Schrödinger’s Capital: Is Marxism now a variant of anarcho-capitalism?

by Jehu

NOTE 6: Why did the gold standard collapse?

In 2003, Chris Arthur wrote a paper which if valid has staggering implications for labor theory. The topic of the paper was one question facing labor theorists: Was Marx correct to insist money had to be a commodity?

The implication of the question is staggering, because, since 1971, the international currency system is not tied to any commodity. The system is a collection of valueless currencies not backed by any commodity that float against each other. All Marxists agree Marx himself held that in the final analysis money had to be a commodity. If this is true, something with huge implications for labor theory of value occurred in 1971 — something so huge no labor theorist can ignore it.

The statement above requires a significant caveat: Marx did not believe only a commodity could serve in the various functions of money. Some functions, like means of payment or means of exchange, did not require a commodity and could work with only a symbolic money.

A good example of this is the oft posed question, “What buys groceries?” Marx argued the function of money in this role — means of exchange — could be filled by a simple valueless token, state issued currency. Other functions, however, required commodity money to be immediately present in its full bodily manifestation. Examples of this are a hoard of gold and the settling of accounts between countries. A hoard of gold is money in the full sense of the term, argued Marx. It is money at rest, rather than in circulation.

Thus Marx makes a distinction that it is always important to recognize: In circulation, the function of money could be filled by a symbolic token of itself; however, at rest, congealed in a hoard, money had to be money in the full sense of that term; it had to be a commodity. This view contains a surprising idea that is often overlooked: Money is only really money when it is money in its full sense — i.e., a commodity outside circulation sitting lifelessly in a hoard of bullion.

So, to be precise, according to Marx, in circulation money could be symbol of itself — e.g., a paper currency — but when it fell out of circulation and came to rest money had to be a commodity. Or, to make this less mysterious: a valueless currency could serve as money so long as the token remains in circulation. Once the money fell out of circulation, money was then required to be a commodity.

To be sure, Marx was not establishing an arbitrary set of ideal rules here about what money should or should not be. He was simply describing the way money worked based on the best evidence of his time.

In reality money is almost never a commodity

Thus, although Marx insisted money had to be a commodity, he explained that for almost all the actual functions of money we normally encounter, it did not have to be a commodity. Paper was just fine, even required.

Obviously, credit money (money as means of payment) never was a commodity, since the buyer is buying on credit. It’s existence is purely notional or symbolic in the situation — it is “future money”. The money does not exist and clearly cannot take the form of a commodity that does.

Similarly, in circulation, serving as means of exchange, money only makes its appearance briefly in the context of a transaction. The money appears in circulation to consummate the transaction and is almost immediately withdrawn again. These flashes of money can be filled by symbolic tokens that are themselves valueless, subject to certain definite limits that Marx defined.

Now, if you been following my discussion here, it should be obvious the reality is that for almost all of its functions money almost never appears in its commodity form in the economy. Once you take away hoards and international settlements, no one really has any need for gold or silver. The entire economy can operate quite efficiently with only a paper symbol of money.

To put this another way: Marx can be interpreted as saying money almost never has to be a commodity — uh, that is except when it absolutely has to be. For instance, when Britain has frigates in your harbor, her majesty is not looking for paper tokens. (You can bet on that shit.) Also, when money falls out of circulation — when there is a crisis or a panic — the last thing your creditors want from you is an IOU. (This is the origin of the phrase, “Bitch better have my money!”) Despite the critical role credit money plays in a capitalist economy, no one in the middle of a financial crisis wants an IOU from you or anyone else.

So, to be absolutely clear on this point: Marx thought money had to be a commodity, except in almost 99% of the time, when it did not. However, that 1% of the time when money had to be a commodity, it “really really really” had to be a commodity.

Money versus capital

There is another implication seldom mentioned by folks who talk about the role, substance and functions of money. Money works exactly opposite of capital: while money can only be money at rest, capital can only be capital in circulation.

With the two categories inhabiting different worlds, it is obvious their bodily forms differ as well. While money is solid and fixed — typically bullion —  money capital is ephemeral and active — typically credit.

There is a lot of confusion that money is the same as money capital, although nothing can be further from the truth. Money in its full sense is a dead hoard of gold, a death sentence for capital. No capitalist can make a profit if their capital is laying in a hoard in a safe. Although capital begins and ends with money, money is not the truth of capital, circulation is its only truth. In a crisis, capital suddenly stops circulating and turns into money — this is a catastrophe for capital.

I like to think of it this way:

“Capital hates money almost as much as it hates labor.”

Some think capitalists love money, but this is absolutely not true: the capitalist do not love money, they love MORE money, i.e., accumulation. You cannot accumulate MORE money if your money is sitting idle in a safe in Zurich. While it is true labor theory holds that the movement of capital begins and ends with money, only the movement is what matters here, not its beginning and ending.

Why did the gold standard collapse?

I say all of this to establish some context for Arthur’s 2003 paper.

Arthur’s paper made a rather startling assertion against Marx’s theory of money: Contrary to Marx, money did not have to be a commodity. According to Arthur, money was not superficial expression of economic relation in the capitalist mode of production, it is its essence.

We have seen above that in almost all cases, money is actually represented by a symbol of itself in the economy. If we took this fact as the standard case, we could conclude Arthur did not really differ with Marx. However, Arthur is not so dumb: he knew he was refuting Marx with his assertion.

And Arthur was forced to refute Marx because of a singular event: the ending of the international gold standard in 1971. According to some Marxists, if capitalism continued even after the collapse of the gold standard in 1971, clearly Marx had to be wrong. What could explain this? How could Marx botch such a basic category of capital? This was the central topic of the conference where Arthur delivered his 2003 paper.

“Money”, argued Arthur, “is the social form within which production for exchange gains validity.”

This argument had clear implications for labor theory. As can be seen from my review of Marx’s argument on money, Marx’s theory predicts a commodity money is required in two situations: First, money must be a commodity when it comes to rest in a hoard. Second, a commodity money is essential to settle balances between nations. Since 1971, commodity money has clearly not served in the second function.

In its place is a system where the currencies of the various countries float against one another or maintain   some official or unofficial peg to another currency — usually the dollar or the euro. These currencies have no value of their own, nor are they pegged to a commodity possessing value.

So was Marx right or not?

Just to be clear, there is no binary choice here; it is not as though Marx had to be right or not. I can think of at least four different conclusions we could come to:

  1. Marx could be wrong and this system of floating currencies is money.
  2. Marx could be wrong and this system of floating currencies is still not money, for some other reason we do not understand.
  3. Marx could be right and this system is not money.
  4. Marx could be right for his own time, but the system is still money because something in the functions of money has changed.

In his 2003 paper, Arthur chose to argue in favor of option 1: Marx was wrong and had always been wrong. He based this conclusion on the argument cited above that production on the basis of exchange value required money, because this is the only way value becomes universally valid in a community of commodity producers.

This is an argument that strikes me as very odd precisely because it just so happens Marx also predicted the collapse of production on the basis of exchange value.

Apparently it never occurred to Arthur that if Marx was correct in his prediction the production on the basis of exchange value would collapse, this just might result in a money that no longer had any value, that was not a commodity.

At least Arthur never addresses this entirely plausible possibility in his 2003 paper. Arthur simply ignores the possibility that with collapse of the international gold standard in 1971, production on the basis of exchange value had also collapsed as Marx predicted.

Arthur’s anarcho-capitalist definition of capitalism

Why did Arthur never mention this. Personally, I think his error may be traced to the way Arthur to defines capitalism. Arthur, makes this statement that I have already quoted:

“In the case of capitalism, money is the social form within which production for exchange gains validity.”

I could be wrong, but it appears as though Arthur is improperly defining capitalism simply as “production on the basis of exchange value”.

To understand the magnitude of this error, it is only necessary to recall most anarcho-capitalists define capitalism simply as a free market. Is capitalism the free market? Of course not. This is an anarcho-capitalist mythology, at least as far as Marxian labor theory is concerned.

Labor theory, as Marx insisted in his writings on the subject, defines capitalism not as production on the basis of exchange value, but production of surplus value, production for profit. The aim of the mode of production is not the creation of value, but surplus value. It appears Arthur does not even realize there is difference between these two modes of production.

Actually I am being charitable here: in fact Arthur emphatically rejects the idea there is a difference. If you read his 2012 paper, you will see he blames Engels for inventing the idea that capitalism is different from simple commodity production.

According to labor theory, the aim of simple commodity production is the production of values — commodities — while the aim of capitalist production is the production of surplus value — profit. Arthur apparently does not realize there is difference between the two modes of production, or, rather more accurately, explicitly rejects the idea there is a difference.

As a result Arthur adopts a position very close to the anarcho-capitalist definition of capitalism as “free markets”.