A Contribution to the Critique of Political Economy · Karl Marx
3. MONEY.
The consumption increased with the general growth of wealth.[100] It may be stated as a general law that the conversion of gold and silver money into articles of luxury prevails in times of peace, while their reconversion into bullion or even coin takes place in stormy periods.[101] How considerable the proportion is of the gold and silver treasure in the form of articles of luxury to the quantity of precious metals serving as money may be seen from the fact that in 1829 the proportion in England, according to Jacob, was two to one, and in entire Europe and America the precious metals in the form of articles of luxury exceeded those in the form of money by one-fourth. We have seen that the circulation of money is but the manifestation of the metamorphoses of commodities, or of the form under which the social interchange of matter takes place. With the change in the total price of commodities in circulation or in the volume of their simultaneous metamorphoses, the rapidity of their change of form in each case being given, the total quantity of gold in circulation must always expand or contract. That is possible only under the condition that the total quantity of money in the country continually bear a varying ratio to the quantity of money in circulation. This condition is met by the process of hoarding. With a fall in prices or rise in the rapidity of circulation, the hoard-reservoirs absorb that part of money which is thrown out of circulation; with a rise in price or a decline in the rapidity of circulation, the hoards open up and return a part of their contents to the stream of circulation. The solidification of circulating money into hoards and the outpouring of hoards into circulation is a constantly oscillating movement in which the prevalence of the one or the other tendency is determined exclusively by fluctuations in the circulation of commodities.
Hoards thus serve as conduits for the supply and withdrawal of money to or from circulation, so that every time only that quantity of money circulates as coin which is required by the immediate needs of circulation. If the volume of the entire circulation suddenly expands and the fluent unity of sale and purchase assumes such dimensions that the total sum of prices to be realized increases more rapidly than the rapidity of the circulation of money, the hoards decrease perceptibly; but when the combined movement slackens to an unusual extent, or the movement of buying and selling steadies itself, the medium of circulation solidifies into money in large measure, and the treasure reservoirs fill up far above their average level. In countries with an exclusively metallic circulation or where production is at a low stage of development, the hoards are endlessly split up and scattered all over the land, while in countries where the capitalist system is developed they are concentrated in bank reservoirs. Hoards are not to be confounded with coin reservoirs, which form a constituent part of the total supply of money in circulation, while the interaction between hoards and currency implies the decline or rise of its total supply. Gold and silver commodities form, as we have seen, both conduits for the withdrawal of precious metals, as well as sources of their supply. In ordinary times only their former function is of importance to the economy of metallic circulation.[102]
As soon as money develops through the process of hoarding into the embodiment of abstract social wealth and the tangible representative of material wealth, it assumes in that capacity special functions within the process of circulation. If money circulates merely as a medium of circulation and therefore as a means of purchase, it is understood that commodity and money confront each other at the same time, i. e., that the same value is present in a double form: at one pole, as a commodity in the hands of the seller; at the other pole as money in the hands of the buyer. This simultaneous existence of the two equivalents at opposite poles and their simultaneous change of places or mutual alienation presupposes in its turn that seller and buyer enter into relations as owners of equivalents that are on hand. But in the course of time, the process of the metamorphosis of commodities which produces the different forms of money, transforms also the owners of commodities or changes the character in which they appear before each other in the community. In the process of metamorphosis of the commodity the guardian of the latter changes his skin as often as the commodity changes place or as the money assumes new forms.
Thus, the owners of commodities originally confronted each other only as commodity owners, but later on they became one a buyer, the other a seller; then each became alternately buyer and seller, then hoarders, and finally rich men. In that manner, the owners of commodities do not come out of the process of circulation the same men that they entered. In fact the different forms which money assumes in the process of circulation are but crystallized changes of form of the commodities themselves, which in their turn are but concrete expressions of the changing social relations in which commodity owners carry on the interchange of matter with one another. New trade relations spring up in the process of circulation, and, as representatives of these changed relations, commodity owners assume new economic roles. Just as gold becomes idealized within the process of circulation and plain paper, in its capacity of a representative of gold, performs the function of money, so does the same process of circulation lend the weight of actual seller and buyer to the buyer and seller who enter it merely as representatives of future money and future commodities.
All the forms in which gold develops into money, are but the unfolding of potentialities which the metamorphosis of commodities bears within itself. These forms did not become distinctly differentiated in the process of simple money circulation where money appears as coin and the movement C―M―C forms a dynamic unity; at most, they appeared as mere potentialities as, e. g., in the case of the break in the metamorphosis of a commodity. We have seen that in the process C―M the relations between the commodity and money were those of an actual use-value and ideal exchange-value to an actual exchange value and only ideal use-value. By alienating his commodity as a use-value the seller realized its own exchange value and the use-value of money. On the contrary, the buyer, by alienating his money as exchange value, realized its own use-value and the price of the commodity. Commodity and money changed places accordingly. When it comes to a realization in actual life of this bi-polar contrast, a new break occurs. The seller actually alienates his commodity, but realizes its price only in idea: he has sold his commodity at its price, which is to be realized, however, only subsequently, at a time agreed upon. The purchaser buys as the representative of future money, while the vender sells as the owner of present goods. On the part of the vender, the commodity as use-value is actually alienated, without the price being actually realized; on the part of the purchaser, money is actually realized in the use-value of the commodity, without being actually alienated as exchange value. Instead of a token of value representing money symbolically as was the case before, the purchaser himself performs that part now. And just as in the former case the symbolic nature of the token of value called forth the guarantee of the state which has made it legal tender, so does the personal symbolism of the buyer bring about legally enforcible private contracts among commodity owners.
The contrary may happen in the process M―C, where the money can be alienated as a real means of purchase, and in that way the price of the commodity can be realized before the use-value of the money is realized and the commodity actually delivered. This occurs constantly under the everyday form of pre-payments. And it is under this form that the English government purchases opium from the ryots of India, or, foreign merchants residing in Russia mostly buy agricultural products. In these cases, however, the money always acts in its well known role of a means of purchase and therefore, does not assume any new forms.[103] We need not dwell, therefore, on this case any longer; but with reference to the changed form which the two processes M―C and C―M assume now, we may note that the difference between purchase and sale which appeared but imaginary in the direct process of circulation, now becomes a real difference, since in the former case only the money is present and in the latter only the commodity, and in either case only that extreme is present from which the initiative comes. Besides, the two forms have this in common: that in either, one of the equivalents is present only in the common will of the buyer and seller,―a will that is binding on both and assumes definite legal forms.
Seller and buyer become creditor and debtor. While the commodity owner looked comical as the guardian of a treasure, he now becomes awe-inspiring, since he no longer identifies himself but his neighbor with a certain sum of money and makes him and not himself a martyr of exchange value. From a believer he becomes a creditor, for religion he substitutes law. “I stay here on my bond!” Thus, in the modified form C―M in which the commodity is present and money is only represented, money plays first of all the part of a measure of value. The exchange value of the commodity is estimated in money as its measure; but as exchange value, established by contract, price exists not only in the mind of the seller, but also as a measure of obligation on the part of the buyer. Besides serving as a measure of value, money plays here the part of a means of purchase, although in that capacity it only casts ahead the shadow of its future existence. It attracts the commodity from its position in the hand of the seller into that of the buyer. As soon as the term of the contract expires, money enters circulation, since it changes its position by passing from the hands of the former buyer into those of the former seller. But it does not enter circulation as a circulating medium or as a means of purchase. It performed those functions before it was present and it appears after it has ceased to perform them. It now enters circulation as the only adequate equivalent of the commodity, as the absolute form of existence of exchange value, as the last word of the process of exchange, in short as money, and money in its distinct role of a _universal means of payment_. In this capacity of a means of payment money appears as the absolute commodity, but within the sphere of circulation and not without it as was the case with hoards. The difference between the means of purchase and the means of payment makes itself unpleasantly felt in periods of commercial crises.[104]
Originally, the conversion of the product into money in the sphere of circulation appears only as an individual necessity for the commodity owner in so far as his own product has no use-value to him, but has to acquire it first by being alienated. But in order to pay at the expiration of the contract, he must have sold commodities before that. Thus, entirely apart from his individual wants, the movement of the circulation process makes selling a social necessity with every owner of commodities. As a former buyer of a commodity he is compelled to become a seller of another commodity in order to get money not as a means of purchase but as a means of payment, as the absolute form of exchange value. The conversion of commodity into money as a final act, or the first metamorphosis of a commodity as an end in itself which in the case of hoarding seemed to be a matter of caprice on the part of the commodity owner, becomes now an economic function. The motive and essence of sale for the sake of payment becomes from a mere form of the process of circulation its self emanating substance. In this form of sale the commodity completes its change of position; it circulates while it postpones its first metamorphosis, viz. its transformation into money. On the contrary, on the part of the buyer the second metamorphosis is completed, i. e. money is reconverted into a commodity before the first metamorphosis has taken place, i. e., before the commodity has been turned into money. The first metamorphosis thus takes place after the second in point of time; and thereby, money i. e. the form of the commodity in its first metamorphosis, acquires a new destination. Money or the spontaneous development of exchange value, is no longer a mere intermediary form of the circulation of commodities, but its final result.
That such _time sales_ in which the two poles of the sale are separated in point of time, have their natural origin in the simple circulation of commodities, requires no elaborate proof. In the first place, the development of circulation leads to a continual repetition of the mutual transactions between the same commodity owners who confront each other as seller and buyer. The repetition is not accidental; on the contrary, goods are ordered, let us say, for a certain date in the future when they are to be delivered and paid for. In that case the sale is ideal, i. e. it is legally accomplished without the actual presence of the goods and money. Both forms of money, those of a medium of circulation and of a means of payment still coincide here, since in the first place, commodity and money change places simultaneously, and secondly, the money does not buy the commodity, but realizes the price of the commodity purchased before.
In the second place, the nature of a great many use-values makes the simultaneous alienation and delivery of the goods impossible, and delivery has to be postponed for a certain time; e. g., when the use of a house is sold for one month, the use-value of the house is delivered only at the expiration of the month, although it changes hands at the beginning of the month. Since the actual transfer of the use-value and its virtual alienation are separated here in point of time, the realization of its price occurs also after its change of place. Finally, the difference in the seasons and in the length of time required for the production of various commodities brings about a situation where one tries to sell his goods, while the other is not ready to buy; and with the repeated purchases and sales between the same commodity owners the two ends of sale fall apart according to the conditions of production of the respective commodities. Thus arises a relation of creditor and debtor between the owners of commodities which, though constituting the natural foundation of the credit system, may be fully developed before the latter comes into existence. It is clear that with the extension of the credit system, and, consequently, with the development of the capitalist system of production in general, the function of money as a means of payment will extend at the expense of its function as a means of purchase and, still more, as an element of hoarding. In England, e. g., money as coin has been almost completely banished into the sphere of retail and petty trade between producers and consumers, while it dominates the sphere of large commercial transactions as a means of payment.[105]
As the universal means of payment money becomes the _universal commodity_ of all contracts, at first only in the sphere of circulation of commodities.[106] But with the development of this function of money, all other forms of payment are gradually converted into money payments. The extent to which money is developed as the exclusive means of payment indicates the degree to which exchange value has taken hold of production in its depth and breadth.[107] The volume of money in circulation, as a means of payment, is determined in the first place, by the amount of payments, i. e. by the sum total of the prices of the commodities alienated, but not about to be alienated, as in the case of the simple circulation of money. The quantity thus determined is subject, however, to two modifications. The first modification is due to the rapidity with which the same piece of money repeats the same function, i. e. with which the several payments succeed one another. A pays B, whereupon B pays C, and so forth. The rapidity with which the same coin repeats its function as a means of payment, depends first, upon the continuity of the relation of creditor and debtor among the owners of commodities, the same commodity owner being the creditor of one person and the debtor of another, etc., and secondly, upon the interval which separates the times of various payments. This chain of payments or of supplementary first metamorphoses of commodities is qualitatively different from the chain of metamorphoses which is formed by the circulation of money as a circulating medium. The latter not only makes its appearance gradually, but is even formed in that manner.
A commodity is first converted into money, then again into a commodity, thereby enabling another commodity to become money, etc.; or, seller becomes buyer, whereby another commodity owner turns seller. This successive connection is accidentally formed in the very process of the exchange of commodities. But when the money which A has paid to B is passed on from B to C, from C to D, etc., and that, too, at intervals rapidly succeeding one another, then this external connection reveals but an already existing social connection. The same money passes through different hands not because it appears as a means of payment; it passes as a means of payment because the different hands have already clasped each other. The rapidity with which money circulates as a means of payment thus shows that individuals have been drawn into the process of circulation much deeper than would be indicated by the same rapidity of the circulation of money as coin or as a means of purchase.
The sum total of prices made up by all the purchases and sales taking place at the same time, and, therefore, side by side, constitutes the limit for the substitution of the volume of coin by the rapidity of its circulation. If the payments that are to be made simultaneously are concentrated at one place―which naturally arises at first at points where the circulation of commodities is largest―the payments balance each other as negative and positive quantities: A is under obligations to pay B, while he has to be paid by C. etc. The quantity of money required as a means of payment will, therefore, be determined not by the total amount of payments which have to be made simultaneously, but by the greater or less concentration of the same and by the magnitude of the balance remaining after their mutual neutralization as negative and positive quantities. Special arrangements are made for settlements of this kind even where the credit system is not developed at all, as was the case e. g. in ancient Rome. The consideration of these arrangements, however, as well as that of the general time limits of payment, which are everywhere established among certain elements in the community, does not belong here. We may add that the specific influence which these time settlements exert on the periodic fluctuations in the quantity of money in circulation, has been scientifically investigated but lately.
In so far as the payments mutually balance as positive and negative quantities, no money actually appears on the scene. It figures here only in its capacity of a measure of value: first, in the prices of commodities, and second, in the magnitude of mutual obligations. Aside from its ideal form, exchange value does not exist here independently, not even in the form of a token of value; that is to say, money plays here only the part of ideal money of account. The function of money as a means of payment thus implies a contradiction. On the one hand, in so far as payments balance, it serves only ideally as a measure of value. On the other hand, in so far as a payment has actually to be made, money enters circulation not as a transient circulating medium, but as the final resting form of the universal equivalent, as the absolute commodity, in a word, as money. Therefore, whenever such a thing as a chain of payments and an artificial system of settling them, is developed, money suddenly changes its visionary nebulous shape as a measure of value, turning into hard cash or means of payment, as soon as some shock causes a violent interruption of the flow of payments and disturbs the mechanism of their settlement.
Thus, under conditions of fully developed capitalist production, where the commodity owner has long become a capitalist, knows his Adam Smith, and condescendingly laughs at the superstition that gold and silver alone constitute money or that money differs at all from other commodities as the absolute commodity, money suddenly reappears not as a medium of circulation, but as the only adequate form of exchange value, as the only form of wealth, exactly as it is looked upon by the hoarder. In its capacity of such an exclusive form of wealth, it reveals itself, unlike under the monetary system, not in mere imaginary, but in actual depreciation and worthlessness of all material wealth. That is what constitutes the particular phase of crises of the world market which is known as a money crisis. The _summum bonum_ for which everybody is crying at such times as for the only form of wealth, is cash, hard cash; and by the side of it all other commodities just because they are use-values, appear useless like so many trifles and toys, or, as our Dr. Martin Luther says, as mere objects of ornament and gluttony. This sudden reversion from a system of credit to a system of hard cash heaps theoretical fright on top of the practical panic; and the dealers by whose agency circulation is affected shudder before the impenetrable mystery in which their own economical relations are involved.[108]
Payments, in their turn, require the formation of reserve funds, the accumulation of money as a means of payment. The building up of reserve funds appears no longer as a practice carried on outside of the sphere of circulation, as in the case of hoarding; nor as a mere technical accumulation of coin, as in the case of coin reserves; on the contrary, money must now be gradually accumulated to be available on certain future dates when payments become due. While hoarding, in its abstract form as a means of enrichment, declines with the development of the capitalist system of production, that species of hoarding which is directly called for by the process of production, increases; or, to put it differently, a part of the treasure which is generally formed in the sphere of circulation of commodities, is absorbed as a reserve fund of means of payment. The more developed the capitalist system of production, the more these reserve funds are limited to the necessary minimum. Locke, in his work “On the Lowering of Interest”[109] furnishes interesting data with reference to the size of these reserve funds in his time. They show what a considerable part of the total money in circulation the reservoirs for means of payment absorbed in England just at the time when banking began to develop.
The law as to quantity of money in circulation, as it has been formulated in the analysis of the simple circulation of money, receives an essential modification when the circulation of the means of payment is taken into account. The rapidity of the circulation of money whether as circulating medium or as means of payment―being given, the total amount of money in circulation at a given time will be determined by the sum total of the prices of commodities to be realized, _plus_ the total amount of payments falling due at the same time, _minus_ the amount of payments balancing each other. The general law that the volume of money in circulation depends on the prices of commodities is not affected by this in the least, since the extent of the payments is itself determined by the prices stipulated in contracts. What is, however, strikingly demonstrated, is that even if the rapidity of circulation and the economy of payments be assumed to remain the same, the sum total of the prices of the commodities circulating in a given period of time, say one day, and the volume of money in circulation on the same day are by no means equal, because there is a large number of commodities in circulation whose prices have yet to be realized in money at a future date, and there is a quantity of money in circulation which constitutes the payment for commodities which have long gone out of circulation. The latter amount will depend on the sum of payments falling due on the same day although contracted for at entirely different periods.
Ideas discussed in this chapter
Text from Project Gutenberg, public domain in the United States.