I'd like a moneyless system, but see a couple flaws that need fixing

No, it's foundation is still money, but now in the form of fiat money (inconvertible paper -- and electronic -- money) issued by the State and from which it can't detach itself (despite what the currency cranks who say banks can create money out of thin air think).

You don't think it's still money in the form of precious metals, do you?

I'm pretty much agnostic on these issues, because I haven't really studied them as much as I'd like to. But I think the possibility of gold still playing an important role cannot be ruled out simply because it's "plain to see" that nobody uses gold as money anymore.

If the foundation of the credit system is "fiat money", what is the foundation of fiat money (say, dollar)? Is fiat money commodity? If it isn't, well that's one fundamental theorem of Marx's solution to the "riddle of money" that has to be given up. So was Fullarton right, as opposed to Marx?1 What determines the purchasing power of fiat money? I've heard various answers to this: the political and military dominance of the US, the promise of future accumulation, etc., but no book-length treatment of the issue (which it deserves, in my view). I'd appreciate any suggestions you might have.

On the other hand, I find some of the works by people who insist on the role of the money-commodity persuasive, as long as they don't shy away from empirical investigations. An example is the German economist Stefan Krüger. In an article published in 2009, he argues that there are four factors influencing the average prices (which he documents statistically): 1. the development of the productivity of labor within the national economy, 2. the development of the value-producing capability of the national productive labor in relationship to the universal labor on the world market, 3. the development of the productivity of labor in the world production of gold, 4. the changes in the relation of representation between national money and gold in the sense of the rate of inflation. He says that the so-called demonetization of gold served to increase the ability of central banks to regulate national currencies, but the ultimate frontiers to this ability are still determined, to a certain extent, by the value of gold.

BTW, to those who read German, Krüger has a new book which came out in January 2012. It's title is "The Political Economy of Money" (Politische Ökonomie des Geldes). With over 600 pages, it's another nice paperweight.

• 1. See Ch3 of Vol1: "The following passage from Fullarton shows the want of clearness on the pan of even the best writers on money, in their comprehension of its various functions: 'That, as far as concerns our domestic exchanges, all the monetary functions which are usually performed by gold and silver coins, may be performed as effectually by a circulation of inconvertible notes paying no value but that factitious and conventional value they derive from the law is a fact which admits, I conceive, of no denial. Value of this description may be made to answer all the purposes of intrinsic value, and supersede even the necessity for a standard, provided only the quantity of issues be kept under due limitation.' (Fullarton: “Regulation of Currencies,” London, 1845, p. 21.) Because the commodity that serves as money is capable of being replaced in circulation by mere symbols of value, therefore its functions as a measure of value and a standard of prices are declared to be superfluous!"

The question of the (im)possibility of something tells us nothing. Besides, as you and dave b pointed out there were examples of it already in Marx's time (and before). Kautsky, Motylev writes, rightly points out that at bottom there is a confusion between price and value. But I think the fact that Motylev also is forced to argue against people who advocate a policy of a paper ruble, muddles his argument. So he warns that an individual commodity-owner (/the government) would not be able to establish the value of his commodity (/currency). However, that's also true under a gold standard. For the individual commodity owner is only concerned with price.

Strange, this seems to confirm what I said. Perhaps I should have left the word "token" out and said "Gold is only money in that it represents a certain amount of value."

Fiat currency is not a commodity, in that it does not contain any intrinsic value but, like land, it functions as if it where one.

The value that fiat currency represents is not imaginary in the sense that at the bottom line it has to be related to real commodities. Marx said "Money, like every other commodity, cannot express the magnitude of its value except relatively in other commodities."

At any given time the total sum of fiat currency (or prices) is equal to the total of all value. If, for example, the amount of fiat currency was to double without any change in the total amount of value; the amount of value that a given unit of currency represents would have halved.

Do you think so? I interpret the passages quoted as saying, to put it plainly, "gold is not just a symbol of value; it has value itself, which is precisely why it can function as money" – which seems to run contrary to what you are saying.

Consider this (already quoted above):

For Marx, the very possibility of money expressing the value of other commodities is rooted in the fact that money has value.

By "imaginary" Marx meant that money would have no value itself (in the sense of a certain quantity of abstract labor measured in SNLT). That was the position of Locke, for example. And it seems to me that that's what you are saying: money only expresses the value of other commodities, but has no value in itself. Marx clearly thought that such a conception of money was wrong. (Of course, perhaps it was him who was wrong, I'm just trying to show how much he insisted that money, despite all its substitutes in certain functions, was ultimately a commodity with value.)

I don't understand. So "at any given time" there can be no inflation? And fictitious capital is not in fact fictitious, because as long as it can be expressed in dollars, it counts as a part of "total prices" and hence of "total value"? And the prices of value-less tradeables, like unique artworks, represent value of these tradeables? In fact anything I put a price on is thus turned into a commodity with value? (In my view, the correct expression would be that the sum of production prices equals the sum of values, which is what Marx explicitly says in Vol3. But that is very different from saying "sum of prices". And it does not really solve the problem of where the purchasing power of "fiat money" comes from.)

Now this is getting interesting, to be honest I have not read the whole thread properly yet but will get to it..

As with all conversations with money they can go awry if people are using different definitions of what counts as "money".

But is he saying that only things that have value can function as money?

No, I'll try again. At a push I'd say the price level is set by the amount of base money in circulation, the rate at which it circulates and the amount of commodities in the economy. Increase the amount of base money whilst leaving the other factors the same and you will get inflation.

Well, that depends on what you mean by money, as you poynted out . Marx makes it clear that in currency (as "medium of circulation", i.e. cash), the money-commodity can be replaced by various tokens, coins, basically anything. Same goes for means of payment (i.e. promissory notes of all kinds, and credit money as a more developed form).

But not for measure of values and as universal money (money in international trade). Now, let's leave out universal money, because to my knowledge gold is rarely used to balance payments between countries today (although it is still in principle possible).

The argument is basically this: for something to be able to express the value of all commodities, this something must itself be a commodity and have value (this traces back to the section on the form of value in Ch1) – or, in case this something is really just a token, it must be in a set quantitative relationship to another something which is indeed a commodity (i.e. $1 = 1/35 ounces of gold as per the Bretton-Woods regime).

So there has to be an ultimate measure of values which is a commodity and has value. I agree this is apparently in contradiction with the present situation, at least since 1971. But if things really are different today, Marx's account of money needs to be modified. (Hence the two possible ways of dealing with this problem that I outlined above – either we concede Marx was wrong to presuppose a money-commodity and provide a better account which is in line with the rest of Marx's analysis, or we try to "save the appearances" and argue that a money-commodity, specifically gold, still plays an important role in the global monetary system. The first part of the first solution has been done ad nauseam by all sorts of Marxists, but the second, empirical part is AFAIK still missing.)

Well, these are some neoclassical concepts I'm not sure I have a real grasp of, sorry. I'll give it a try.

You seem to be arguing for a standard quantity theory of money (QTM), held by some pre-Marxian classics and the neoclassics, in which the "price level" is determined by the amount of currency in circulation (modified by the speed of circulation etc.). From what I've read, there are various problems with the QTM, mainly that it ultimately boils down to the idea that money is neutral and fundamentally superfluous, i.e. that the commodity economy is in principle a barter economy with money only serving to lubricate exchange.1 Also, I'm quite surprised not to find commodity values in your equation. So there is no link between the price level and values?

Anyway, Marx rejected the idea that the "price level" is determined by the amount of currency:

Elsewhere, on paper notes and inflation:

So Marx explains inflation by the relationship between the paper notes and the money-commodity (gold). In this respect, again, the money-commodity is central to his theory.

Edit: BTW, I really wish Mikus was around to help us out

• 1. John Weeks wrote an interesting article criticizing the QTM and the idea of a "monetary base"/base money from a Marxian perspective, arguing for a revival of a commodity theory of money: The theory and empirical credibility of commodity money. I urge everyone interested in money (in theoretical terms ) to read it.

Actually, this is the section of Capital which can form the basis for a Marxian analysis of "a system of pure paper currency". Although in it Marx (like Hilferding and Kautsky) is discussing a system where an inconvertible paper currency circulates alongside a metallic commodity one, he does touch on what might happen if inconvertible paper notes were the only currency. He says it wouldn't work as there would no longer be a standard of price:

This is a valid point and what has in fact happened. Governments and central banks have not only been unable to second guess the (fluctuating) amount of currency the economy requires but they have deliberately over-issued paper money (ie have not kept the quantity issued "under due limitation" as Fullarton put it), so causing the general price level to rise continuously. In other words, there is no stable standard of price. However, capitalism has learned how to live with this situation.

So, paper money can replace "the commodity that serves as money" in circulation and not being able to ensure a stable standard of price doesn't seem to matter (even if it upsets the Ron Pauls of this world). What about the third function of "the commodity that serves as money", can paper money act as "a measure of value"? Here, unexpectedly, Noa comes to the rescue:

Exactly, and paper money just as much as commodity money is capable of allowing commodity-producers (whether firms or individuals) to calculate the price of their product.

I think we may be arguing at cross purposes here. In the famous section in Capital on "the fetishism of commodities" Marx made the point that "money" was not a thing but, like value, a social relationship between people that expressed itself as a thing. What we are discussing here is the thing (money-commodity, token coins, paper currency) not the social relation of production (in simple commodity-production between independent commodity-producers; under capitalism between capitalists and workers).

I can't think that Marx thought that a necessary feature of this social relation of production was the existence of a metallic money-commodity that even if it didn't itself actually circulate as the currency still had to lurk somewhere in the background. The technical, factual matters we are discussing here don't make any difference to Marx's theory of money as "a social relation of production" or to his criticism of money as an expression of human alienation as a product of human activity that has escaped from their control and which has come to dominate them as if it was a natural force.

A powerful critique of money and why Marx, too, wanted a moneyless society..

I don't agree with this interpretation. Marx doesn't say it wouldn't work. He says what happen when and only when the amount of paper notes exceeds the proper amount of golden coins of the same denomination which could otherwise circulate had they not been replaced by paper notes. With the right balance between paper notes and the money-commodity (theoretically), there is no problem. I think the rest of the passage is key here:

The way I read this is that the inflatory effect is explained by the relationship of the paper notes to the money-commodity. It is the money-commodity – lurking in the background, replaced fully in the foreground by paper notes – that devaluates the paper notes to the proper ratio. This proper ratio is given by the necesssary amount of gold pieces required in circulation, determined, in turn, by the sum of commodity prices, the quantity of commodities, and the velocity of the transactions. If the paper notes in circulation exceed this amount, they are devalued in accordance with the required amount of golden coins.

The ultimate relationship between the sum of prices of commodities etc. and the necessary amount of golden coins is, of course, based on the fact that these golden coins have value, they are a crystallization of abstract labor. The money-commodity can only represent abstract wealth because it is itself a part of bourgeois wealth – a commodity. For Marx, it can be replaced by anything in the foreground, but still determines what's going on from the background.

The key role played by the money-commodity "in the background" is explained shortly before the quoted passage:

On the one hand, Marx clearly accepts the possibility of replacing the money-commodity by paper notes in circulation (even to the extent that only paper circulates). But the laws governing this circulation are derived from the laws governing the circulation of the money-commodity. Which, in turn, are based on the relationship of commodities as values to the money-commodity as value.

Marx's insistence on the need of a money-commodity is expressed very clearly later on in this section:

So, at the very least, Marx rejects the possibility of replacing the money-commodity in the function of the measure of value. The fact that

is in no way a solution to this. A producer can calculate the price in whatever she wants. This is not the problem (Motylev was wrong to even mention this, in my view). The real problem traces back to how qualitatively heterogenous use-values are commensurable. Marx's answer is that they are commensurable, and hence exchangeable, because they are values, crystallizations of homogenous abstract labor. According to Marx, value "can only manifest itself in the social relation of commodity to commodity". For something to work as a general equivalent, it has to be a commodity – such is the result of the analysis in the section on the form of value in Chapter 1. In some functions, the general equivalent can indeed be replaced by symbols like paper notes, but these paper notes (according to Marx) can function as a substitute for the money-commodity only insofar as they are in a specific relationship to the money-commodity. Only the money-commodity, because it is a commodity and has value, can guarantee the commensurability of heterogenous use-values.

This has important implications, as I'll try to show below.

I don't think these are technical matters, and I do think they make a difference. Marx's analysis of the value-form solves the "riddle of money" in that it shows that money, the general equivalent, is itself a commodity. It can command labor because it is itself a crystallization of labor. It functions as abstract wealth because it is itself a part of wealth, excluded from the world of commodities to perform this specific function. As such, it is endogenous to commodity production. It is not an extraneous addition, a smart invention, a mere "lubricant" of the machine of exchange which only serves to rid us of the difficulties of barter. This is a crucial difference between Marx on the one hand and political economy and some of its socialist critics (Gray, Bray, Proudhon) on the other.

If we get rid of the money-commodity (in theory), how do we explain that money commands labor? Where does this power come from? (Sure, one of the answers can be that it is ultimately the force of the State – and I'm ready to accept this as an interim answer, but I'd love to read a longer treatment of this from a Marxian position.) If money is a social relationship, what is it a relationship of? With the money-commodity, it's simple: it's a value-relationship, i.e. a relation of the labor which produces the money-commodity to all other labors in the economy. But what happens if money has no value (as in paper notes)? Moreover, if (paper) money has no value, if it is not tied to any money-commodity, and if it only represents other values, what prevents us from saying that money is exogenous, that its only function is to serve as the proverbial lubricant in what is fundamentally a barter economy?

In other words, why want a money-less and commodity-less society, and not just a money-less one, as per monsieur Proudhon? If money ceases to be a commodity and becomes an exogenous element, nothing prevents you from blaming money and wanting to keep the commodities.

Before we go any further there's a misunderstanding that needs to be cleared up.

There are two distinct situations:
(1) where an inconvertible paper currency circulates alongside a metallic commodity currency, and
(2) where the only currency is an inconvertible paper one.

Marx (like Hilferding and Kautsky) analyses the first and comes to the conclusion that it can work if the right amount of paper currency is issued, ie an amount with a face-value equal to amount of gold or silver that would otherwise circulate. Clearly, in this case, what happens is still governed by the value of the metallic commodity currency (as Kautsky put Hilferding right on).

Marx only incidentally discusses the second, in the footnote on Fullarton you mention and in the passage I quoted, what Fullarton describes as a situation where "all the monetary functions which are usually performed by gold and silver coins, ... [are]... performed ... by a circulation of inconvertible notes having1 no value but that factitious and conventional value they derive from the law" and by Marx as one where "all the conduits of circulation ... [are] ...filled with paper money to the full extent of their capacity for absorbing money". Fullarton argues that in this situation the paper money should be able to provide a stable standard of price "provided only the quantity of issues be kept under due limitation". Marx doubts that this is possible.

Who was right? Both in different ways. Fullarton in saying that in theory a stable price level could be maintained, Marx in saying that in practice it wouldn't be. And of course it hasn't (but capitalism has learned to cope without a stable price level).

I agree that Marx's view about what happens if an inconvertible paper currency circulating alongside a metallic money-commodity is over-issued (inflated), ie that it depreciates, is right. It is this that is the basis for understanding what happens (and has happened) when an inconvertible paper currency circulating on its own is over-issued.

What this means is that the Quantity Theory of Money is valid only for inconvertible paper currency. It is not valid, as Marx following Fullarton and others of the Banking School, for a circulating money-commodity. In this case, it is the other way round: it is the demands of the economy that determine, and call into existence, the amount of gold and/or silver coins it requires, ie that the price level determines the quantity of money in circulation not the other way round.

PS Are you sure that John Weeks isn't a leftwing Ron Paul? From the other stuff of his I've read I don't think he envisages a moneyless society. To the contrary.

• 1. Incidentally somebody needs to tell the MIA people that they've transcribed this wrong as "paying no value"

I'm not interested in his politics. He seems to want a more humane capitalism (that's a phrase he actually uses). But his critique of the neoclassical QTM is still interesting.

There's nothing particularly Marxist about that insight and anyway it's beside the point (you might like the chapter from Irving Fisher's The Purchasing Power of Money: XI. Statistical Verification. General Historical Review ).

I think we're not making progress here alb.

Just to stir the pot!

I think what in fact makes the thing money money is the idea, or at least faith that everyone or most people that you are likely to trade with have a need or use for it.

Or in other words confidence that it has a universal or near universal ‘utility’ and end consumer(s) use value.

Gold or metallic money, or for that matter cattle, sheep, tobacco, wampum (whatever happened to wampum) , slaves and chocolate always inspired faith and confidence that you could always find someone to accept the ‘money’ medium, whatever that might be, or exchange it, for something that you wanted.

You might not want yourself gold or metallic money, cattle, sheep, tobacco, wampum, slaves and chocolate; but as long as you believed there was always someone else who had what you wanted, did, then that was good enough.

Thus if I make a Virginian tobacco and want apples I have to find an apple producer who wants a Virginian tobacco, which ‘might’ be difficult.

Particularly if the apple producers doesn’t smoke and wants some trashy Brummie trinkets and 19th century bling.

However the Virginian apple grower might understand that swapping his apples for tobacco and taking the tobacco to Port Royal on the Rappahannock River might suit his purposes better for attempting to swap his apples for Brummie trinkets with a Yankee trader out of Liverpool who is thinking about the return trip.

Tobacco was used as money in and around Virginia for nearly 200 years and you could say it lasted longer than the gold standard.

They also had ‘tobacco notes’ that was paper tobacco money ‘backed’ by tobacco that was in warehouses or with a certificate of ownership or title deeds to existent tobacco; just like ‘paper gold money’ ‘represented’ existent gold, but was gathering dust and moving nowhere in bank vaults etc.

They didn’t call it ‘gold leaf’ for nothing and it shifted in Europe like Laptops and stolen merchandise from off licences on council sink estates.

The British ran an import-export trade tariff system as regards Europe, and particularly with France, with the British state creaming off ‘surplus exchange value’ of tobacco in France to buy cannons etc.

Ha ha.

[There is though a subtle and important difference however between gold and tobacco as the a money commodity, as with tobacco, is consumed and goes up in smoke, unlike gold which is indestructible.

And Tobacco value is more dependent on labour time value and a bit less susceptible to differential ground rent, particularly in the new world- another issue ]

But there are more imperative demands on our existence than Brummie bling and apples thus from the originator of the labour theory of value Benjamin Franklin, 1817:

Everybody needs to pay taxes including lovers of Brummie bling and apples.

And if in order to pay taxes, and the state insists on it being paid in its own paper tat, then everyone needs and chases after it.*

I think we may be in danger of flattering people too much if we believe that they were overly concerned about whether the medium and ‘commodity’ with which they swapped their labour time for someone else’s had a intrinsic value commensurable with their own.

Especially if you never had any intention of keeping it.

*That only works admittedly within a nation state, on an international scale the ‘Chinese’ and Asian ‘Indians’ don’t need $’s to pay taxes.

But they do need it to pay for oil, at the moment anyway.

jura, could you help me understand the difference between tokens that represent the value of one particular type of commodity (i.e. gold) and tokens that represent the value of any commodity? if all commodities are equivalents for all other commodities, what does it matter?

OK, here's my take on this: The money-commodity is universally recognized as the equivalent form of all other commodities – it can be exchanged for anything anytime, no questions asked. The currency ("medium of circulation", tokens) analyzed by Marx not only represented the value of the money commodity (this relation of representation being the foundation of the purchasing power of the tokens), but was also convertible. In a commodity economy, it makes a big difference to an economic agent whether she can convert a piece of paper she has into a hamburger, or into a universally recognized equivalent form (especially in a crisis).

Of course, the convertibility of national currencies today is a different matter and there's not much I can say about that.

BTW, here's an older thread that deals with some of the points raised here: Was Marx A Monetarist?. I'm just about to re-read it.

If Marx insisted an inconvertible paper money wouldn't work, did he really have the present flux in mind? It's not as if the value of metallic money was fixed. When its quantity increased (or, as Marx was forced to argue, its production required less labor), there was inflation.

Simply put, Marx argued that the increase in circulating gold would be taken care of by the reflux of superfluous gold into hoards (unlike paper notes, gold is suitable for hoarding and can be withdrawn from circulation by certain measures):

In a sense, Marx's theory is an "anti-quantity" one: the price level is not determined by the quantity of currency. On the contrary, the price level determines the quantity of currency. But as you say, the fluctuations in the value (the labor time socially necessary for production) of gold would be reflected in an increase or decrease of the prices of all commodities.

I'm still not convinced by alb's argument that Marx insisted that inconvertible paper money insofar it is used as currency (in circulation) wouldn't work. Here are the passages in question:

And the foontnote on Fullarton:

Whichever way I read it, I always come to the conclusion that what Marx is saying is this:

1. Let's assume that in the function of currency ("medium of circulation"), the money-commodity is fully replaced by inconvertible paper notes issued by the State.

2. Even though these notes are inconvertible, they still represent the money-commodity, gold (see the bits in bold!). Gold is still the measure of value.1

3. It is, however, possible for the State to issue too much of these paper notes, overflowing the needs of circulation.

4. If the quantity of the inconvertible paper notes in circulation exceeds the required quantity of gold that would normally circulate had it not been replaced by paper notes, the circulating paper notes are devalued to correspond to the required amount of gold.

5. This is reflected in a rise of the price level. (Hence, with and only with regard to inconvertible tokens, Marx accepts the quantity theory.)

Marx does not say inconveritble paper notes wouldn't work. He only says they pose potential problems which can lead to "general disrepute" of the paper notes (a crisis) or to inflation. Inflation is itself explained by the laws governing the circulation of the money-commodity.

The footnote on Fullarton is Marx having a go at him. Fullarton thinks that because inconvertible paper notes with "conventional value" derived "from law" can fully replace gold in circulation, gold no longer plays any role as far as money is concerned. But Marx's explanation of inflation disproves this: it is the required amount of the money-commodity (gold) which governs what happens when there are too many paper notes in circulation. This is because the money-commodity remains the measure of values and the standard of prices (functions outside of the sphere of circulation).

• 1. Marx's earlier notes in the Grundrisse make his conception of "inconvertible paper notes" clearer: "Gold and silver in themselves can be said to intervene in the crisis and to aggravate its symptoms in only two ways: (1) When the export of gold is made more difficult by the metal reserve requirements to which the banks are bound; when the measures which the banks therefore undertake against the export of gold react disadvantageously on domestic circulation; (2) When the export of gold becomes necessary because foreign nations will accept capital only in the form of gold and not otherwise.

  Difficulty No. 2 can remain even if difficulty No. 1 is removed. The Bank of England experienced this precisely during the period when it was legally empowered to issue inconvertible notes. These notes declined in relation to gold bullion, but the mint price of gold likewise declined in relation to its bullion price. In relation to the note, gold had become a special kind of commodity. It can be said that the note still remained dependent on gold only to the extent that it nominally represented a certain quantity of gold for which it could not in fact be exchanged. Gold remained its denomination, although it was no longer legally exchangeable for this quantity of gold at the bank.

  There can be hardly a doubt (?) (this is to be examined later and does not directly belong with the subject under discussion) that as long as paper money retains its denomination in gold (i.e. so long as a £5 note for example is the paper representative of 5 sovereigns), the convertibility of the note into gold remains its economic law, whether this law also exists politically or not. [...]" See Grundrisse, "The Chapter on Money"

Let me clarify what I meant by "wouldn't work" and what I meant wouldn't work.

All the quotes you give, Jura, are Marx's analysis of what happens when there is a currency composed of both inconvertible paper money and gold and/or silver coins, which was the situation which existed in some countries in his day, for instance in Prussia and Austria (in other countries such as Britain, it was gold and/or silver and paper notes convertible on demand into a fixed amount of gold or silver). Under these circumstances, Marx argued, if more of an inconvertible paper currency was issued than the amount of gold (or silver, the money-commodity in both Prussia and Austria) that would otherwise circulate, the workings of the economy would bring about the depreciation of that currency vis-à-vis the money-commodity (this wouldn't necessarily lead to a rise in the general price level as this would still govern the amount of gold or silver in circulation; it would just be that the paper currency would buy less than its face-value).

The situation I am talking about, and which I said Marx thought "wouldn't work", is where the only currency is an inconvertible paper money -- which is the situation in most countries today. and which did not exist anywhere in Marx's day. For Marx, therefore, it was just a hypothesis. When I said that Marx thought it wouldn't work what I mean was not that he didn't think it could come into existence but that , if it did, it would not be able (or find it extremely difficult) to maintain a stable price level.

In analysing the situation in his day Marx concluded that there would always be a minimum demand for currency. This minimum could be safely replaced by an inconvertible paper currency with a total face-value equal to the amount of gold or silver that represented the minimum. Above this minimum the economy's need for currency went up or down depending on the number of commodities to circulate and their prices (eg up in a boom and down in a slump) and would call into being or caused to be withdrawn from circulation the surplus or deficit of gold or silver coins (which would either be melted down into bullion or minted from bullion into new coins, as the case may be).

The reason Marx thought that a currency composed entirely of paper notes "wouldn't work" was that it wouldn't be able to cope with these fluctuations over the minimum. He thought there would be no mechanism for withdrawing or printing extra notes as required by the economy. The result would be that there would be no stable standard of price, ie the price level would fluctuate up and down (up, if too much paper currency was circulating). Marx doesn't discuss this in too much detail as in his day a currency composed entirely of paper notes was only a hypothesis, but here is a passage in which he does discuss it (part of which I quoted earlier):

It is clear that Marx thought that it was unlikely that "all the conduits of circulation" would in fact be filled by paper money to the exclusion of gold or silver coins, but that if they were there would not be a stable price level (a stable standard of price).

This situation has now come about and, though in theory a government or a central bank could calculate the right amount of paper money to circulate so as to maintain a stable price level, none have in practice, In practice they have always issued more than enough, the result being a rise in the general price level which has gone on continuously for a couple of generations now. Most governments in fact aim, not for a stable price level, but for the general price level to rise 2 or 3 percent a year (but often over- or under-shoot this).

You could argue (and I think this is what Jura and Noa are trying to do) that the "right" amount of paper currency to issue today to maintain a stable price level is the amount of gold that would need to circulate to maintain this. But since gold is not coined (and melted down into bullion or minted back into coins, as the economy requires) this is an entirely artificial and difficult (and in the end pointless) calculation. In fact, I doubt if it can be done.

Alb, we are quoting the same passage. Just after Marx says "There would no longer be any standard [Maß]", he says:

i.e. he is explaining inflation by the relation of inconvertible paper notes to the money-commodity which acts as a measure of value. The price level rises because there are more notes than there would have been coins if gold would circulate.

This is becoming rather Talmudic. I see the part that I emphasised of the paragraph we are both quoting as being an aside, dealing with the (hypothetical) situation of the currency being made up entirely of inconvertible paper money, in a paragraph devoted to explaining what happens when an inconvertible paper currency circulates alongside gold or silver coins (a situation which actually existed in his day in Prussia and Austria).

Actually, I don't think Marx was saying that, with both types of currency circulating, if too much of the paper currency was issued the result would be a rise in the general price level. As this would still set the amount of gold or silver needed by the economy in the absence of any paper money, what would more likely happen is that the paper currency would exchange below its face-value. I think this is what Marx is actually saying in the passage you quote from the chapter on money in the Grundrisse where he is discussing the Prussian paper thaler in relation to actual silver thaler.

I do agree, however, (and this brings the discussion back from monetary systems in 19th century central Europe) that the general price level would rise if the only currency is inconvertible paper money (the situation today) and it is over-issued (in relation to what the economy requires and for there to be a stable price level). This is why I said that this section of Marx's chapter on money in Capital does provide the basis for analysing the present money system, including the non-stop inflation that has been going on.

The point is, as Bellofiore puts it, that money must represent value in its natural form; the amount of (directly social) labour. It has value even before entering circulation.

Your question about calculating what the value is of money today can be raised about any commodity; do you know the value of hamburgers? No? well then, they can't have value. Or, perhaps you could calculate it, but it would be pointless, right?

About a standard of price. Oil is priced in dollars, but it could be put in any other currency, and I don't think there is a technical problem of putting it in ounces of gold (why would it have to be coined?). I think you confuse this with the issue of a stable price level. You get the price level of a currency by comparing to one another, so instead of looking how much euros/yen/etc. one dollar is worth, what's the difference with comparing a dollar to ounces of gold?

Yes, I agree, to continue to be a measure of value and a standard of price gold would not have to be coined, as it wasn't under the Gold Exchange Standard. But the currency that was directly linked to gold would still have to be linked to a fixed amount of gold.

The exchange value of a given weight of gold can of course be expressed in dollars, but is this really the same as saying that a dollar is a substitute in circulation for that amount of gold. As somebody has already pointed out, why gold? Why not hamburgers? More seriously, why not silver?

Or to ounces of silver or quantities of any other commodity.

You still haven't made out a case for saying that gold and its cost of production have any influence today on the general price level as ought to be the case if gold was still the money-commodity.

I was careful enough to not make that argument.

This brings up a related debate in which Kautsky opposed Varga who claimed that gold production didn't affect prices. It's an even more complicated issue, but I'm glad you take Kautsky's side. Apparently you also agree with him that gold functioned as measure of value, but you don't explain why that no longer holds in a situation without gold standard.

Yes, I think Kautsky was right on this issue (I imagine Varga's argument was based on the fact that at the time paper notes in the main capitalist countries were convertible into a fixed amount of gold, which remained fixed even if the value of gold changed?). If the value of gold goes down (through increased productivity) then, with a gold standard, the general price level will go up. This was Kautsky's and Lafargue's explanation for the rise in the general price level in the period up to WWI. The fact that variations in the value of gold today have no apparent influence on the general price level in countries is in fact one reason for doubting that it can usefully regarded as still being the money-commodity.

In the meantime I have read that article by John Weeks recommended by Jura. I must say it's a pleasure to read something on this subject in clear, plain English (why can't the Bellofiores of this world write simply even in their own language?). I don't think I agree with him but he does bring out what the issues are.

Weeks starts off by saying:

He then goes on to show why in his view modern versions of the old Quantity Theory of Money are unable to do this (I think because they have no theory as to what could be an objective standard of price or "nominal anchor" as he calls it)).

He produces a table showing that between 1947-69 when the US dollar was linked to a fixed price of gold there is a correlation between the increase in the productivity of gold and a parallel increase in the general price level (which is what you'd expect under the Gold Exchange Standard). This doesn't hold for the period 1970-87 which he explains as this being a period of monetary turmoil following the abandoning of the Gold Exchange Standard. For the period 1987-2008 his graph shows that once again the general price level increased at the same rate as the productivity of gold.

He is careful, however, not to conclude that this means that gold was the money-commodity during the last two periods, but only that this suggests that this is a credible hypothesis worth exploring:

He goes on:

Important issues indeed, which have yet to be resolved. And why I have been asking Noa for his explanation of the post-war inflation, in all countries not just the US.

I see that I have being agreeing with Fred Moseley. So no need to re-invent the wheel. Just read the first seven pages and the conclusion (from page 16) of this

Given the difficulties I have with formatting and layout etc, but people will understand hopefully.

If we go back to the original form we have-:

20 yards of linen =

1 coat =

10 lbs of tea =

40 lbs of coffee =

1 quarter of corn = {2 ounces of gold}

2 ounces of gold =

½ a ton of iron =

10 hamburgers =

x Commodity A =

What we have here is the law of value in that all items are =, because they have at any one point in time the same amount of labour time embodied in them.

Actually that formulation undergoes a subtle ‘exchange value’ transformation with the introduction of ‘gold money’ or coin as opposed to just ‘gold’.

20 yards of linen =

1 coat =

10 lbs of tea =

40 lbs of coffee =

1 quarter of corn = {2 ounces of gold money}

2 ounces of gold =

½ a ton of iron =

10 hamburgers =

x Commodity A =

(It might seem spurious to say that 2 ounces of gold = 2 ounces of gold money, but in fact it isn’t always as from observation in the past, 2 ounces of gold does not always exchange for 2 ounces of gold money.)

That is further transformed into modern reality to the ‘exchange value’ relation where the 2 ounces of gold (money) was substituted for “$70” of paper money ;

20 yards of linen =

1 coat =

10 lbs of tea =

40 lbs of coffee =

1 quarter of corn = {“$70” of paper money}

2 ounces of gold =

½ a ton of iron =

10 hamburgers =

x Commodity A =

And then gold has it special place taken away from it and it becomes an ordinary commodity like all the rest eg hamburgers.

When looked at like that then it becomes entirely arbitrary and logically spurious to focus on the pegging of the exchange value of the dollar in terms of gold;

or the;

2 ounces of gold = $70 of paper money bit

As long as, to keep things simple to start of with, it is given that all the items on the left hand side have the same amount of labour time embodied in them.

Then the “$70” is being pegged to a particular quantum of labour time or value.

In fact if you did peg the “$70” of paper money to 10 hamburgers instead; the pegging of the “$70” of paper money to the 2 ounces of gold would ‘look after itself’ so to speak.

And vice versa.

If we stuck with the same quantum of labour time or value and the SNLT values all the commodities change due the vagaries of the productivity of labour required to produce each commodity we could have;

50 yards of linen =

1 coat =

5 lbs of tea =

10 lbs of coffee =

15 quarter of corn = {“$70” of paper money}

1 ounce of gold =

3 a ton of iron =

15 hamburgers =

x Commodity A =

Actually that starts to look like a consumer price index, not that gold figures much in the shopping basket of your average western worker and not at all in the US from 1933-1971.

Where the “$70” of paper money is pegged to labour time and value of [all] commodities.

Actually it is a neat system and better than having gold money or money pegged to gold. Because with gold and money pegged to gold, the amount of labour time that the money unit can buy can vary with the variation in the amount of labour time it takes to make gold.

Having paper money and varying its quantity at least potentially gives you more ability to regulate the exchange value of the money to real value, or labour time.

It is also cheaper.

Gold when it is also money has two use values, one as gold for jewellery.

And as a medium of exchange.

When people were buying and selling using gold it was the utility of gold as a medium of further exchange that they desired.

The problem with this, I think, would be that you can't have the same values on both sides. Marx's argument in the section on the value-form was that to express the value of a commodity (or of all commodities), you need another commodity. But if "$70" is just a a representation of the values of all other commodities, then you get the same thing on both sides of the expression (only by proxy of the dollar symbol):

1 hamburger = $3

is no different than

1 hamburger = 1 hamburger

or

$3 = $3

But:

Again, I'm not saying this is not how things really are, just trying to show how deeply the money-commodity is embedded in Marx's analysis right from Ch1.

If I remember correctly Stephan Krüger does provide an explanation for the German mark (and the Euro). If you read German, I can scan some material by him.

I'm glad you liked the article by Weeks, BTW.

Obviously there are other factors besides gold production. In 1913 Kautsky wrote: