Capital Vol 1 Reading Group: Chapter 3

On the quote from Spartacus

I think the idea that he is putting across is explained or expanded on in the next chapter and it revolves around the point that the capitalist, when things are going well, is primarily interested in expanding and accumulating the value in his working capital. And is not interesting in accumulating gold, as such.

By using his working capital to extract and accumulate ever more value from his surplus value and throwing that surplus value back into ‘circulation’ or for more working capital. As opposed to just accumulating and seeing his embodied surplus value build up in a hoard of gold stored in box buried in the garden or something.

A ‘hoarder’ of gold money that loans it out to other capitalists does not actually hoard it as such but is just a finance or interest bearing capitalist. Thus for the capitalist gold money itself is just a means to an another end, the accumulation of capital, the means of production and power.

The gold in a box, that is therefore not working capital, and the hoarder who takes it out each night just to run it through his fingers when it could be used to extract surplus value out of workers, is thus vain.

Chapter Four: The General Formula for Capital

http://www.marxists.org/archive/marx/works/1867-c1/ch04.htm

When the crash comes and over production etc the usefulness of gold as a material depository or envelop of value, that does not rust away or get eaten by moths, is realised. It is also easier to keep an ‘eye on it’, because, as depository of value, it doesn’t take up much space. Thus;

Matthew 6;19

In fact even in Karl’s time when things were going great the buying and selling between the capitalist was often carried out using what are essentially IOU’s or as they called them ‘bills of exchange’ or in today’s parlance ‘commercial paper’. And gold for the capitalists becomes an even more a superfluous vanity and nonsense than before.

Given the present climate I would like to include another quote from Volume III, and hope to be forgiven by the moderator for committing the crime I warned against of rushing ahead.

http://www.marxists.org/archive/marx/works/1894-c3/ch29.htm

By the way I am handicapping myself to give others an edge by not reading again the first three chapters and just running off memory and my past scanty annotations and highlighting.

Sounds like the inflationary system we now have since money is no longer tied to the gold standard.

There's a good section in the Grundrisse which relates to this chapter, I'll try to dig it up.

I had a few comments which I'll try to get up later today but I'm very busy...

One comment for now. I am still trying to finish reading the relevant parts of the Grundrisse and the original draft of the Contribution to the Critique.

I think we should not get too far ahead of ourselves but I want to point out that commercial paper today and bills of exchange in Marx's day were different in the very important way that bills of exchange were used as a means of circulation, not (so far as I know) to raise money for the enterprise in order to fund day to day operations, which is the case with commercial paper today. Commercial paper doesn't (again, so far as I know) actually circulate amongst capitalists in payment for commodities (or at least that is not their primary function).

They're similar insofar as both are just IOUs, but the issue of whether or not it functions as a means of circulation is pretty important, insofar as Marx's analysis of means of circulation applies (in a very modified way) to bills of exchange, but not the commercial paper.

For those interested in commercial paper see the wikipedia entry.

http://en.wikipedia.org/wiki/Commercial_paper

There is a wikipedia entry on bills of exchange as well, but they are using a broad definition which is more general than the very specific credit instrument which Marx referred to. Marx mentions them in passing once or twice in Ch. 3, without referring to them by name.

You can think of a "bill of exchange" as basically a post-dated check with the issuer's name on it, with the check made payable to "Cash". Upon the date that it matured, it could be redeemed in cash for the face value of the bill. Before that date, a bank would give you cash for it, but they would pay you less cash than the face value. The rate at which they'd discount the bill was determined by the rate of interest. This was called "discounting" the bill of exchange. The bank would then either hold the bill until maturity or perhaps get it discounted by a different bank if they needed immediate cash. Also, these bills were used in big commercial transactions, just like currency. Marx gives figures in a few places that show that the vast majority of large commercial transactions were conducted with bills of exchange, not with gold or banknotes. In their circulation, they'd circulate for less than their face value, at more or less the amount which it could be discounted for at any given time.

One of the things that Marx talks about in his writings on financial crisis is the rush to redeem the notes for cash, because there was a good chance of the bills not being repaid. (Perhaps the issuer of the bill of exchange had went bankrupt, or perhaps he never had any business at all and the note was completely fraudulent.) Of course this meant that banks would only discount the bills at very steep rates.

Bills of exchange are what Marx is referring to in this passage, in the section on Coin:

There does seem to be a credit instrument today which is very similar to bills of exchange in Marx's day. These are "letters of credit", which, so far as I can tell, are basically the same thing and which play an important role in international shipping.

They are explained in intricate, and very boring detail, here.

I noticed a couple days ago, while going through this section on coin in Capital and the corresponding section in the Contribution to the Critique of Political Economy, that Marx says the exact opposite in the Contribution. He mentions "paper money with a legal rate of exchange" (i.e. convertible for a definite amount of gold), and then says "we speak only of this type of paper money."

So in the Contribution, Marx says he's only speaking of convertible paper money, and in Capital he says the opposite, that he is only considering nonconvertible paper money (what we'd call a fiat currency now).

But in both sections, he explains the magnitude of the paper money's value in the same way (as determined by the quantity of paper money in circulation, relative to the amount of gold which would need to circulate in its place).

I'm not sure if this is relevant. I'm trying to make up my mind as to if there's a typo in Capital (I highly doubt it), if he changed his mind on money (again I doubt it, as he seemed to think his analysis was the same in both works), or if it's actually irrelevant in Marx's opinion. I'm leaning towards the last option, because in Marx's notes which were basically an outline of the Contribution, he says that it is irrelevant whether money is legally convertible or not, because it is always convertible in fact. But this does bring up the issue of why he would have made it a point to say in each text that he's only referring to one or the other type of money, rather than saying that he's referring to both and that it makes no difference. Perhaps the answer is that for reasons of presentation, he thought it was better to refer only to nonconvertible paper money, since convertible paper money can be seen as credit money (a promise to pay the bearer of the paper money a certain amount of gold

I've never seen this discrepancy between the Contribution to the Critique and Capital noted in any writing on Marx's economic theories, which surprises me, as there has been quite a bit of literature on Marx's opinion on the quantity theory of money, to which this issue is related.

Any takers?

I don't think there is anything too controversial about chapter 3. If you read it slowly it is understandable and doesn't raise anything really unexpected. Really, it deals with currency (i.e. with the movement of money & commodities). I wonder why Marx chose to put it in where he did - obviously he had just reached the money form of value, so it must have seemed logical for him to talk about...money. However, it does seem a bit of a side-track to the labor theory of value we had been discussing, and certainly chapter 4 & 5 gets back on track to discussing where this value really comes from - i.e. does not simply originate from 'buying and selling.' This was just a general comment about the structure of Capital, so I won't side-track it any longer.

I am reading Ch. 3 now, and I know this is an old thread but it's the only one I see...

Question:
When gold is used as money (a universal equivalent of all other commodities)- it is *still* a commodity itself. So, if the number of labor-hours needed to produce gold went down, gold would become worth less, just like any other product. It would still function as a universal equivalent, for instance, as a medium for exchanging X iron for Y cloth. It's just that you'd need more gold to embody the value of the cloth, but you'd be getting more gold for the iron. (correct?)

So I'm trying to figure out the part about the role/need for legal intervention- Why does the gov't need to make laws to regulate the value of money(gold)? Is this done to create a money-form that is immune from the fluctuations in value that happen to normal commodities? Is paper-money free from being an embodiment of labor-value? When something like a "pound" no longer correlates to any particular weight of metal, what changes? What is the role of legal regulations in making money "work"?

Also, what causes the price of a commodity to change while the amount of labor it embodies stays the same? (other than changes in supply/demand?)
Marx calls this a "quantitative incongruity between price and magnitude of value"?

This article might help. Also check out other articles on there.