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... int of crisis, either in the relations of two agents or in the system as a whole. The question of what role, if any, gold plays in a monetary system would remain open to examination in concrete instances. Whichever of these two paths we follow, we are left with the problem of understanding what dynamic laws govern the value of money. If gold is the general equivalent, but the value of money can vary within quite wide boundaries given the value of gold, then we will want to know what governs where within those boundaries the value of money settles. If gold appears only as a last resort within a system of promises to pay value, then we particularly need to know what processes govern the motion of the value of money itself.
The answer to these questions, in the case of well- developed capitalist systems of production, lies in the analysis of the reproduction and accumulation of capital itself. The value of money varies as the prices of produced commodities rise and fall. Pricing of commodities, in turn, is one of the central strategic decisions of capitalist firms. The overall value of money in a capitalist system of production depends, of course, not on the decisions of any one capitalist firm, but on the average of the decisions that all of them make concerning pricing.
This average pricing decision is fundamentally influenced by the ease or difficulty capital on average has in selling its commodities. A natural measure of this difficulty is the time of turnover of commodity capital, the length of tine on average that finished commodities must wait to be sold. If this turnover time is large, capitals are having a hard time selling commodities, and we would expect prices to rise moderately or to fall. If this turnover time is quite short, capital will see very little obstacle to raising prices and thus lowering the value of money.
From this point of view the problem of the value of money is linked closely to the dynamics of production and accumulation in a capitalist system, and to the factors which produce booms and crises. The value of money is determined in the first instance by the particular historical path of accumulation capital has followed; periods of high demand will lead to a fall in the value of money through capitalist fires increasing prices, while crises will tend to put downward pressure on the value of money. If such changes in the value of money come into contradiction with vestigial links between a money commodity and the monetary system, this type of explanation must be modified to take account of the specific action of those links. In the late twentieth century the system has usually adapted by weakening even further the links between money and the vestigial money commodity Some Applications of the Theory Let us look at the way Marx's theory of money functions to provide explanations of important monetary phenomena. We can begin with the general equivalent theory, and look at the monetary problems of nineteenth century capitalism.
In this case, gold functions as the general equivalent commodity, and quantities of gold express abstract labor time. Marx shows (In the third chapter of Volume I of Capital, and In the Critique of Political Economy) that the general equivalent theory is capable of resolving all the major problems of monetary theory that were being debated In mid- nineteenth century economics. First, Marx argues, the value of gold is determined by Its conditions of production, just like the value of any other commodity. (If we wish, we could say equally accurately "by its price of production. ") One whole class of monetary phenomena consists merely of the appearance of reliable substitutes for gold, reliable In the sense that a well- accepted social process exists for turning the substitute into gold at a guaranteed rate of exchange. All these cases Marx analyzes by referring to the value of gold as the ultimate regulator of the value of its substitutes - - banknotes, small coins of silver and copper, and so on. The quantity of these substitutes plays no role in determining their value as long as their convertibility into gold is assured; they must move up and down in value with gold.
The issuance of these substitutes Is regulated by the possibility of convertibility, since an overissue will return to the issuer in the form of a demand to redeem the substitute in gold. Nineteenth- century monetary theorists sometimes confused the problem of the value of money with that of the standard of price, the names that are adopted for specific quantities of gold. Marx treats this as purely a matter of social convention regulated by the state. A "pound" or "franc" is, at any one moment, a certain quantity of gold.
A change in the standard of price through the debasement of the currency will have no effect on the value of gold or the value of money as such; its only real effect will be to redistribute value away from those agents who continue for some time to accept the debased coins at their old gold value. The only disturbing factor in this transparent account is a somewhat murky discussion of the problem of the circulation of old, worn coins, whose gold content falls significantly short of their face value. Here I find Marx confusing, because he does not give a clear account of what institutional mechanisms bind the conventional standard of price to a certain quantity of gold. A group of worn coins whose face value is $ 10 will exchange at a discount against gold proportional to their loss of substance.
But if, as was often the case, they circulate and are generally accepted at face value do we want to call this de facto debasement? Or does this question point to the existence of an important set of mediations between the value of money and the value of gold? I think the latter is the case. In fact, the relations between gold and currency values were, under gold standard institutions, regulated in two ways: by the minting of new coinage at the stated price (so many dollars from so many ounces of gold), and by the melting of coin into bullion for export. The minting of gold is functionally equivalent to its import.
These activities took place only if the market exchange ratios between national moneys and gold were sufficiently favorable in one direction or the other. This raises a serious problem, however, for the theory that currency is nothing more than the representative of a certain quantity of gold. There were always some limits within which the "dollar" or the "pound" could fluctuate in value relative to gold. What laws governed these movements?
The general equivalent theory in the form Marx presents it does not explicitly answer this question. A second group of questions which troubled early- nineteenth- century monetary theorists concerns the laws which govern the depreciation, usually in times of war. of inconvertible paper money issued by the state. Examples of this phenomenon Include the depreciation's of the greenback dollar in the United States during the Civil War, and of the paper pound issued by the British during the Napoleonic wars. Ricardo and later quantity theorists used this phenomenon of depreciation as a strong argument for their thesis that the value of money depends on its quantity. For these writers the depreciation of paper money was just a particular example of the tendency for any form of money to depreciate when its quantity becomes larger relative to the needs of circulation.
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Research essay sample on Marx Theory Of Money
