Schrödinger’s Capital: Chris Arthur explains why inconvertible fiat is as ‘good as gold’

by Jehu

NOTE 7: Why the value-form school carefully avoids empirical proof of its claims

In his 2003 paper, Money as Measure of Value, Arthur seems to recognize the obvious fact that, taken in isolation, commodities do not possess a value property in the same way they possess physical properties like weight, mass, chemical composition and spatial dimensions.

schroedingers_catOf course, this was the whole point of the first few paragraphs of chapter 1 of Capital. There, Marx argues, try as we might, no amount of physical decomposition of a use value will find even an atom of value. The value of commodities is not a property they individually possess, as they might possess weight, mass, chemical properties or spatial dimensions; rather, the property of value arises solely from the social context within which the use value is produced.

Thus, the reason why we can’t see the values of commodities is because these values are the manifestation of social relations of production, not a physical property of the objects. In this sense, Arthur’s argument is a welcome advance over the vulgar reading of Marx where it is sometimes assumed each commodity actually contains a substance called value. Again, following Marx, Arthur explains that money is the only adequate form of exchange value: it is the only way the value (i.e., social properties) of commodities can appear to us.

And then, inexplicably, Arthur goes weird on us.

Having explained value is a social property, he then states:

“Money is not a re-presentation of something given in commodities, but the only way of making value present, i.e. being there concretely, rather than as some unreal abstraction.”

The argument here is ambiguous. While value is not a physical property of the commodity, it also is not, in any sense, an unreal abstraction for Marx. Rather, value is the expenditure of the total labor power of society. Money makes visible what was not visible to us previously, but this in no way implies money plays any active role in this.

Magnetic lines of force as an “unreal abstraction”

To use an analogy, iron filings make the magnetic field of a magnet visible to us by arranging themselves along its lines of force. No one argues the filings in some fashion ’cause’ the magnetic lines of force (an ‘unreal abstraction’) to be there ‘concretely’. Rather, the filings simply make something we could not see before, the magnetic field, visible to our senses.

However, by calling value an unreal abstraction, Arthur can then argue, money, instead of passively manifesting the expenditure of the total labor power of society, somehow itself accounts for the value attribute of commodities. Having completely inverted Marx’s argument, Arthur takes this argument out to left field. Since commodities actually have no value (value being purely social, not a physical property of the objects), and since money is value incarnate — i.e., necessary to make this social property visible to us — why does money itself have to be a commodity to perform this role? After all, can’t we use inconvertible fiat to buy groceries? And isn’t credit money as ‘unreal’ an ‘abstraction’ as value?

Thus Arthur asks:

“If money is the independent existence of value, does the bearer of money have to be a commodity? More specifically, a product?

Money doesn’t need to be a commodity, answers Arthur.

“Because of the socially imputed status of [money as] ‘value for itself’ its material bearer is of little consequence. Inconvertible paper is equally effective at serving the money functions. Yet … Marx allows that in its function as currency the State may replace gold with paper, … he insists that in its function as measure, commodity money cannot be replaced, even if it may so function ‘ideally’ , i.e. in its absence. Likewise he argues that money ‘as money’ (as he obscurely puts it), namely means of payment, store of value and world money, must also be commodity money.”

Over time, people get habituated to seeing value personified in the prices of commodities and indeed this is the only  way they can see the value of commodities. If this is true, why do you actually need commodity money to assume this personification? Can’t paper play this role?

Paper currency as understudy

To support his claim paper currency can fill the function of making value present concretely, Arthur begins with a valid point: gold no more contains value than any other commodity. The value of any commodity, including the commodity serving as money, is simply the manifestation of social relation of material production.

We already know value is not a physical property of a commodity, but a social property. The sole difference between money and any other commodity, says Arthur, is that the money commodity has become the actual physical incarnation of value; it is the shape, or form, value assumes to be visible to us.

To press his argument, Arthur makes the analogy between the star of a stage performance and her non-star understudy. If the star is unable to do the performance one night, the understudy can step in. The understudy, however, does not step into the role to play the star, she steps in to play the character in the play usually performed by the star.

Gold, argues Arthur, is without a doubt the star in the stage play on the world market, but paper — its understudy — can readily assume the role of making value visible to us if called upon by circumstances:

“The primary function of gold money is to ‘posit the presupposition’ that commodities count as values. This it does in virtue of the price-form, not because as a material body it has any such magical powers. So a substitute material may be found in paper, if this is granted forced circulation by the State, and hence acquires the key determination of immediate exchangeability.”

Arthur seems to argue that since value is only “real” in the form of money, any socially valid money form should be able to fill this function, including state issued fiat. However, the problem with this view, and Arthur knows this, is that Marx did not say “value is money”, which seems to be how Arthur wants us to read Marx.

Arthur knows (or should know) there is a problem with this reasoning: The function money plays is entirely dependent on it also possessing the same social property all other commodities possess, namely value. Of course, just like all other commodities, money does not ‘possess’ value in the same sense it possesses weight, mass, chemical composition, dimensions, etc., but if value is not a shared property of commodities generally, we have to explain how they become values through money. (A point to which I will return another time.)

Harvey: Social sciences don’t need scientific evidence?

In any case, we only have Arthur’s word that the function of money can be played by currency as adequately as gold. Indeed, if David Harvey is to be believed we likely cannot either confirm or deny Arthur’s assertion. According to Harvey, in his intro to Capital, Companion to Marx’s Capital, Marx himself asserted we cannot confirm or deny the assumptions of bourgeois political economy through experiments.

At one point Harvey writes,

“[Marx] abstracts from the incredible diversity of human wants, needs and desires, as well as from the immense variety of commodities and their weights and measures, in order to focus on the unitary concept of a use-value. This is illustrative of an argument he makes in one of the prefaces, where he says that the problem for social science is that we cannot isolate and conduct controlled experiments in a laboratory, so we have to use the power of abstraction instead in order to arrive at similar scientific forms of understanding.”

This argument might seem to apply to Arthur’s point. We have no way to compare in a laboratory how state issued currency performs as a value-form to the manner in which gold performs. I would suggest, however, Harvey is deliberately misreading Marx on this score. While we cannot test Arthur’s hypothesis that paper currency can fill the functions of money as well as gold in a controlled laboratory experiment, we don’t need to: we have ample data drawn from the actual historical record covering centuries of social practice.

Arthur’s argument is simple to restate: Paper currency in its function of making value present, can be compared to the understudy of a stage performance star. The function of the understudy is not to be the star — i.e., assume the persona of the star — but to play the character of the drama. Whether on stage the understudy is as good as the star in bringing to life the stage play character is a matter of subjective opinion. Some people attending the play will be satisfied, while others might be disappointed. Indeed, some people might have even attended the performance primarily to see the star in that role, not the role itself. In any case, there is no objective or uniform standard by which we can compare the performance of the understudy to the star — theatrical criticism is more art than science.

Likewise, says Arthur, the function of a paper currency is not “to be gold”, but to assume its function of making value visible. The underlying assumption in Arthur’s argument is that, in this function of making value visible, paper currency is neutral, simply filling a function previously filled by gold. However, labor theory and criticism of political economy is not art; it is science. If gold and currency essentially perform the same function of making value visible to us, we should not see any significant difference in the values of commodities expressed in a state issued inconvertible fiat currency and those same values expressed in gold. Since both monies have the purpose of making value visible, in this function we should expect to see the values of commodities no matter the medium.

Of course, Harvey says there is no way we can perform this experiment, right? Certainly, we can’t simply move all of society back to the gold standard briefly to see if the behavior of prices change when the money changes. But do we have to?

Of course not. That is what historical economic data is for.

Why you will never see evidence for value-form school claims about money

Suppose instead we compare the behavior of prices both before and after fiat currency was pegged to gold. If, before the US left the gold standard, prices denominated in dollars and prices denominated in gold more or less move in tandem, but after the gold standard collapsed, we no longer see this sort of movement, we might wonder what accounts for this change in behavior.

And this is exactly what happens: prices denominated in fiat currency and prices denominated in gold rapidly diverge after the US left the gold standard, as the chart below shows:


US Gross Domestic Product denominated in gold and fiat dollars between 1920 and 2010.

Oddly enough, although Arthur insists fiat and gold can both serve to make value visible, he never once introduces any evidence for his argument showing that prices behave essentially the same under both money regimes.

Now why would that be?

Frankly, I think there is a reason Arthur does not offer any evidence for the claim inconvertible fiat currency fulfills the functions of money the same as gold. There is no data that supports his claim.

None. Nada. Zilch.

Here is something really bizarre about the value-form school:

Chris Arthur just made his entire argument up out of whole cloth and no one called him on it.

Despite all his talk about labor theory not being “an ahistorical asocial economic science of a material-technical character”, this is just the sort of economic science Arthur needs to make his argument.

The value-form argument requires the assumption that inconvertible currency behaves just like gold, not because the historical data shows this is true, but because the assumption that inconvertible currency works like gold is the only way value-form theory works.

Which is to say, for value-form theory to work at all, we must assume paper currency works pretty much the same way gold does, whether this can be shown to be true or not. The value-form theory conclusion that gold and paper currency behave the same does not require evidence. It has to be true by definition, because it is the only premise on which value-form theory works.

The shit’s dialectical, can’t you see?