The measure of value under paper money currency – Wolf Motylev

appeared in Pod Znamenem Marksizma (Under the Banner of Marxism), 1922, no.11-12, 164-70 p. This article followed on Kautsky's 'Gold, Paper Currency and Commodity', which Motylev translated into Russian.

Submitted by Noa Rodman on January 19, 2012

The question about the measure of value in a paper-money currency caused and causes disagreements not only among bourgeois economists, but among Marxists as well. If, however, in the pre-war time among Marxists there was absolute dominion, and among bourgeois economists – very widespread recognition of gold as measure of value even under pure paper-money currency, - then the appearance of paper currency from the time of the war and after it caused a row of doubt in the correctness of this view. In a significant number of countries protracted paper-money currency almost completely replaced gold from the domain of circulation. Paper moneys, for all their deficiencies, appear already a whole number of years the sole real-tangible moneys. The price of commodities is expressed with paper money and appears for immediate perception as the link between commodities and paper money. The link between paper money and gold has broken down and paper money for a protracted period developed independence. All this creates the idea, that the sole real measure of value is paper money itself without any dependence on gold.
If, however, gold as measure of value is rejected, and paper money itself is recognized for it, then necessarily the question is authorized, what determines the value of that measure of value, - of paper money. It's obvious, that, with gold's rejection, one has to look for an answer in the comparison of the amount of issued money with the aggregate value of circulating goods. Another way out of this difficult position would, obviously, be impossible. And, indeed, an answer to the question one tried to find in this direction. Among the camp of Marxist youth because of this the theory of ''socially necessary circulation value'' of Hilferding enjoys success, giving a visible answer and moreover– an appearance of harmony with the economic conception of Marxism. As concerns bourgeois Russian scientists, every theory constructed by them, the analogical “conjuncture'' theory of Tugan-Baranovsky 1 , or the ''functionality'' theory of Nikolsky 2 , asserts, that the standard of value is paper money itself without any dependence on gold.
Let's look at such an attempt of a ''new'' solution to the problem in the latest course on the theory of money by prof. Z.S. Katzenelenbaum 3 , substantiating his point of view in connection to the contemporary paper-money currency in Russia.
Indicating, that for Marx paper money is ''symbolic value'' and ''representative gold'', prof. Katzenelenbaum writes:
''It's easy to observe the tension in these expositions of Marx. From that point of view, e.g., it would be necessary to think, that in 1919 paper money because it could circulate in Russia, that it continued to serve as ''representative gold'', and even more than this, but precisely, that these 55 billion rubles, which figured in circulation on January 1st 1919 ''represented'' some determined amount of gold. Taking into account, that the population, operating with paper money in Russia in 1919, already had nearly forgotten, how gold coins look, then one can hardly think these coins as the basis, on which was built the currency of paper money at that time'' (p. 138).
Prof. Katzenelenbaum indicates, that in Marx there is, however, another explanation of the nature of the value of paper money, far more acceptable.
''At the same time as gold, - says Marx in ''Zur kritik'': - circulates, because it has value, paper money has value, because it circulates''. Even more determined he states about this later in ''Capital''4 . Having put the question: ''why gold is capable of being replaced by simple tokens that have no value'', Marx arrives at the answer, that this is possible because the ''functional existence'' of money ''absorbs, so to say, its material existence'', and that within the inner sphere of circulation paper money can ''carry an existence, externally (/transient) independent (/isolated) of its metallic substance, with an exclusive function'' (p. 35).
Z.S. Katzenelenbaum thinks, that ''functional theory does not fit with the superimposed above views about the ''representative'' character of paper money''.
Appearing on the side of the purely functional theory of money, Z.S. Katzenelenbaum formulates and substantiates it in the following way.
''Money gets its value... from the labour which is carried out in the economy... has no substantial, but a functional value. Money presents by itself a useful commodity, useful, precisely, as money. At the same time it is by itself a good, limited in its amount... The issued money is limited in that they can be issued only by a defined institute, empowered to this by the government and in a limited amount. Usefulness and rarity – two qualities, which are quite enough for the thing to have value. From this result its value and money... The value of money arises in the sphere of money circulation, and not outside of it'' (p. 34).
It's enough to consider the content of the above passages, for it be clear, that between the point of view of prof. Katzenelenbaum and Hilferding there are elements of similarity. As in Hilferding, - prof. Katzenelenbaum thinks redundant the ''detour'' for the explanation of the value of money through gold, as in Hilferding, - prof. Katzenelenbaum thinks, that the value of paper money is determined by the direct ratio of aggregate money to the mass of commodities.
All this gives the article of Kautsky, the most dedicated critic of the theory of money of Hilferding, - its burning and contemporary character.
Kautsky's critique, owing to its clear and solid analysis, - proves to be directed against every attempt to determine the value of paper money independently of gold.
The fundamental error of all attempts lies in the confusion between value and price. The price of commodities is the expression in money of its value. But it's clear, that this expression determines not only the value of commodities, but also determines the value of money itself. Therefore paper money in its entire origin is just a token, substitute, representative of gold money. It enters the circulation process with a determined value – the value of the same gold coin.
And only because of this they can measure the value of commodities.
Is the introduction possible under capitalism of new, completely independent of gold paper signs with arbitrary designation? It's obvious that such a possibility at bottom rejects the mechanism of capitalist economy, missing in money – namely, commodities.
But even if we ignore this, then such money signs are impossible if only because, - not one commodity-owner would know, to how many tokens his commodity corresponds, and the government would not have any criteria for clarifying the amount of tokens, to be issued.
Indeed the socially-necessary minimum circulation about which Hilferding speaks, - under capitalism is not pliable to calculation in labour hours. It's obvious that, only by the establishment of this ''minimum circulation'' in a sort of gold currency and an equally determined token to a determined amount of gold, the government could determine the amount subject of issued tokens; the individual commodity-owners only under this condition – could establish the value of his commodity. The entry into circulation of paper tokens independent of gold with a random designation - is an explicit utopia. But this means after all, that the theory of paper money circulation can not at all abstract from the fact, that paper money is determined by gold, that the pure functional theory of prof. Katzenelenbaum and the abstracting from gold theory of Hilferding in fact silently proceed with the value of gold for the paper money entering into circulation.
All this is brilliantly confirmed by the experiment introducing new paper money in Lithuania in 1921. The government decided to release it by a arbitrarily named "litas". Could it, however, dispense without establishing the gold value of the "litas"? Obviously, - no. And, indeed, it was established, that 10 "litas'' equal one dollar.
Only thus measured value of the ''litas'' in gold gave the possibility to transform them in money. In the opposite case they could not even enter into circulation.
Hilferding, as well as prof. Katzenelenbaum believe, that the historical origin of paper money from metal money does not matter for the theory of the value of paper money. The fact of paper money beginning from gold does not show, in their opinion, that the measure of value is gold, and not paper money.
It's completely indisputable, of course, that the real, outwardly perceptible measure of value of commodities under paper money currency is paper money. However, why can they perform this function? Only because they themselves earlier were measured in gold! Paper money as measure of value, has, so to say, a gold nature. The measure of value, is not paper money as token, but paper money as representative of gold. Thus, the fact of their origin from metal money determines wholly the ''representativity'' of their nature!..
The fact that excessive issuance under paper money or under changing factors of conjuncture the value of paper money is given independently from gold, that, consequently, there exists an immediate interaction between the value of the mass of commodities and the height of the value of paper money, - in no way refutes the delineated viewpoint. For the changing correlation between the value of the mass of commodities and the amount of money to reflect the course of paper money, it is necessary, that they for this are measured in gold and have ''gold value''. In this way gold continues also in this case to be the measure of value, in as much as the nature of paper money, as measure of value – is gold. And the further money currency goes in its fall from gold, the worse for it, - the more negative its influence on the national economy, the more likely the possibility of its collapse.
Let's return now to the reasoning of prof. Katzenelenbaum. Did gold continue to be the measure of value in 1919? Without a doubt it continued, because the circulation of paper money was measured itself in gold and continued to be the ''representative'' of gold. Which gold? That which established paper money's value under its entry first into circulation, the place in which it circulated at any given moment, with the measuring nature which it received. That gold transformed into a mental standard, but its real ''representative'' is paper money. Regardless of whether the population recalls it, ''how gold coins look'', - paper money continues to be ''representative'' gold.
What, however, meaning does Marx's exposition have about 'the 'functional existence'' of money, and would it really not fit with the view of the ''representative'' character of paper money? - Prof. Katzenelenbaum simply did not understand Marx! For the theory of money Marx divides characteristically the individual functions of money and researches the nature of every function. With his exposition about ''functional existence'' of paper money Marx wants to clearly emphasize, that paper money springs from its money function as means of circulation. Paper money, - Marx says, - has value, because it circulates''. This means, that the spring of paper money arises from money's function as means of circulation. But, Marx emphasizes, it leads an existence only ''externally (our italics) independent of its metallic substance''. In reality, meaning, its existence is not independent of its metal substance and the function of measure of value continues to be performed by the measure of its gold, the ''representative'' of which it also is. For the thought of Marx gold ''can be substituted by simple tokens that have no value'' wholly and fully only in the function of means of circulation. In the function of measure of value it is, under this, entirely the representative measure of its gold.
In this way, this exposition of Marx only emphasizes the independent ''functional existence'' of paper money in the function of means of circulation, and its ''representative'' character in the function of measure of value.
Let's return now to the examination, in light of Marx's theory of money, of one of the burning contemporary problems, the problem of creating a steadfast value meter, having very direct relation to our theme. This question called forth, as is known, animated and fruitful discussion in the pages of ''Pravda'', ''Economic life'' and ''Trade-industry journal'' and, besides these, lively debates in circles of economists and statisticians. The pressing moment of the discussion of this can be considered on the fundamentals as finished. Wherein lies the essence of the problem? It is in the task of finding a steadfast and stable (although relative) value meter, in which one could under unsteady oscillations of paper currency carry out the calculation of price and in general all practical estimations, and also computation of general-economic significance. As is known, the struggle went between advocates of a ''commodity'' ruble and a real gold ruble.
First of all, it's necessary to note, that the very fact of posing the question about a stable value meter is a corroboration of Marx's theory of money. Because he proves, that, the more the course of paper ruble falls in comparison to the same gold coins, the less gold value it proves to be and the weaker it manifests them, - the less fit paper money is for carrying out the function of measure of value, because it represents gold to a lesser degree. Not less important for our theme is to note, that ''commodity'' ruble represents by itself, in substance, the pre-war gold ruble. The commodity index, which is the basis of the commodity ruble, represents by itself nothing other, as a number, indicating, how many times present prices have risen of the determined group of commodities, taken up in the basic calculation index, - in comparison to the prices of this same groups of commodities before the war. But pre-war price of commodities is their value, expressed in gold. Consequently, we boil down the price of commodities, expressed in contemporary paper money, to the amount of pre-war gold it represents. All this confirms, that paper money is the measure of value only as representative of gold.
But supporters of the universal applicability of the ''commodity'' ruble tolerate one error, which is reflected in their valuation of the scope of its applicability. They tacitly assume that the commodities have not changed in their value compared to 1913. Only such an assumption allows them to equate today's prices to the pre-war prices. Meanwhile, it is clear that production costs, the value of goods has really risen so much, that present prices and pre-war prices, regardless of their accurate expression, are not at all equal. That's why when calculating prices with commodity rubles of pre-war prices one should use great care, correcting them with improving coefficients, using specific indices of the given branch of industry. If we also take into account, that indices, as the most important statistics, must inevitably lag and, thus, depend on the method of their calculation, then it becomes clear that the "commodity ruble" should not at all and can not have universal applicability as hard value meter. It can be used in the best case only as an indicative quantity-value; it is certainly a method in computation, counting for a period.
As for stable measurement, then, the more suitable for this at present is real gold. Absolute value measure it can not yet be and only very slowly will approach such. But it appears already comparatively a more stable measurement. The race of the course of gold ruble, has a shielding place, it unlikely could lose such a dimension. In consequence of its significance, as world money, ease of transportation and storage, qualitative uniformity- and so on - gold has an incontestable chance to acquire earlier than other commodities a uniform rate for all-Russian standard, evolving completely naturally. If one adds, that the course of gold yields regulatory measures for monetary policy, then the real benefits of the corporality of a gold ruble before a statistical [list of] commodities – becomes obvious.
The more use of the real course of gold for establishing market price and any current commercial payments, because of its course, reflecting the change of market conjuncture, the quicker reaction to this change is made possible.
All said applies also for bank notes, as well as for authorized representatives of real gold.
At the same time follows, however, to forget that the most real for the time being nonetheless is the price in paper rubles. As long as gold doesn't become a means of circulation, as long as it remains a commodity, buyers use paper money in relation to commodities and their course in relation to gold cannot fully coincide. Therefore for some operations, demanding exact and full depiction of the real market price (calculated cost price etc.), should be used real contemporary prices in paper money.
Let's resume. Contemporary paper money continues to have for the reasons set out above the value of gold. But precisely because of the fact that it [value of gold] already appears weakly in it [paper money], the need emerges for additional and auxiliary ''rubles''. All this only confirms the correctness of Marx's theory of money.

  • 1Tugan-Baranovsky: ''Paper money and metal'' (1917)
  • 2Nikol'skij: ''Paper money in Russia'' (1892)
  • 3Katzenelenbaum: ''Study on money and credit'', part 1. Published 1921.
  • 4 The last sentence I didn't find and is difficult to translate exactly; it seems to be a paraphrase. Footnotes on Fullarton and Barbon are what this article takes contention with.


Noa Rodman

12 years ago

In reply to by

Submitted by Noa Rodman on March 4, 2012

Sorry about the errors in my translation. One big:

But it's clear, that this expression determines not only the value of commodities, but also determines the value of money itself.

should read: "this expression presupposes not only a determined value of commodities, but also a determined value of money itself."

And a slight improvement on one of the many garbled passages:

The fact that by excessive issuance of paper money or by changing factors of conjuncture, the value of paper money falls independently from gold, that, consequently, there exists an immediate interaction between the value of the mass of commodities and the height of the value of paper money, - in no way refutes the delineated viewpoint.

The text in Russian is found here:

The file also contains the original texts to V. Poznjakov's Hilferding or Marx? (Towards a critique of Hilferding's theory of money (which goes more into detail) and Isaak Dashkovskij's Abstract labour and the economic categories of Marx, etc.