Tuesday, 7 August 2012

Capital I Chapter 3 - Part 1

Marx assumes gold to be the money commodity throughout Capital for simplicity. He writes,

The first chief function of money is to supply commodities with the material for the expression of their values, or to represent their values as magnitudes of the same denomination, qualitatively equal, and quantitatively comparable. It thus serves as a universal measure of value. And only by virtue of this function does gold, the equivalent commodity par excellence, become money.” (p 97)

But, contrary to those who fetishise gold, and see in it the basis of measuring the Value of commodities, he goes on,

It is not money that renders commodities commensurable. Just the contrary. It is because all commodities, as values, are realised human labour, and therefore commensurable, that their values can be measured by one and the same special commodity, and the latter be converted into the common measure of their values, i.e., into money. Money as a measure of value, is the phenomenal form that must of necessity be assumed by that measure of value which is immanent in commodities, labour-time.” (p 97)

We have seen how Exchange Value goes through several historical and logical stages until it reaches the point whereby all commodities can be measured by one single universal equivalent – money.

The expression of the value of a commodity in gold — x commodity A = y money-commodity — is its money-form or price. A single equation, such as 1 ton of iron = 2 ounces of gold, now suffices to express the value of the iron in a socially valid manner.” (p 97)

Expressing the Value of any commodity, in terms of a certain amount of gold, does not thereby require that amount of gold to be present for the purpose. For this purpose, imaginary money equally performs the function.


When, therefore, money serves as a measure of value; it is employed only as imaginary or ideal money.” (p 99)


But, to serve the function of money, this ideal money must have the same attributes as the actual money commodity i.e. it must be a representative of the same Value, the same amount of labour-time.

During some periods, there have been two money commodities operating side by side e.g. Gold and Silver.

If, therefore, two different commodities, such as gold and silver, are simultaneously measures of value, all commodities have two prices — one a gold-price, the other a silver-price. These exist quietly side by side, so long as the ratio of the value of silver to that of gold remains unchanged, say, at 15:1. Every change in their ratio disturbs the ratio which exists between the gold-prices and the silver-prices of commodities, and thus proves, by facts, that a double standard of value is inconsistent with the functions of a standard.” (p 99)

As Marx points out, where attempts were made by law to fix the relation between these two money commodities, it always failed, because the labour-time required for the production of each, and therefore, their Value constantly changed. So, the commodity that was undervalued ended up being withdrawn from circulation, melted down and exported.

The result of all experience and history with regard to this equation is simply that, where two commodities perform by law the functions of a measure of value, in practice one alone maintains that position.” (note 2 pp 99-100)

Different amounts of different commodities can all be expressed as varying amounts of gold. For example, 1 coat – 1 oz. Gold, 100 yards of linen = 2 oz. Gold etc. These standard measures of weight of gold and silver then give their names to the standard units of money. For example, a Pound Sterling was originally 1 lb. of Sterling Silver. Over time these units become divorced from their origins, as we shall see later.

There are two distinct functions of money that are in conflict. Money acts as a measure of Value only because it comes to represent labour-time. But, as a standard of price, for example, a Pound, it is preferable that as far as possible this standard, this unit of measurement, should be as fixed as possible – just as we want a 'foot ruler' to be the same length as another, and not to vary over time or conditions. But, it is precisely because the money commodity, as itself the product of labour, is able to represent labour-time, that means its own Value is constantly changing.

As a standard of price, these changes do not affect its function, because however its Value changes, 10 oz. gold are still worth 10 times what 1 oz. is worth. Nor does the change in the Value of the gold interfere with its function as measure of Value, because the change affects its relation to all commodities in the same proportion. What, of course it does change, is the amount of gold that now exchanges for these commodities. So, if the Value of gold falls, more gold will have to be exchanged for all commodities i.e. money prices will rise.

A general rise in the prices of commodities can result only, either from a rise in their values — the value of money remaining constant — or from a fall in the value of money, the values of commodities remaining constant.” (p 101)

The same is true in reverse for a general fall in prices. If the Value of Money falls, but the Value of commodities falls in the same proportion money prices remain the same, and vice versa.

Later in Capital, Marx describes one of the important consequences of this in the development of Capitalism in Britain. As a consequence of new gold discoveries the Value of Gold fell, and the prices of agricultural products rose. This meant that capitalist farmers incomes rose. However, their rents had been fixed with Landlords for leases running several years. Higher money incomes and constant money rents, meant that Capitalist farmers were able to accumulate Capital, an important factor in what Marx calls Primary Accumulation In fact, because the landlords had to pay the higher money prices for commodities, whilst their money rents remained constant, the fall in the value of gold money, resulted in a transfer of wealth from Landlords to Capitalist farmers.

Marx describes the process by which the names originally given to the units of money becomes separated from their actual weights. For example, foreign units of money become imported. Various rulers debase the currency by clipping amounts of gold or silver from the coins so that although it retains the same name, over time it comes to represent an actual smaller weight. As societies become more wealthy, they move to more valuable metals. So, Britain originally used silver but moved to gold. The Pound Sterling was retained as the standard unit of money, but became equated with gold of a fifteenth the weight, because that was the Exchange Value of silver in gold. As the relative values of gold and silver diverged the more a Pound became separated from its origin as a pound of silver.

The various subdivisions of the standard of money, for example, “Crown”, “Half-Crown”, “Florin”, “Shilling”, “Penny”, “Farthing”, are defined by law even though initially they may take the form of metal themselves such as silver and copper, whose Value continually changes. Now the prices of commodities become described not as certain weights of gold and silver, but as a certain amount of these coins.

Hence, instead of saying: A quarter of wheat is worth an ounce of gold; we say, it is worth £3 17s. 10 1/2d. In this way commodities express by their prices how much they are worth, and money serves as money of account whenever it is a question of fixing the value of an article in its money-form.” (p 103)

NB. A couple of years ago, as copper prices rose sharply due to the global economic boom, the value of the copper content of certain 2p coins rose to be higher than the face value of the coin. If my memory is correct, a ton of these coins would net you a £2,500 Capital Gain, when melted down, over their face value!

Through these money names that have lost all connection to the commodities they originally represented, so the value relation between commodities and money becomes hidden.

Although, the Value of a commodity is expressed as a certain amount of money i.e. a money price, it does not follow that a money price necessarily reflects the Value of a commodity. The Value of a commodity, as we have seen, is determined by the labour-time required for its production, say 10 hours. Ten hours may also represent 1 oz. of gold, which may have the money name £1. However, prices can differ from Values. Suppose the labour-time required for the production of the commodity remains 10 hours. Its Value remains unaltered.

However, if there is a sudden rise in demand for the commodity, the law of Supply and Demand will cause the market price to rise to say £3. If demand falls then similarly the market price may fall to £1. All the money name measures is the market price, not the Value of the commodity.

In fact, price can cease to represent Value. Many things which have no Value can acquire a price. For example, unimproved land has no Value. Like air it is provided free by Nature. It has required no human labour to produce it – though human labour can be used to improve it. But, over time, land has been appropriated and monopolised. The owners of the land, thereby demand a price for its use in the form of Rent, and place a price on the land for sale based on a capitalisation of the rent i.e. they demand the equivalent of 20 years rent, as a single payment to buy it.

We can imagine the Exchange Value of a commodity such as 100 yards of linen as a certain amount of gold, but for the linen to actually be such an exchange Value, it must be sold – converted into real gold. I could not take the 100 yards of linen to someone and offer it for payment, saying its worth an ounce of gold. They will want the actual money, so I have to convert the linen into money.

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