lies a key role of money within a system of commodity production and exchange: its role as a measure of value and a means of exchange – that is, as a universal measure of the socially necessary labour-time embodied within a commodity:

“[Money] thus acts as a universal measure of value, and only through performing this function does gold, the specific equivalent commodity, become money…

“…Money as a measure of value is the necessary form of appearance of the measure of value which is immanent in commodities, namely labour-time.”13

Over time, however, as the total value of the commodities exchanged within society increases, and as these exchanges become more frequent, the objective need for money becomes so great that the actual value of the precious metal contained within coins and their nominal representation of value become divorced: “The denomination of the gold and its substance, the nominal content and the real content, begin to move apart.”14

Money, from this point, becomes a mere token – a symbol of value. This, in turn, opens up a whole new world of possibilities. Now there is no limit to the amount of money that can be thrown into circulation:

“Relatively valueless objects, therefore, such as paper notes, can serve as coins in place of gold. This purely symbolic character of the currency is still somewhat disguised in the case of metal tokens. In paper money it stands out plainly. But we can see: everything depends on the first step.”15

Today we see the logical conclusion of this process: not only have coins of gold and silver been replaced by less precious metals; not only have coins themselves been replaced by paper notes; but now we represent money as mere digital information – as numbers on a screen. No longer is there a need for physical tokens of value to exchange hands; instead we have electronic bank transfers.

Inflation and the money supply

In a barter system, we see commodity exchanged for commodity that is, C-C. From this develops an exchange mediated by money, that is, C-M-C. Money, as the universal equivalent of value, thus plays a simultaneous role as a means of circulation, turning the act of a single exchange into a process with two poles: a sale, in which the commodity C is exchanged for money M; and a purchase, in which money M is used to buy another commodity C. Of course, the sale ( C-M) for one is at the same time a purchase ( M-C) for the other; every seller is a buyer, and every buyer a seller. In total, we now arrive at the process of exchange: C-M-C. Commodities come in and out of circulation through the acts of production and consumption, but money is always left behind; “Circulation sweats money from every pore.”16

Money, then, acts as the lubricant to the whole flow of commodity production and exchange, enabling universal trade and exchange between individuals or communities who need never meet, and breaking up the act of exchange in both time and space. It thus provides movement and motion, dynamism and change. Such a step marks a powerful leap in the potential for the market – and thus for the forces of production – to expand. But there are also dangers in this. The possibility now arises that selling and buying could fall apart into two distinct processes. This is the basis of capitalist crises.

“Circulation bursts through all the temporal, spatial and personal barriers imposed by the direct exchange of products, and it does this by splitting up the direct identity present in this case between the exchange of one’s own product and the acquisition of someone else’s into the two antithetical segments of sale and purchase.”17

In the same way, electronic transfers today have opened up the market on a truly global scale, with a whole host of producers spread across the world now able to find a buyer for their goods through Amazon or eBay. The history of money, then, is a history of the objective need for the forces of production to develop and expand.

Whilst there is no apparent limit to the amount of money that can be put into circulation, it is nevertheless clear that this amount is not arbitrary. Money, in its role as a means of exchange, is a measure of value – the universal measure of value. The amount of money in circulation, therefore, must ultimately be linked to the total value of commodities in circulation – equivalent in money terms to the total of the prices of these commodities, and to the speed (the velocity or turnover) with which they change hands. If the quantity of commodities remains constant but the amount of notes in circulation doubles, then the price of each commodity will double also.

In this respect, the generally limited and stable amount of gold circulating around the world market helped to enforce gold’s role as a reliable standard of prices. “Hence the less the unit of measurement (here the quantity of gold) is subject to variation, the better the standard of price fulfils its office.”18

Nevertheless, the use of precious metals as the money commodity or as a peg for currencies does not guarantee the stability of prices. This is demonstrated by the example of the Spanish Empire in the 16th Century, where, after flooding Spain with an abundance of gold and silver plundered from the colonies in South America, the Spanish rulers found themselves with an unstable situation of high inflation and low investment, which ultimately led to the collapse of the Spanish economy. As one proverb from the time wryly noted: “Everything is dear in Spain except silver.”

Similarly, today there are those who imagine that a return to the gold standard – that is, to a system whereby currencies are pegged to a fixed quantity of gold – would be an infallible defence against the dangers of inflation. But the gold standard is not a panacea. Ultimately the needs of commodity production and exchange impose themselves; the need for a greater circulation of money arises; and the rigid link between the money supply and a single commodity – be it gold or anything else – becomes a barrier to the growth of the economy and the development of the productive forces. This is what forced the development from coins of gold and silver – known as a gold specie standard – to a monetary system of paper notes backed up by gold; and this is what has led to abandonment of the gold standard altogether today.

Today, a nation’s central bank stands behind its currency. It has a monopoly over the issuing of banknotes. On every note is a promise to pay the bearer a certain amount of currency. If there is a loss of confidence in the banking system or currency, this can lead to a ‘run on the bank’, as happen with Northern Rock in 2007. The central bank or state is forced to step in to restore confidence.

The value of money, therefore, whilst being a quantitative relational expression, is not arbitrary or accidental, but lies on an objective material basis: as a representation of socially necessary labour-time. This important fact has equally important consequences, particularly in relation to the issue of inflation and the money supply that we see today.

Internationally, following the abandonment of the gold standard during the Great Depression, the Bretton Woods system was established, in which national currencies were fixed against the US Dollar, which in turn was “as good as gold” due to the fact that two-thirds of the world’s gold lay in the vaults of Fort Knox. However, following the global economic crisis in the late 1960s and early 1970s, the Bretton Woods agreement fell apart. Fixed exchange rates, as with the British adherence to an overvalued gold standard in the 1920s, or with the Greek economy in relation to the Euro today, became politically impossible in the wake of declining competitiveness. As long as there is a fixed exchange rate, devaluation of the currency to maintain competitiveness is not an option. Instead, workers are forced to pay for the declining competitiveness of their national economies by accepting wages cuts. Today, to try to avoid the political problems this causes, currencies’ exchange rates are able to float against one another, with central banks free to print money and devalue the currency. Nevertheless, workers still end up paying for their country’s economic decline since devaluation causes the price of imports to increase, and thus real wages decrease regardless.

Today, with the deepest crisis in the history of capitalism, central banks have resorted to the desperate measure of ‘quantitative easing’ – buying up financial assets and thereby increasing the money supply. In effect, such QE is just another way of printing money, posing the threat of increasing inflation down the line, like the “kings and princes” who after “centuries of continuous debasement of the currency…have in fact left nothing behind of the original weights of gold coins but their names.”19

The collapse of demand which is part of the current crisis, however, means that – rather than leading to higher inflation – QE has simply added to the instability of the global economy. Cheap money is flooding markets and inflating speculative bubbles, particularly in emerging economies. Again, this comes back to the fundamental question regarding the monetary supply: the money in circulation must have a material basis: ultimately, a basis in terms of the real value – i.e. socially necessary labour-time – embodied within the commodities in circulation.

Means of payment

As discussed above, as a means of circulation, money opens up a world of possibilities for commodity production and exchange. Now the individual producer can exchange their particular product of labour for the most general and abstract form of labour – the universal equivalent. This, in turn, allows for value to be stored and hoarded, rather than spent immediately. Money can be saved and accumulated to enable larger purchases; and consumption over a longer period of time can be smoothed out against the ever fluctuating nature of production.

Alongside this, money develops a new role as a ‘means of payment’, acting as a promise by the buyer to pay in the future. “He therefore buys it before he pays for it. The seller sells an existing commodity; the buyer buys as the mere representative of money, or rather as the representative of future money. The seller becomes a creditor, the buyer becomes a debtor.”20

The ability to hoard and save, to lend and borrow, introduces a dialectical contradiction into the general dynamic of commodity production, exchange, and circulation. Now it is possible to buy without having first sold; to own without actually paying anything in return. There is then a disconnect between the commodities exchanging hands and the actual ability to pay for these commodities. “The buyer converts money back into commodities before he has turned commodities into money.”21

This disconnect tears apart ‘Say’s Law’ – the dominant idea held prior to Marx that the market would always be in equilibrium. According to Say’s Law, general crises of overproduction should be impossible, since every seller was also a buyer; every sale, therefore, should bring an equivalent purchase to the market. Now, however, we see that sellers can hoard. Their savings, in turn, form the basis for credit – for the lending to buyers who borrow.

We see, throughout history, how the lending of money in the form of credit is used to artificially expand the market; to allow the productive forces to continue to expand beyond the limits of capitalism; to enable society’s ability to produce to overcome the limited ability of the masses to consume. The system, however, cannot exceed its limits forever. At some point, as in the ‘Credit Crunch’ of 2008, a stretched elastic band must snap back or break. With the default on debts, the anarchy and chaos within the balance of payments becomes apparent. Creditors demand their repayments and refuse to lend any further. Promises to pay lose any meaning; only hard cash will suffice. Credit is reined in, bringing the motion of circulation – and thus production also – to a halt. The lack of credit does not cause a crisis; the crisis causes a lack of credit.

“This contradiction bursts forth in that aspect of an industrial and commercial crisis which is known as a monetary crisis. Such a crisis occurs only where the ongoing chain of payments has been fully developed, along with an artificial system for settling them. Whenever there is a general disturbance of the mechanism, no matter what its cause, money suddenly and immediately changes over from its merely nominal shape, money of account, into hard cash. Profane commodities can no longer replace it. The use-value of commodities becomes valueless, and their value vanishes in the face of their own form of value.”22

With the role of money as means of payment, therefore, we see how money itself becomes a source of power. Those who accumulate and lend their money gain dominance over those who borrow and spend. The debtor must succumb to the diktat of the creditor. For example, the monarchs of the past eventually lost their power to the emerging bourgeoisie, the owners of capital, after indebting themselves fighting costly wars. But nowhere is this role of money as a social relation clearer than today, where the banks and financial markets hold the whole of society by the throat, and are demanding their pound of flesh.

The future of money

As can be seen in all areas of life, the ruling class strives to ensure its domination. It constantly promotes the myth that capitalism is for the best in the best of all possible worlds. As it was in the beginning, is now, and ever shall be: this is the hymn of the exploiters, who strive to reinforce the illusion that the current state of affairs represents the ‘natural’ and ‘ideal’ order, and is thus eternal and unchanging.

Marxists, by contrast, aim to be the most thorough materialists, understanding the origins of phenomena in terms of concrete material conditions and charting their historic development of change through contradiction. Through such a method, one can explain the real inner laws and motion of a process, and also understand how such phenomena will be affected by developments elsewhere in society.

In chapters 2-3 of Capital, volume one, Marx rigorously applies this method to the question of money, stripping away its seemingly mystical and magical qualities to reveal its real underlying nature. In the place of any reverence for money, Marx uncovers the material basis for money and thus exposes it for what it is: the necessary result of commodity production and exchange at a certain stage of human development.

What, then, is the future of money? Would there by money in a socialist society?

To answer this question, we must remember that the money arises as part of a system of commodity production and exchange. The existence of commodities, in turn, implies the existence of private property – of the private ownership over the product of labour. The first steps of a socialist society, however, would be to take over the key levers of the economy – the banks, the major monopolies, the infrastructure, and the land – and to place them under a rational and democratic plan of production; in other words, to socialise production and place the wealth of society in public hands.

With such a step, the vast majority of use-values in society would now be produced and owned in a social manner. No longer would there be a need for the private exchange of goods and services for profit; instead, people would contribute to society with their labour ‘according to their ability’ and take from the common wealth created ‘according to their need’. The products of labour, produced socially and owned socially, would thus lose their previous status as commodities.

Libertarian monetary experiments such as Bitcoin are doomed to fail because they see central banks – and their monopoly over the money supply – as the source of economic crises. Advocates of these ‘cryptocurrencies’ therefore imagine that the solution is to distribute the means by which money is created. But the real source of the problem under capitalism is the private ownership over the means of production – the means by which society’s wealth is created – and the system of production for profit that flows from this; that is to say, the problem is the capitalist system itself. Only by socialising the means of production under a democratic plan of production can we eradicate crises.

Of course, this socialisation of production would not happen immediately, as commodity production and exchange would still exist during a ‘transitional period’. Elements of capitalism, such as small producers and owners – the petit-bourgeoisie – would continue to exist for a period. But the main ‘commanding heights’ of the economy, the decisive levers, would be part of a socialist plan of production, and thus the majority of wealth would not be in the form of commodities. Over time, as the efficiency and superiority of the democratically planned economy proves itself, small producers would be convinced and incentivised to join this social plan, and thus all remnants of commodity production would eventually wither away.

Alongside this withering away of commodity production and exchange, the need for money would also wither away, beginning with housing rent, utilities and the basic necessities of life. Rather than acting as a representation of exchange-value – i.e. of socially necessary labour-time – tokens could instead be given to indicate entitlement to the common products of labour. With current technology, physical tokens could be replaced by mere digital information. The tremendous level of planning currently seen within giant multinationals in the name of profit could then be implemented on a global scale to rid us of the anarchy and chaos of the invisible hand of the market and ensure a world of plenty for all. And with the enormous productive forces at our fingertips on a world scale, there is no reason why we could not quickly move to a society of superabundance whereby all our needs would be fulfilled, without the need for money, safe in the knowledge that scarcity would be an historical aberration of the past.

We leave the final word on this matter to Leon Trotsky, the great Russian revolutionary:

“In a communist society, the state and money will disappear. Their gradual dying away ought consequently to begin under socialism. We shall be able to speak of the actual triumph of socialism only at that historical moment when the state turns into a semi-state, and money begins to lose its magic power. This will mean that socialism, having freed itself from capitalist fetishes, is beginning to create a more lucid, free and worthy relation among men. Such characteristically anarchist demands as the ‘abolition’ of money, ‘abolition’ of wages, or ‘liquidation’ of the state and family, possess interest merely as models of mechanical thinking.

“Money cannot be arbitrarily ‘abolished’, nor the state and the old family ‘liquidated.’ They have to exhaust their historic mission, evaporate, and fall away. The deathblow to money fetishism will be struck only upon that stage when the steady growth of social wealth has made us bipeds forget our miserly attitude toward every excess minute of labour, and our humiliating fear about the size of our ration. Having lost its ability to bring happiness or trample men in the dust, money will turn into mere bookkeeping receipts for the convenience of statisticians and for planning purposes. In the still more distant future, probably these receipts will not be needed. But we can leave this question entirely to posterity, who will be more intelligent than we are.”23


1 Chapter 3, footnote 42

2 p187

3 p179

4 p179

5 p182

6 p182

7 p179-180

8 p182

9 p181

10 p186

11 p187

12 p183

13 p188

14 p222

15 p223-224

16 p208

17 p209

18 p192

19 p194

20 p233

21 p234

22 p236

23 Leon Trotsky, Revolution Betrayed, chapter 4

GiantTowers“It is only in so far as the appropriation of ever more wealth in the abstract is the sole driving force behind his operations that he functions as a capitalist, i.e. as capital personified and endowed with consciousness and a will.” – Marx, Capital Vol I, Chapter IV


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