Schrödinger’s Capital: Is the US dollar world money or the end of money?

by Jehu

It is important to say I want to preserve the science of historical materialism. To be clear, the outcome of this debate has nothing whatsoever to do with the outcome of the class struggle. Despite claims to the contrary by various vanguardist parties, no class in history ever made a revolution based on its theoretically accurate grasp of the society it was seeking to overthrow. The proletariat will not break that pattern. We can thus safely separate the issue of the scientific veracity of historical materialism from the social implications of its conclusions to answer the troubling questions raised by the value-form school argument.

I say this to emphasize I do not think Chris Arthur is “being revisionist” or some such nonsense. Instead, the science itself is being challenged by the appearance of something many people assume labor theory never predicted, a fiat currency filling the role of ‘world money’. Historical materialism has a big problem of explaining whether this fiat ‘world money’ is in fact money, and, if so, how it works.

NOTE 12: The end of exchange value?

According to Marx, a use value has value only if it is the product of human labor. The quantity of value contained in any product of human labor is the duration of socially necessary labor time required to produce the commodity. The value of a commodity is expressed as exchange value in a transaction in which the value of the first commodity is expressed in the use value of the second commodity. According to Marx the value of a commodity can only be expressed in the use value of another commodity also having value. The commodity socially recognized as playing the role of money is simply the one whose use value serves to express the values of all other commodities in the community.

This definition of money is commonly recognized by almost all Marxists. But if Marx is correct about this, the dollar, a valueless state issued inconvertible fiat paper currency, cannot be world money. The problem with the dollar serving in the role is that, as bitcoin shows, it can be produced with no expenditure of human labor whatsoever. And, it can be produced in whatever quantity is required almost instantaneously. This means the dollar is not a product of human labor and thus contains no value at all.

Which bring Marxists face to face with a paradox: If the dollar is world money, Marx must be wrong by his own definition. If Marxists recognize dollars as world money, they are — by the same definition — no longer Marxists.

Forced to go beyond Marx

This is great, because, no matter what the outcome, we are forced to move beyond Marx. This thing we call the US dollar, in its function as world money, did not exist in Marx’s time and he swore it could not exist. If this is true, the role of the dollar as world money since 1971 constitutes a world historical event. It amounts to witnessing the birth of a new species or peering into the heart of a singularity.

How can something lacking value express the labor contained in the commodities for which it is exchanged? In his 2003 paper, Chris Arthur tries to explain how something lacking all value can express the values of commodities. According to Arthur, money is not the expression of labor value; rather, it provides the dimension of value to commodities. In this sense, money is the magnetic field from my earlier example: the magnetic field does not express the self-alignment power of iron filings, rather, it is the force lining the filings up.

In other words, what Arthur has done is replace labor power from Marx’s theory with money in his (Arthur’s) own theory as the explanation for the movement of commodities. In Marx’s theory, the force “directing”, (I use this term in its loosest possible meaning), the movement of commodities is the expenditure of abstract homogenous human labor power, value.

Arthur’s explanation of fiat world money

Arthur argues Marx is wrong: the movement of commodities is not determined by labor, but by money. Money constitutes a “social space” or “dimension” we call value, which Arthur defines as the power of exchangeability. Certainly, people exchanged the products of their labor before the emergence of money, but without money such exchanges were incoherent, where each exchange could only be understood on its own terms as an isolated act that had no necessary relation to the next exchange.

Money plays a critical role by emerging as the single “space” or “dimension” by which values of commodities can be compared to each other. For this reason, Arthur argues: “money acts as origin of the value dimension itself.” Money both makes value measurable as well as providing the standard for measurement of value. By analogy, space defines the separation between bodies and, at the same time, becomes the measure of their separation.

Money, according to Arthur, is a function not a thing. This function can be filled by a succession of things filling that function more or less adequately. If we focus on the thing, we miss the real story: the function itself, the role played by money in the evolution of commodity production and exchange.

Marx, says Arthur, erred in that he assumed money had to be a product of labor. Of course, he explains, in lower stages of production we do find that money is often just this. This, says Arthur, led Marx to conclude the two (money and commodities) had to share a common substance in order to be directly compared.

However, argues Arthur, money does not express expenditure of the capacity to labor; rather, it expresses the power of each commodity to attract other commodities for exchange. Because we highly value the object serving as money, its exchangeability with all other commodities is universal and unconditional. Since money can be exchanged immediately and unconditionally for any other commodity, it serves for all other commodities as the measure of their limited, conditional, exchangeability. Arthur concludes money does not measure the abstract homogenous human labor contained in commodities, but their power of exchangeability.

With this, Arthur poses a critical question:

“Insofar as such money validates commodities and hence labour, what other measure is required?”

Why would money have to measure the abstract human labor contained in commodities when, in its own body, it is the measure of their exchangeability.

Chris Arthur thus makes a powerful argument on behalf of the value-form school: Whatever accounts for fiat world money it is not the abstract homogenous labor contained in the commodities. The dollar is not product of labor and, therefore, cannot express the labor contained in commodities. If the dollar is today serving as world money, this cannot have been determined by the labor times required to produce commodities, but something else.

An anomaly or the new normal

Now here is the thing:

One fact is absolutely clear to all sides in the debate: The US dollar has no value and thus cannot possibly express the values of commodities. It must, therefore, express some other force. We don’t have to accept Arthur’s explanation that money expresses the exchangeability of commodities to grasp his essentially correct conclusion. Whatever accounts for a fiat world currency, it cannot be abstract homogenous labor, i.e., value.

Thus, it would appear that if the dollar is world money, the Marxian labor theory of value, as it is commonly understood by most Marxists, is finished. It has been proven wrong by life itself.

One possible reason this conclusion might not be entirely true is that labor theory already fully accounts for the fiat dollar in the role of world money. No, says labor theory, the fiat dollar is not money; and, No, it does not express the values of commodities. However, the law of value is still expressed even in this situation.

These are the fact we already know incontestably:

  1. No matter where you fall in the debate over whether a commodity contains a social property called value or not, there is no question the US dollar does not have this social property — it does not contain even an instant of value.
  2. Thus, even if Arthur is completely wrong in his criticisms of Marx, he is correct to argue the US dollars function as world money cannot in any way be determined by it sharing a common social attribute with the commodities for which it serves as their expression. Which is to say, the US dollar is not world money because it expresses the values (socially necessary labor times) of commodities.
  3. Thus, If the US dollar is world money, this bizarre situation must express some other common property of commodities than their socially necessary labor times.

What other common social property can a fiat world currency express? Arthur proposes it must express the individual power of exchangeability of commodities. While Arthur uses this conclusion to overthrow Marx’s labor theory, I would argue this is not necessary.

Think of it this way: We are, after all, only trying to explain the last 45 years of world history when the US dollar has served in the function of world money. Inconvertible fiat currencies have existed before in the historical record and were known to both Marx and Engels. There is no reason to overthrow the entire history of mankind simply in order to explain the last 45 years of it. It is very possible we are merely experiencing an anomaly in the history of mankind. In this anomalous situation, for some unexplained reason, a paper currency is filling the role we would normally expect to be played by a commodity.

Now, we can come to at least three different conclusions about this anomaly:

  1. It is a temporary anomaly and thus society will, sooner or later, revert to  a commodity money to express the values of commodities.
  2. It is a permanent anomaly, i.e., not an anomaly at all, but an event revealing the real content of money as, for instance, Arthur’s “power of exchangeability” or some other force we do not know about at present.
  3. A fiat currency serving as world money is not an anomaly, but, rather, the catastrophic end stage of money and the entire mode of production based on exchange value.

The collapse of exchange value

The dollar serving in the role of world money is historically unprecedented and, at the minimum, represents a true anomaly for labor theory. To my mind, however, labor theory can explain this event, but only on the basis of the last of the three options, the collapse of production on the basis of exchange value.

How so?

In the Grundrisse, Marx makes exactly that prediction, which has mostly been ignored or dismissed by post-war Marxist scholars and out right rejected by the value-form school:

“As soon as labour in the direct form has ceased to be the great well-spring of wealth, labour time ceases and must cease to be its measure, and hence exchange value [must cease to be the measure] of use value. The surplus labour of the mass has ceased to be the condition for the development of general wealth, just as the non-labour of the few, for the development of the general powers of the human head. With that, production based on exchange value breaks down, and the direct, material production process is stripped of the form of penury and antithesis.”

If the value-form school is correct, the role of the valueless US dollar as world money powerfully suggests that labor time is no longer the measure of use-value. I think they are correct about this. However, they go beyond this statement to argue that labor time has never been the measure of value; rather, the measure of value is money itself. Here, I take exception with their argument.

According to Arthur, money expresses the exchangeability of commodities:

“[If] such a universal equivalent were to be established, it would have a relevant unique property: it would be immediately exchangeable. In other words the objectivity of such a value for itself appears phenomenally in its immediate exchangeability.”

Here Arthur makes money synonymous with a universal and unconditional power of exchange, even if it lacks a value social attribute.

“Implicitly therefore, as a form, money does not itself have value, it is value as form.”

The reason, of course, is that whether or not the thing serving as money has value, all other commodities must be exchanged for it. The problem with this argument is that it does not account for exchange itself. The value-form school treats exchange apart from production, when, by definition, it is obvious that commodity production includes both production and exchange.

Exchange is not voluntary in a commodity producing community

Although this is seldom noted in the discussion of commodity production, in community of commodity producers, exchange within the community is not a voluntary or discretionary act by its members; it is a critical element of the mode of production itself.

If we think about this community as a single all-encompassing producer, the numerous exchanges among the separate producers constitute as much a part of the mode of production as a hammer, anvil and fire constitute the conditions for the labor of a blacksmith. The exchange of the products of labor among members is the material condition for the survival of the commodity producing community as a whole.

Once commodity production has been finally established as the mode by which the community reproduces itself and its environment, no individual producer can produce without exchange. Exchange is not only a necessary consequence of commodity production, it is also its precondition. Under these conditions, money is not so much an expression of the power of exchangeability of the product of labor, but the manifestation of the necessity for exchange of the products of labor. For the individuals concerned, exchange is not a discretionary act; it has become a fundamental premise of their material existence.

In chapter six of Capital, Marx explain where society actually crosses the threshold where exchange becomes not only the precondition for production, but the material (physically necessary) premise of society. The emergence of labor power itself as a commodity:

“The second essential condition to the owner of money finding labour-power in the market as a commodity is this — that the labourer instead of being in the position to sell commodities in which his labour is incorporated, must be obliged to offer for sale as a commodity that very labour-power, which exists only in his living self.”

For the worker, exchange of money for her commodity is not a voluntary act to realize the value of her product, but a life necessity to be accomplished to ensure her physical survival. Money constitutes for the worker not the source of “social validation” of the value of her labor power, but the essential condition for life itself.

Thus, once labor power itself becomes a commodity, money in principle has no need for its commodity form and thus begins to progressively shed this husk. Money now stands in decided antagonism to its physical form. Which is to say, money, having been exchanged for labor power, sheds its bodily form and is now capital.