“The love of money,” the Bible tells us, “is the root of all kinds of evil” (1 Timothy 6:10). After the financial crash of 2008 and the subsequent global economic crisis that continues to plague society today, it is hard not to empathise with these words from The Good Book.
Similar language is repeated in The Ragged Trousered Philanthropists, the early 20th century novel by Robert Tressell, which is often considered a modern-day bible for the labour movement. In this fictionalised account of the lives of the working class, the protagonist, a socialist called Frank Owen, asserts to his incredulous peers that, “Money is the principal cause of poverty.” (Robert Tressell, The Ragged Trousered Philanthropists, Wordsworth Classics edition, p175)
Owen valiantly attempts to explain further to his fellow workers how, “while the present Money System remains, it will be impossible to do away with poverty, for heaps in some places mean little or nothing in other places. Therefore while the money system lasts we are bound to have poverty and all the evils it brings in its train.” (Ibid, p284)
“The present Money System prevents us from doing the necessary work, and consequently causes the majority of the population to go short of the things that can be made of work. They suffer want in the midst of the means of producing abundance. They remain idle because they are bound and fettered with a chain of gold.” (Ibid, p286)
“This systematic robbery has been going on for generations, the value of the accumulated loot is enormous, and all of it, all the wealth at present in the possession of the rich, is rightly the property of the working class – it has been stolen from them by the means of the Money Trick.” (Ibid, p299)
Money, then, as Tressell states through the medium of his hero Owen, appears to us a mystical force; a “chain of gold” that tethers the vast majority of the population to a life of toil and misery; a great “trick” that swindles the working class of the wealth that they have created. We see it all around us, ubiquitous and abundant; and yet, amidst this plenty we find universal want. Within this “Money System”, all our needs become relegated to the need for money – in the words of the Bard, “Thou common whore of mankind.” (William Shakespeare, Timon of Athens, Act IV, Scene 3)
Whether it is the monetary policies of central banks, such as the euphemistically named Quantitative Easing; the financial alchemy taking place inside the glass towers of Canary Wharf and the City of London; or the utopian alternatives offered by digital currencies such as Bitcoin: for most people, the workings of the modern Money System are shrouded in mystery.
As with all such revered idols in class society, however, whether it be the gods and religion or the Law and the State, by applying the method of Marxism – that is to say, a dialectical and materialist analysis of history and society – we can understand and explain the origins, evolution, and development of money. In doing so, we can strip away the mysticism of this seemingly omnipotent power and understand the solution to removing its grip over us.
Studying history, we see that money did not always exist, but is tied to the development of class society and, in particular, of commodities – that is, of goods produced not for individual or common consumption, but for exchange. For Marx, the key to understanding the question of money therefore lay in analysing the historical development of commodity production and exchange. “The riddle of the money fetish,” Marx states in his magnum opus, Capital, “is therefore the riddle of the commodity fetish, now become visible and dazzling to our eyes.” (Karl Marx, Capital, Volume One, Penguin Classics edition, p187)
Basing himself on the works of the pioneering 19th century American anthropologist Lewis H. Morgan, Friedrich Engels – Marx’s co-founder of the ideas of scientific socialism – analysed the earliest forms of human society, demonstrating in his classic text the Origin of the Family, Private Property, and the State how social classes of exploiters and the exploited had not always existed. Instead, Engels explained, early societies were generally based on “gens”, or tribes, within which there was communal ownership over the tools and products.
Such communities, therefore, were a form of “primitive communism”, where there was no exchange between individuals, but rather production for the common good, and consumption on the basis of need. At the same time, this “communism” was “primitive” since it was on the basis of a general scarcity, resulting from a low level of productivity, technology, and culture.
For example, in his recent book on Debt: the First 5,000 Years, David Graeber, the modern US anthropologist, cites the example given by his predecessor Morgan of the Iroquois gens, a group of Native American tribes whose societal structure Engels also drew upon in his works. “By the mid-[19th] century,” Graeber notes, “Lewis Henry Morgan’s descriptions…made clear that the main economic institution among the Iroquois nations were longhouses where most goods were stockpiled and then allocated by women’s councils, and no one ever traded arrowheads for slabs of meat.” (David Graeber, Debt: the First 5,000 Years, Melville House publishing, 2014 paperback edition, p29)
Elsewhere, as the author Felix Martin notes in his book Money: the Unauthorised Biography, in the earliest known civilisations that developed around the Mesopotamian rivers of the Tigris and the Euphrates – in what is modern-day Iraq – money did not exist either. It was here in ancient Mesopotamia that the techniques of irrigation and agriculture were invented and – in turn – the formation of the first cities began, such as the “great metropolis” of Ur. “By the beginning of the second millennium BC,” Martin states, “more than sixty thousand people lived within the city itself…thousands of hectares of land were under cultivation…and hundreds more were devoted to dairy farming and sheep herding.” (Felix Martin, Money: the Unauthorised Biography, Vintage publishing, 2014 paperback edition, p38)
In such urban economies, Martin explains, in place of money we instead find a system of top-down planning and accounting, managed by a bureaucratic caste, in which all produce would be kept in the city’s stores (often royal palaces and temples), with inscribed tablets used to keep records; “a complex economy governed according to an elaborate system of economic planning that would be familiar to a manager in a modern multinational corporation.” (Ibid, p44)
Whether it be the primitive communism of the Iroquois gens or the bureaucratic planning seen in Mesopotamian cities, therefore, such examples clearly demonstrate how money – and all its associated “evils” – is not a timeless eternal truth. To understand what money is and where it has come from, we must analyse the qualitative transformation in the social relations that took place within society thousands of years ago.
The rise of money
Early Greek societies – as described in the epic poems of Homer, such as the Iliad and the Odyssey – were, like the Iroquois, based around gens, with common ownership over the productive forces and resultant products. Felix Martin describes how, “For the provision of the most basic needs – food, water, and clothing…it was essentially an economy of self-sufficient households in which the individual tribesmen subsisted on the produce of his own estate.” (Ibid, p35)
In addition to this economy of individual subsistence, Martin continues, were “three simple mechanisms for organising society in the absence of money – the interlocking institutions of booty distribution, reciprocal gift-exchange, and the distribution of the sacrifice,” which were “far from unique to Dark Age Greece. Rather, modern research in anthropology and comparative history has shown them to be typical of the practices of small-scale, tribal societies.” (Ibid, p36-37)
The historical turning point, Engels explains in the Origin of the Family, Private Property, and the State, occurred with the development of private ownership over the means of production, and the associated conversion of communal products into commodities.
“The rise of private property in herds and articles of luxury led to exchange between individuals, to the transformation of products into commodities. And here lie the seeds of the whole subsequent upheaval. When the producers no longer directly consumed their product themselves, but let it pass out of their hands in the act of exchange, they lost control of it. They no longer knew what became of it; the possibility was there that one day it would be used against the producer to exploit and oppress him. For this reason no society can permanently retain the mastery of its own production and the control over the social effects of its process of production unless it abolishes exchange between individuals.
“But the Athenians were soon to learn how rapidly the product asserts its mastery over the producer when once exchange between individuals has begun and products have been transformed into commodities.” (Friedrich Engels, The Origin of the Family, Private Property, and the State, chapter V)
The process that Engels describes initially develops, not internally within the community, but at the fringes of a given society with the trade of surplus products between different tribes. Such trade, however, sets the wheels of commodity production exchange in motion, later rebounding to spread internally, reinforce private ownership, and accelerate the dissolution of communal bonds.
With the development of commodity production and exchange came the expansion of trade; and with growing trade came the emergence of the money commodity – a universal equivalent that could act as a means of exchange, facilitating trade over longer distances; a single commodity that acts as a yardstick of measurement, against which all others could be compared.
Such a process does not come about consciously or in a planned manner, but arises out of the needs of society to expand trade and the market. The initial commodity that is elevated to the status of this universal equivalent is largely accidental, in a historical sense; nevertheless, it is rooted in the material needs of that society, and is generally – in the earliest stages – that which is considered the most important commodity to the particular society in question. As Marx notes in Capital,
“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.” (Marx, op. cit., p187)
For example, in the case of the Native American tribes, Engels explains, it was cattle that emerged as the money commodity:
“Originally tribes exchanged with tribe through the respective chiefs of the gens; but as the herds began to pass into private ownership, exchange between individuals became more common, and, finally, the only form. Now the chief article which the pastoral tribes exchanged with their neighbours was cattle; cattle became the commodity by which all other commodities were valued and which was everywhere willingly taken in exchange for them – in short, cattle acquired a money function and already at this stage did the work of money. With such necessity and speed, even at the very beginning of commodity exchange, did the need for a money commodity develop.” (Engels, op. cit., chapter IX)
The expansion and growth of trade in ancient Greece, however, led to the need for a money commodity that was portable over longer distances. For this reason, we see, beginning in Greece in the late-6th century BC, the emergence of coinage, with the use of precious metals – such as gold and silver – as money.
The beneficial material properties of such metals for use as money are clear: they are generally homogeneous and uniform in their quality – one lump of gold is much the same as any other; they are easily divisible (or combinable) into different amounts, and can thus be used to easily represent different quantities of value; they are durable and therefore do not deteriorate and lose value, thus enabling them to be a store of value; and, most importantly, they have a high density of value, with small amounts of precious metal being equivalent to a large quantity of other, less valuable, commodities. Gold, therefore, is money not because of its revered aesthetic qualities, but is considered to be aesthetical pleasing because it is money.
The rise of money and coinage was, as Engels explains, associated also with the increasing division of labour within class society, and the emergence of “a class which no longer concerns itself with production, but only with the exchange of the products–the merchants.”
“Now for the first time a class appears which, without in any way participating in production, captures the direction of production as a whole and economically subjugates the producers; which makes itself into an indispensable middleman between any two producers and exploits them both. Under the pretext that they save the producers the trouble and risk of exchange, extend the sale of their products to distant markets and are therefore the most useful class of the population, a class of parasites comes into being, ‘genuine social ichneumons’, who, as a reward for their actually very insignificant services, skim all the cream off production at home and abroad, rapidly amass enormous wealth and correspondingly social influence, and for that reason receive under civilization ever higher honours and ever greater control of production, until at last they also bring forth a product of their own – the periodical trade crises.”
“…And with the formation of the merchant class came also the development of metallic money, the minted coin, a new instrument for the domination of the non-producer over the producer and his production. The commodity of commodities had been discovered, that which holds all other commodities hidden in itself, the magic power which can change at will into everything desirable and desired. The man who had it ruled the world of production–and who had more of it than anybody else? The merchant. The worship of money was safe in his hands. He took good care to make it clear that, in face of money, all commodities, and hence all producers of commodities, must prostrate themselves in adoration in the dust. He proved practically that all other forms of wealth fade into mere semblance beside this incarnation of wealth as such.” (Ibid)
Money then, as Engels explains, is the product of private ownership; the result of an emergent system of commodity production and exchange. Once called into existence, however, money develops its own logic, spreading through social interaction and asserting its cold, callous laws in one sphere of life after another. Money and usury, Engels stated, were “the principal means for suppressing the common liberty,” breaking apart the old communal bonds of the Greek gens, and reinforcing the inequalities and exploitation of the newly emerging class society of the Athenian state.
“From here the growing money economy penetrated like corrosive acid into the old traditional life of the rural communities founded on natural economy. The gentile constitution is absolutely irreconcilable with money economy…[it] knew neither money nor advances of money nor debts in money. Hence the money rule of the aristocracy now in full flood of expansion also created a new customary law to secure the creditor against the debtor and to sanction the exploitation of the small peasant by the possessor of money…
“With the coming of commodity production, individuals began to cultivate the soil on their own account, which soon led to individual ownership of land. Money followed, the general commodity with which all others were exchangeable. But when men invented money, they did not think that they were again creating a new social power, the one general power before which the whole of society must bow. And it was this new power, suddenly sprung to life without knowledge or will of its creators, which now, in all the brutality of its youth, gave the Athenians the first taste of its might.
“What was to be done? The old gentile constitution had not only shown itself powerless before the triumphal march of money; it was absolutely incapable of finding any place within its framework for such things as money, creditors, debtors, and forcible collection of debts. But the new social power was there; pious wishes, and yearning for the return of the good old days would not drive money and usury out of the world.” (Ibid, chapter V)
As Engels hints at above, with his reference to the “yearning for the return of the good old days” when “money and usury” did not exist, as long as there has been money there has been credit and debt; and as long as there has been usury, there has been the “forcible collection of debts” – “a new social power…before which the whole of society must bow.”
Some monetary theorists, however, try to emphasise that money is – above all – nothing but a system of credits and debts; a set of accounts and balances representing the distribution of society’s wealth amongst its population. What we see in terms of the exchange of coin and currency are, within this framework of understand money, merely a means of settling accounts and making transfers between different balances – money as a means of payment.
Such ideas, which are known generally as the credit (or debt) theory of money, were most thoroughly put forward by the early-20th century British economist, Alfred Mitchell Innes, and are supported, according to David Graeber in his book Debt: the First 5,000 Years, by modern anthropological evidence.
According to Innes and Graeber, our modern conception of money – as outlined in academic textbooks – is fundamentally based on a myth: the “myth of barter”, as Graeber describes it, which has spread into the popular imagination and consciousness as a result of the works of the classical political economists, such as Adam Smith and David Ricardo, and before them the theories of the English empiricist, John Locke, and even the ancient Greek philosopher, Aristotle.
For the classical economists, money was primarily considered a means of exchange – a single commodity that rises above all others to become universally accepted in order to facilitate trade. The use of a particular commodity as money, such as gold, lay in its own high value density. Before money, the story goes, there was no way of trading other than through barter. This clearly posed problems, since it would require both that individuals with mutually reciprocating needs crossed paths, and that traded goods be carried around, ready for exchange. Hence the invention of money, to overcome the barriers of barter, and extend both the variety of goods that could be exchanged and the distance over which they could be traded.
The problem, Graeber notes, quoting the Cambridge anthropologist Caroline Humphrey, is that: “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.” (Graeber, op. cit., p29)
It should be noted, however, that this anthropological narrative of the “myth of barter” is based on the search for a barter economy – that is, for a community in which the internal exchange of goods through barter took place. But as Engels (and Marx also) noted, the development of commodity exchange through barter does not initially occur internally within the community, but externally, at the edges where different tribes interact. It should come as no surprise, therefore, that “no example of a barter economy” can be found historically.
For those putting forward the credit / debt theory of money – in contrast to the classical economists and their commodity theory of money – the main role of money is not as a means of exchange, but as a unit of account. In this modern age of capitalism, with its highly developed credit system, fractional reserve banking, and electronic transfers, the idea that money is more than just the coins and cash in circulation may seem obvious. But at the time of Smith, Ricardo, et al., such an idea was not considered a self-evident truth. Even today, there are those who – looking around at the collapse of the financial system in the wake of the 2008 banking crisis, not to mention the ever-inflating credit bubbles and printing of money through quantitative easing that continues today – understandably call for a return to the gold standard in order to restore calm and order to the global monetary system.
As a means of account, then, money is primarily a system of credits and debts. As Graeber emphasises: “We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around. What we now call virtual money came first. Coins came much later, and their use spread only unevenly, never completely replacing credit systems.” (Ibid, p40)
Felix Martin highlights two examples in Money: the Unauthorised Biography to stress the point. The first is the case of the people of Yap, a remote and secluded island in the Pacific. An American anthropologist called William Furness, visiting Yap in 1903, was amazed to discover that the small island’s economy consisted of only a few traded commodities; and, more importantly, there was neither barter, nor any currency acting as a means of exchange. Instead, Yap had a highly developed monetary system involving large stone wheels called “fei”, up to twelve feet in size, which were used to represent and account for the various amounts of wealth held by individuals within the community.
Notably, Martin says, Furness “observed that physical transporting of fei from one house to another was in fact rare. Numerous transactions took place – but the debts incurred were typically just offset against each other, with any outstanding balance carried forward in expectation of some future exchange. Even when open balances were felt to require settlement, it was not usual for fei to be physically exchanged.” (Martin, op. cit., p4)
“Yap’s money was not the fei,” Martin continues, “but the underlying system of credit accounts and clearing of which they helped to keep track. The fei were just tokens by which these accounts were kept.” (Martin, op. cit., p12)
Closer to home, Martin provides another example of such credit money in the form of “Exchequer tallies” – wooden sticks used in England between the 12th and 18th centuries to record payments either to or from the state. Such sticks would be split down the middle, with the creditor and debtor keeping one half each as a receipt of the payment. Notably, the creditor’s half could be used as a means of payment – a form of financial security, exchanged with another individual to settle an unrelated debt.
It wasn’t until 1834 that these Exchequer tallies were finally abolished, replaced by the Bank of England with a system of paper notes. Those tallies that remained were burnt and destroyed, leaving little evidence of their existence behind. For similar reasons, Martin notes, the physical evidence for all sorts of monetary systems throughout history – and particularly credit systems involving written accounts – may have been lost to us forever, with only the hard currency of coinage surviving today. As a result, both Martin and Graeber hypothesise, we are left predominantly with a concept of money that emphasises tangible commodities, such as the precious metals.
The labour theory of value
So what is money? Is it primarily a universal commodity, or is it above all a system of credits and debts? In the final analysis, the answer is both: money’s dual role as a means of exchange and as a unit of account are two sides of the same coin, so to speak.
What unites this dual nature of money – what both connects the examples of the fei, the Exchequer tallies, and ancient coinage, and separates these cases from the primitive communism or Mesopotamian top-down planned economies described earlier – is, fundamentally, its role as a measure – or representation – of value. The more pertinent question that arises from this, therefore, is: what is value?
As discussed earlier, the origins of money lie in the development of commodity production and exchange; commodities being those products that are made for a market. Marx begins in Capital by grappling with this question, explaining that commodities have two aspects to them. On the one hand all commodities 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 (generally just referred to as the value of a commodity).
At the same time, Marx noted, there is clearly a divorce between these dual properties of a commodity; the former does not condition the latter – that is, the usefulness of a product bears little relation to its exchange-value. For example, a pen may be useful, and a car may be useful too; but clearly the average car is worth many thousand (normal) pens. Diamonds, meanwhile, are considered highly valuable, and yet they have very little actual social use.
The riddle that the classical economists, such as Smith and Ricardo, sought to solve – and the point of departure for Marx in his analysis of the capitalist system – was: what determined the ratio of exchange between different commodities? Why would a certain amount of one particular commodity be traded for a certain amount of any other commodity? In other words, what is the source of value?
In order to address this question, Marx first asked: what is the only thing that all commodities have in common? What aspect of a commodity exists that is both universal and comparable? What quality unites all the plethora of commodities that are produced for the market, with their multitude of uses, properties, and physical characteristics? The answer that Marx arrived at was labour.
All commodities, in the final analysis, are products of labour; and it is labour, ultimately, that is the source of all value. The exchange-value (or simply value), then, Marx explained, is expressed by the relative quantity of labour contained within different commodities – both in terms of the “living” labour added by the producer and the “dead” labour congealed within the raw materials and tools used in the process of production.
Marx, however, was not the first to assert that labour was the source of value. Such an idea had been raised by the classical economists (and even by those in ancient times). Marx developed this “labour theory of value”, however, by looking at the question not from the standpoint of the individual labourer, but of labour in the abstract – of society’s labour in general:
“With the disappearance of the useful character of the products of labour, the useful character of the kinds of labour embodied in them also disappears; this in turn entails the disappearance of the different concrete forms of labour. They can no longer be distinguished, but are all together reduced to the same kind of labour, human labour in the abstract.” (Marx, op. cit., p128)
The question of value, according to Marx, is not about the labour expended by the individual producer. Under capitalism, where commodity production and exchange is dominant and universal, commodities are not simply exchanged between individuals, but are bought and sold on the market. The producers and consumers frequently never – and, in fact, rarely ever – meet. As such, the individual character of any commodity is lost; instead, it simply becomes one example of a multitude of similar use-values.
In turn, the individual character of the labour contained within each commodity is lost. Buyers in the market do not care about the labour expended to produce any individual commodity, but only about the quantity of labour that is needed to produce such-and-such a commodity in general, on average. Sellers in the market – a truly global market today – must, therefore, compete against the average level of skill, technology, and organisation, found in their industry. It is this fact that forces companies to compete by investing in new machinery and methods in order to increase productivity and thus sell their products below the general average of their competitors.
The value of commodities, therefore, is not determined by examining the labour expended within an individual commodity, but only by looking at the labour required to produce a given, relatively homogenous, commodity in general. In this sense, Marx explained that the value of a commodity was not simply due to labour, as the classical economists had concluded, but due to socially necessary labour-time: “the labour-time required to produce any use-value under the conditions of production normal for a given society and with the average degree of skill and intensity of labour prevalent in that society.” (Marx, op. cit., p129)
In a relatively undeveloped market economy, there may be a degree of flexibility over the amount of one commodity exchanged for another in any individual, isolated act of exchange. The different quantities of labour-time congealed within the particular commodities are seemingly random, and in this sense, as indicated above, the value of a commodity appears accidental. As commodity exchange becomes generalised, however, each act of exchange loses its individual character, and the various “accidental” values – i.e. labour-times – seen in these concrete acts average out and a general, objective value – i.e. socially necessary labour-time – arises. The act of exchange, meanwhile, is the only proof of the social necessity of any given labour.
The general form of value arrives, therefore, historically at the point when the process of commodity production and exchange has become so universal that the relative values – that is, congealed labour-times – of commodities now present themselves, not as accidents, but as objective facts to buyers and sellers on the market.
We see, therefore, how the law of value – like any law in nature, history, and society – is not something timeless that is imposed from without, but something dialectical that emerges from the interactions within. Necessity expresses itself through accident. In the case of the law of value, this law only arises and asserts itself at the historical point where commodity production and exchange is generalised.
Money, in turn, is the ultimate expression of this generalisation of the law of value; the logical conclusion of the development of commodity production and exchange, which requires a universal yard stick – a standard measure – against which the value of all other commodities can be expressed.
Where commodity production and exchange have not taken hold in society, therefore, the concept of value is meaningless and, in turn, there is no social need for money. For example, as Felix Martin notes, “the immense sophistication of Mesopotamia’s bureaucratic, command economy had no need of any universal concept of economic value…It therefore did no develop the first component of money: a unit of abstract, universally applicable economic value.” (Martin, op. cit., p59)
“The simple commodity form is therefore the germ of the money-form.” (Marx, op. cit., p163)
Social relations and alienation
invisiblehandThe important point that Marx’s emphasised, is that value – and therefore money also, in the form of prices – is ultimately a social relation: a relation between the labour of different individuals that, under a system of generalised commodity production and exchange, expresses itself as a relationship between things. “It is nothing but the definite social relation between men themselves which assumes here, for them, the fantastic form of a relation between things.” (Marx, op. cit., p165)
Money, therefore, is not a thing, but a set of relations. The monetary system, in turn, is neither merely the cash and coins in circulation, nor the numbers in an accountant’s books, but a system of social relations; an expression of the distribution of the wealth – produced by labour – within society. An individual’s monetary wealth, meanwhile, is simply a claim to an aliquot portion of this social wealth.
These social and economic relations are ultimately backed up by legal – that is, property – relations, which in the final analysis means the backing of the force of the state: “special bodies of armed men” (to use Lenin’s expression), which – within class society – act to defend the sanctity of private property relations. Although, as Graeber notes, “This does not mean that the state necessarily creates money…The state merely enforces the agreement and dictates the legal terms.” (Graeber, op. cit. p54)
As the use of money spreads, then, social relationships are increasingly transformed into monetary and financial relationships. In the words of Engels, quoted earlier, money acts as the “corrosive acid”, breaking apart all existing societal bonds. Commenting on the emergence of money in ancient Greece, Felix Martin echoes Engels, explaining how,
“…with the invention of coinage, a dream technology for recording and transferring monetary obligations from one person to another was born…The result was a further acceleration in the pace of monetisation. Everywhere, traditional social obligations were transformed into financial relationships…It is difficult to overstate the social and cultural impact of this first, revolution experience of monetisation…money would be the universal solvent that could dissolve all traditional obligations.” (Martin, op. cit., p61-63)
With the development and generalisation of the money form, the divorce between use-value and exchange-value becomes ever wider. Those involved within the money system of commodity production and exchange become increasingly alienated from their labour. The things they produce are not useful to them, but simply for others. All needs, as mentioned earlier, become relegated to the need for money – that universal equivalent that can be exchanged for all other commodities in order to satisfy ever need imaginable.
As discussed earlier, within primitive communities, where production is a communal process, such alienation does not exist and commodity production is initially limited to those objects that are exchanged at the fringes of society with other communities. But the dynamics and laws of commodity production and exchange have a logic of their own that, once started, unravel and impose themselves throughout 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.” (Marx, op.cit., p182)
In other words, as soon as the products of labour are externally traded, thus putting the relative labour times of said products in comparison to one another, the same comparison necessarily begins between the products of labour internal to a community, products which were previously not exchanged between private individuals, but instead produced as part of the common good. The laws of commodities thus begin to assert themselves within society 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.” (Marx, op.cit., p182)
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 a measure of value – for a universal equivalent and a unit of account that can act as a yardstick, against which the value of all other commodities can be compared. It is this universal equivalent or unit of account that forms the basis for money.
The concept of money, then, is the ultimate form of the alienation of the producer from his/her labour. No longer do we see production for direct consumption; nor are commodities produced as exchange-values for the owner, to be simply traded directly for other commodities that are use-values for the receiver. Now, instead, the producer demands money in exchange for his products – money that represents the most abstract and universal form of labour, devoid of any use-value for the owner, save that of its ability to universally represent the value of his own labour.
“Money necessarily crystallises out of the process of exchange, in which different products of labour are in fact equate 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. The need to give an external expression to this opposition for the purposes of commercial intercourse produces the drive towards an independent form of value, which finds neither rest nor peace until an independent form has been achieved by the differentiation of commodities into commodities and money. At the same time, then, as the transformation of the products of labour into commodities is accomplished, one particular commodity is transformed into money.”(Marx, op.cit., p181)
The enigma of profit
monopolywideAt a certain point, this growing alienation – tied to the separation of use-value from exchange-value – leads to a qualitative transformation. Initially, the circuit of commodity production and exchange is that of C-M-C: commodities (C) are produced, sold for money (M), and the money is then used to allow the purchase of other commodities (C).
Later on, however, this circuit turns into its opposite – that of M-C-M: we begin with money, which is used to buy commodities, in the hope of selling these on. This development of this M-C-M circuit is associated with the rise of the merchant class, as described by Engels in the earlier passage – “a class which no longer concerns itself with production, but only with the exchange of the products.”
Of course, in reality, it is not an M-C-M circuit, but an M-C-M’ circuit, where M’ represents a sum of money greater than the initial money outlay. The aim of the merchant, in other words, is simply to make money through the act of exchange. The accumulation of money becomes the sole raison d'être of the system; the fulfilment of society’s needs a mere afterthought.
At the same time, as Engels also explains, arises the usurers – the money lenders and financiers who seek to cut out the hassle of buying and selling altogether, hoping to make money from money: M-M’.
Whilst both merchants and usurers played (and continue to play) a necessary role within the market system, in that they facilitated the expansion of trade and the uninterrupted continuity of commodity circulation, these social groups were (and are) nevertheless at the same time incredibly parasitic. Ultimately, neither the merchant nor the money lender produces any new value through their own actions. Instead, their profits merely represent a transfer of wealth – a slice of the value produced elsewhere, in real production.
The enigma of profit’s origins within capitalism was a problem that had baffled and thwarted the classical economists, who maintained that profit was obtained in the process of exchange, like that of the merchant, by “buying cheap and selling dear”. But, as Marx pointed out, whilst such an act might allow one individual to swindle another, it could not explain how profit was derived for society as a whole. For in a generalised system of commodity production and exchange, we are all buyers and sellers. Even the capitalists are both sellers and buyers: of course they sell a product, but they must first buy in raw materials, invest in machinery, and pay out wages to workers. In other words, what is gained by “cheating” with one hand will simply be lost later with the other. One man’s loss is another’s gain and vice-versa.
“Suppose then that some inexplicable privilege allows the seller to sell his commodities above their value, to sell what is worth 100 for 110, therefore with a nominal price increase of 10 per cent. In this case the seller pockets a surplus-value of 10. But after he has sold he becomes a buyer. A third owner of commodities now comes to him as seller, and he too, for his part, enjoys the privilege of selling his commodities 10 per cent too dear. Our friend gained 10 as a seller only to lose it again as a buyer. In fact the net result is that all owners of commodities sell their goods to each other at 10 per cent above their value, which is exactly the same as if they sold them at their true value. A universal and nominal price increase of this kind has the same effect as if the values of commodities had been expressed for example in silver instead of in gold. The money-names or prices of the commodities would rise, but the relations between their values would remain unchanged.” (Marx, op.cit., p263)
“The value in circulation has not increased by one iota; all that has changed is its distribution between A and B. What appears on one side as a loss of value appears on the other side as surplus-value; what appears on one side as a minus appears on the other side as a plus...The capitalist class of a given country, taken as a whole, cannot defraud itself.” (Marx, op.cit., p265-266)
If not from the act of exchange and in the sphere of circulation, where then does profit come from? Our capitalist must begin with money, purchase commodities at their true cost, sell his product at a fair price, and yet end up with more money that he started with. “[O]ur friend the money owner,” therefore, “must be lucky enough to find within the sphere of circulation, on the market, a commodity whose use-value possesses the peculiar property of being a source of value, whose actual consumption is therefore itself an objectification of labour, hence a creation of value.” (Marx, op.cit., p270)
In other words, there must be a commodity that the capitalist can buy that itself is able to create value. And as Marx explains, “the possessor of money does find such a special commodity on the market: the capacity for labour, in other words labour-power.” (Ibid)
This labour-power – the “capacity for labour” – is normally expressed in terms of employment for a given period of time. For example, workers are employed on contracts that specify a number of hours per week or weeks per year that they are due to work for the capitalist. How efficiently or how hard they work in this time – that is, how much they actually produce in a given week or year – is then a question for the capitalist to optimise separately. The capitalist pays for the worker’s time; it is then up to the capitalist to utilise this time as effectively as possible in order to produce as much as possible.
The qualitative leap forward by Marx, therefore, was to see that workers themselves are not only the buyers of commodities, but are also the sellers of a very special commodity: their labour power – their ability to work. What the capitalist buys from the worker, therefore, is not his/her actual labour, i.e. the products of his/her work, but his/her ability or capacity to work.
Like all other commodities, Marx explained, “The value of labour-power is determined, as in the case of every other commodity, by the labour-time necessary for the production, and consequently also the reproduction, of this specific article...in other words, the value of labour-power is the value of the means of subsistence necessary for the maintenance of its owner.” (Marx, op.cit., p274)
In monetary terms, the price of labour-power is represented by the wages paid to the working class. This wage, therefore, must be able to cover the necessary expenditure for worker to maintain himself/herself, including food, shelter, clothing, healthcare, education. Furthermore, Marx emphasises that the value of labour-power must cover not only the expenditure of the individual worker, but also his/her family, and indeed the continued existence of the working class a whole.
The social wage necessary, therefore, is not simply that required for the bare minimal subsistence of the working class, but is that of a given social and historical situation, varying from country-to-country and from epoch-to-epoch. The working class, through a history of class struggle, has raised the expectation of what an average wage – and thus an average standard of living – should be. The value of labour-power, therefore, is ultimately determined by a class struggle between the working class and the capitalist class; a struggle for higher wages on the side of the workers, and greater profits on the side of the capitalists.
The key to the capitalists’ profits lies in the ability of the workers to create more value in the course of the day than they are paid back in the form of wages. For example, whilst the working day may be eight hours, it might take only half the day – four hours – for workers to produce commodities with a value equivalent to their wages. In other words, the remaining four hours of the workers’ labour, from the perspective of the capitalists – are effectively “free”, and the products created in this period constitute surplus value.
The source of the capitalists’ profits then, lies not in exchange or circulation, but in production. Profits are obtained from this surplus value – the unpaid labour of the working class. The remaining surplus value, meanwhile, is divided up – in the form of rent and interest – between the various parasites that thrive off of the wealth created in real production: the landlords, usurers, and financiers.
It is the pursuit of profit, in turn, that acts as the motor force within capitalist society, with the competition to sell cheaper, capture markets, and increase profits driving investment into new technologies, in order to increase productivity. With the crash of 2008 and the years of crisis and worldwide economic stagnation that have followed, however, it is clear that this engine has stalled.