Marx’s Explanation of Money’s Functions: Overturning the Quantity Theory (2003) by Martha Campbell. The comments about this paper by conference participants in the third column at Papers should be read in conjunction.
My comments here are partly a summary and partly reflections that have arisen from thinking about Campbell’s paper. As always, read the original.
Marx was fully aware that capitalist money or credit is not gold. Yet he insists on developing a theory of money based on gold in Capital vol 1 and 2. Campbell argues that he does this because he believed that the main obstacle to understanding anything about money is the Quantity theory. Hence, we are implicitly involved in a discussion where starting points are of vital importance. Marx starts with gold as money, other economists start with what they find on the surface of social reality. In my opinion, Marx wins out because his starting points are superior to those of other thinkers.
Marx’s anti-quantity theory is that the commodity is the dog and money is the tail. The quantity theory position is the opposite: that money is the dog and the commodity is the tail
Campbell’s emphasis is on the 3 inversions or reflections of commodity relationships as a conceptual refutation of the Quantity theory of money. The 3 inversions are the mirror image reversals of these principles:
- that commodity value determines money value
- that commodity circulation determines the properties of money
- that commodity prices determines the quantity of money in circulation
So, Campbell is arguing that these principles from Marx are fundamentally correct and that the Quantity theory is incorrect because it confuses the reflection with the source. But it is more than a confusion because capitalism creates it own form of money, credit money, which does obey the inverted principles. With credit money the inversions do hold true:
- money value determines commodity value
- the properties of money are determined by commodity circulation
- the quantity of money is determined by commodity prices
It’s obvious that the quantity theory is right, isn’t it? Ben Bernanke decides to print more money to “save” the economy. In his view inflation is better than deflation. So the value of money must decline. The quantity of money Bernanke decides to print determines the value of money. This is what Marx says is wrong.
In what sense then is Marx correct? There are different types of money – gold money, paper money issued by the central bank and credit money which can be issued by anyone. You could say that Marx’s principles hold true for gold money or paper money that is convertible to gold but don’t hold true for other types of money. So, given that, since 1971, we no longer have a gold standard then aren’t Marx’s theories no longer relevant?
Since credit money escapes from Marx’s first function of money (money is a measure of value using the commodity gold as the measure) then, in that sense, it is not true money. The same could be said of paper money issued by governments through the printing press (quantitative easing) in times of crisis. Everyone knows that this money is not worth much. In times of crisis the value of this sort of money crashes back to earth, the earth that contains gold as a true measure of value.
I also found Campbell very helpful in pointing out clearly that in Chapter 3 of Capital vol 1 Marx is discussing the price form, which is separate from any discussion of a measure of price. Part of the problem with “economics” is that it is obsessed with measurement, ignores social forms in its own analysis and does not even notice that Marx is emphasising that many of the thing we take for granted (eg. the commodity, money, price) have a social origin and meaning. Marx explains how capitalism really functions as a social system in contrast to “economists” who seem to do little more than watch the stock market go up and down.
Price and value must part company. This is a feature of Marx’s theory and not a problem. Since money exists concretely as gold separate from commodities then it is certainly possible for price to deviate from the abstraction value. The price form is both an ideal expression of value and a realised misrepresentation of value. The commodity is caught in the middle of the social processes of production and exchange, “they link the activities that produce them” (page 9)
Campbell poses a crucial question that worried me in my early study of value theory:
“If price doesn’t express the right quantity of value, then why bother with value at all, since it is of no help in formulating a theory of price?”
Marx’s value theory seemed to me to be so difficult to understand that I could certainly comprehend why many give up on it and prefer to start at the more practical point of price. The answer is that if we start with price and not value then we will never understand the social forms that constitute the internal dynamics and contradictions of capitalism
Since prices can and do deviate from values then part of our answer to the Quantity theorists is that they are talking about prices and we are talking about values. Prices may be all over the place, eg. during inflation, but values are the important underlying measure of how the economy is really performing.
In his comment Geert Reuten agrees but anticipates that more work needs to be done with respect to price:
“ …we agree (Campbell and myself at least) that “quantity of money” plays no role in the measurement of value … in the end Marx does have a “quantity of money circulation theory of price” (the name quantity theory of money is confused anyway, since for the proponents it is a “quantity of money theory of price-level”) – even if it is about an inverted reality (p.18), it has nevertheless real effect”
Moving on. Campbell’s argument about money beginning as a commodity (gold) and then progressing, since Marx’s death, to not being a commodity are not so clear to me.
“… money is the materialisation of value … money must be a commodity, at least until it can be shown how money could represent value without being a commodity” (page 6).
“Marx shows that money is not a commodity … by the end of Chapter 3″ (page 17)
“ … it seems unlikely that he (Marx) would consider the development of international monetary institutions to be impossible. Thus, of the two functions Marx associates with gold, one is pre-capitalist (hoards) and the other is historically contingent (world money)” (page 27)
“By the collapse of the credit system into the monetary system, he means instead that payments must be made in money (whatever the form of money happens to be)” (page 30, footnote 112)
My question here is: How could money represent value accurately without being a commodity? Campbell doesn’t seem to provide an answer to that in her paper.
This point was also raised by some of her fellow presenters at the conference.
“I don’t think Martha is clear enough on the crucial question of whether or not money has to be a commodity in its function as measure of value … how else could the value of commodities be measured, except by another commodity?”
“I believe that Marx’s commodity-money basis is unnecessarily somewhat brushed away (referring to pages 17 and 27)… This brushing makes the general argument less instead of more convincing.”
Smith: (referring to the Campbell quote on page 30 above)
“I’m not at all sure Marx meant that. I think it is more likely that he thought that inter-state conflicts will prevent any national currency from serving as the ultimate and unquestioned form of world money, and so at some point in a crisis in the world economy there will always be a “flight to gold.” Regarding the former, I think he was correct (and so I also think he probably wouldn’t have agreed with you and Mike Williams (p. 27) that the lack of a world monetary authority is a mere historical contingency, if what you mean by that is some regime of global governance that establishes a particular currency or international clearing unit as world money). Regarding the latter (my correction, the original says former here), I don’t see any reason why interstate conflicts (and the inter-capital conflicts inseparably connected to them) can’t be played out indefinitely through massive disequilibriums in the currency exchange rates of the leading hard currencies, followed by abrupt revaluations of those rates. In every crisis in the world market there is then a flight from one (or more) hard currency to another (or group of others).”
Martha Campbell’s paper and the responses to it by the other conference participants give me confidence that there are marxists in the world still thinking hard about the important questions. I look forward to studying more of the papers from the 2003 conference site: Marx’s Theory of Money: Modern Appraisals