Capital Vol. I, chapter 1-3, provide some profound insights and lay the groundwork for the rest of Volume I. Thus, I will be going over them in a fair amount of detail by chapter and section.
In the first section of chapter 1, Marx begins with the commodity as the foundation for his analysis of capital. He immediately suggests it has a dual character, a use-value and an exchange value. Behind the exchange value is a social relation which he defines as socially necessary labour-time. Labour time also has a dual character of being concrete and abstract; Marx goes into this further in the next two sections of chapter 1. As I understand it, concrete labor being the physical activity of particular kind to produce a commodity for use by others or the producer, giving the commodity use-value. “Labour, then, as the creator of use-values, as useful labour, is condition of human existence which is independent of all forms of society; it is an eternal natural necessity which mediates the metabolism between man and nature, and therefore human life itself” (p.133). Labour creates use-values. This is how Marx connects labour to the value of commodity. Abstract labour is that of socially valuable worktime which adds economic value to a commodity in the production process. Without labour, you don’t have commodities, and, thus, do not have economic value or exchange, so abstract labour cannot be determined until the point of exchange.
Marx acknowledges the heterogeneity of labour processes, but decides to simplify this for his analysis by reducing all labour to “simple average labour”, then suggesting more skilled labour as “multiplied simple labour.” He says “Experience shows that this reduction is constantly being made” (p. 135). However, Marx does not explain what this experience is, he just alludes to it as some from tradition or convention. Given our recent discussions in prior classes about how classical economist use simplifications and assumptions, these seems at odds with what we have learned about Marx’s method.
In section 2 of chapter 1, Marx addresses the act of exchange. The act of exchange has itself a duality of equivalent and relative forms. But the equivalent form is the expression of the relative form. Meaning between two commodities or products, the equivalence can only be measured by comparing it relative to another product.
Marx then pivots in section 3 to the expression of exchange in the money-form, making the modest claim:
Now, however, we have to perform a task never even attempted by bourgeoisie economics. That is, we have to show the origin of this money-form, we have to trace the development of the expression of value contained in the value-relation of commodities from its simplest, almost imperceptible outline to the dazzling money-form. When this has been done, the mystery of money will immediately disappear (p.139).
Marx’s general line of argument in the next couple pages suggests that since abstract values cannot be determined from themselves. You can only determine the value of the commodity in relation to other commodities. In a barter society where exchange of this kind is generalized and systematic, exchange naturally tends towards using one commodity as a measure of exchange value; especially of that commodity is prevalent. As has been the historical trend, this universal commodity has tended to be a precious metal, e.g. gold, silver.
However, this argument, while perhaps a little more nuanced than the classical economists, does not seem materially different than the argument for convenience for the money-form of exchange surmised in most economics textbooks. For any systematic or generalized market of exchange by establishment of a central authority. Throughout the history of civilization, there have been universal commodities such as grain, cattle, and even slaves. Precious metals, where available, have been preferred due to convenience, but the form of money has always been decreed by a state or monarchical authority going back to early money-forms in Mesopotamia.
Marx notes a contradiction between use-value and exchange value, which will eventually be expressed between commodities and the money-form:
The internal opposition between use-value and value, hidden within the commodity, is therefore represented on the surface by an external opposition, i.e. by a relation between two commodities such that the one commodity, whose own value is supposed to be expressed, counts directly only as a use-value, whereas the other commodity, in which that value is to be expressed, counts directly only as exchange-value (p.153).
This internal contradiction will transform into an external contradiction between commodity and the money-commodity. The antagonism becomes expressed in the era of the gold-standard. As the economy grows, more gold is required to serve as the money-commodity of exchange. But regardless of the money-form, any shortage of that form can result in an economic crisis, unless another form is permitted. Thus, in many ancient societies, such as that of the Babylonians, more than one form of money was permitted for exchange and settle debts. However, during the era of the gold-standard in U.S., although paper money had no constraint in terms of supply, pegging money notes to gold created a de facto constraint to the supply of gold. This constraint created a problem for Weimar Republic for example after World Word I, which was one of many contributors to the issue of hyperinflation they experienced. This contradiction emerged in the U.S. and Western Europe during the 1960s, when the supply of gold was unstable and heavily influenced by production in the Soviet Union and South Africa. It became politically infeasible to maintain the gold standard, and thus it ended in 1971. Now that we are free of this constraint, economic growth is free of this specific antagonism. However, there are other political antagonisms that constrain money.
Marx then talks about the fetishism of commodities, which he argues cannot be ignored:
…the labour of private individuals manifests itself as an element of the total labour of society only through the relations which the act of exchange establishes between the products, and, through their mediation, between the producers. To the producers, therefore, the social relations between their private labours appear as what they are, i.e. they do not appear as direct social relations between persons in their work, but rather as material relations between persons and social relations between things (p.166).
People under capitalism do not relate to each other directly as human beings, they relate through a myriad of products which they purchase in the market. But in the market, when examining why one product costs more than another, for Marx, it is the expression of social relations of use value and socially necessary labour-time. “It is however precisely this finished form of the world of commodities- the money form-which conceals the social character of private labour and the social relations between the individual workers, by making those relations appear as relations between material objects, instead of revealing them plainly” (p.169). When you go into the market, you are not seeing all the labour that went into the products you are purchasing. The purchaser is divorced from the labour that went into producing those products resulting in an alienation between people and labour, a blindness to an important aspect of society.
In chapter 2, Marx is setting out the conditions of exchange. Commodities don’t go to market on their own, they are brought there by their owners; and so there must be a recognition of private property.
The guardians must therefore recognize each other as owners of private property. This juridical relation, whose form is the contract, whether as part of a developed legal system or not, is a relation between two wills which mirrors the economic relation. The content of this juridical relation (or relation of two wills) is itself determined by the economic relation. Here the persons exist for one another merely as representatives and hence owners, of commodities (p.179).
Individuals adopt many different roles. The roles are defined by individuals who have private property relations over different commodities. There is a reciprocity or recognition of private property rights necessary for functioning markets. However, for exchange to occur, the commodities must be alienable from the owner. “Things are in themselves external to man, and therefore alienable. In order that this alienation may be reciprocal, it is only necessary for men to agree tacitly to treat each other as the private owners of those alienable things, and, precisely for that reason, as person who are independent of each other” (p.182). Marx reintroduces the exchange equivalent form argument which is expressed in the market as commodities are exchanged for that universal commodity, money. “The universal equivalent form comes and goes with the momentary social contracts which call it into existence. It is transiently attached to this or that commodity in alternation. But with the development of exchange it fixes itself firmly and exclusively onto particular kinds of commodities, i.e. it crystallizes out into the money-form” (p.183). As argued previously in chapter 1, “value-form,” that is the money-form, conceals its true value, that is labour-value, and money becomes a mere symbol which is separated from the human labour required to produce it.
Men are henceforth related to each other in their social process of production in a purely atomistic way. Their own relations of production therefore assume a material shape which is independent of their control and their conscious individual action. This situation is manifested first by the fact that the products of men’s labour universally take on the form of commodities. The riddle of the money fetish is therefore the riddle of the commodity fetish, now become visible and dazzling to our eyes (p.187).
This is a construction of the classical vision of Adam Smith’s invisible hand theory of the market. Autonomous individuals in the market, led by the hidden hand of the market, a type of social coercion, would produce the best possible outcomes for everyone. This sets up Marx’s response to Smith’s volley, That Marx will argue later, that it will not in fact work for everyone, but only a few, the bourgeoisie.
In chapter 3, Marx discusses money. This was a pretty difficult chapter to get through, and I’m not sure I entirely understand Marx’s position on it. In part, this chapter is harder to relate to as I understand money today as a creature of the state, a fiat currency which no longer has constraints to a commodity such as gold. So while some of the insights of money as Marx perceives it seem to no longer hold.
Marx starts with the idea of commodity money, and finds (surprise!) a duality again. The duality is that it is a measure of values and a means of circulation. In the first part of the chapter will be on the former and the second will be on the latter.
Marx assumes gold as the money-commodity. Money’s measure of value is a “necessary form of appearance” in the market.
The price or money-form of commodities is, like their form of value generally, quite distinct from their palpable and real bodily form; it is therefore a purely ideal or notional form. Although invisible; the value of iron, linen and corn exists in these very articles: it is signified through their equality with gold, even though this relation with gold exists only in their heads, so to speak. The guardian of the commodities must therefore lend them his tongue, or hand a ticket on them, in order to communicate their prices to the outside world (p.189).
If you have commodity, you do not know what the value is before you take it to market. But we tend to develop notional values of the commodity, a guess of its value in the market. This notional value is expressed through a price tag. The price depends on the substance of money. If the money-commodity can fluctuate in terms of supply, this can engender inflation (deflation). Marx assumes away this issue as gold tends to be fairly stable. It is not easily found, so large injection are unlikely to flood the market. And even in cases of inflation (deflation) due to changes in the money supply itself, the relative values of commodities are not affected by that; that is the ratio between commodities in terms of value should hold. What we are interested in then is the quantity of money as it relates to the value of the commodity being sold. Marx makes the connection to the money-names based on the weight of gold; thus, pound, etc. This seems specific to Britain. There are many other names for amounts or weights of money. Marx is explaining the transition that is happening from the value form in the money-commodity to this naming of elements of money which are then traded in exchange.
The name of a thing is entirely external to its nature. I know nothing of a man if I merely know his name is Jacob. In the same way, every trace of the money-relation disappears in the money-names pound, thaler, franc, ducat, etc. The confusion cause by attributing a hidden meaning to these cabalistic signs is made even greater by the fact that these money-names express both the values of commodities and, simultaneously, aliquot parts of a certain weight of metal, namely the weight of the metal which serves as the standard of money. On the other hand, it is in fact necessary that value, as opposed to the multifarious objects of the world of commodities, should develop into this form, a material and non-mental one, but also a simple social form (p.195).
Although we have all these names for different money values, there is a relationship between these nominal amounts and the monetary base. However, this relationship has been broken for the US since 1971 as mentioned previously, and other economies before that.
The magnitude of the value of a commodity therefore expresses a necessary relations to social labour-time which is inherent in the process by which its value is created. With the transformation of the magnitude of value into the price this necessary relation appears as the exchange-ratio between a single commodity and the money commodity which exists outside it. This relation, however, may express both the magnitude of value of the commodity and the greater or lesser quantity of money for which it can be sold under the given circumstances. The possibility, therefore, of a quantitative incongruity between price and magnitude of value, i.e. the possibility that the price may diverge from the magnitude of value, is inherent in the price-form itself. This is not a defect, but, on the contrary, it makes this form the adequate one for a mode of production whose laws can only assert themselves as blindly operating average between constant irregularities (p. 196).
If everything in market were presented at its value, and sold at its value, then there would be no way to adjust for fluctuations in supply and demand. Each day in the market, there may be a surplus or a shortage. Once you go to a price name, different prices can be realized at different times and different places. The actual value, based on socially necessary labour-time which is concealed by the money-form, is lost.
The next section is on the means of circulations. In this section Marx introduces the analogy of “social metabolism” for commodity exchange, in which a commodity of non-use value to a seller becomes a use value to be consumed by the buyer. But this process is obscured by money. Commodities as use-values are related to exchange values in terms of money which are a measure labour value, and in turn the money is used to buy other commodities.
Marx transitions to the metamorphosis of the commodity to commodity mode of exchange to the commodity to money, and money to commodity mode of exchange. The introduction of money creates a separation between sale, C – M, and purchase, M – C. This separation is a natural break in the circuit given that exchange between commodities is not instantaneous as in the case of commodity to commodity, C – C. This introduces the potential for crisis in the event of pessimistic expectations of the future, as just one example, causing people to hold on to money, an increase in liquidity preferences in Keynesian nomenclature, and arresting the process of circulation. The arrest of circulation then causes the demand for commodities to drop off resulting in a recession. Marx is criticizing Say’s law which says that supply creates its own demand; since every sale is purchase, and every purchase a sale demand and supply will always equilibrate. But what Ricardo and others in classical political economy that believed Say’s law misses the separation of sale and purchase. John Maynard Keynes would later make a similar argument and criticism of Say’s law.
Marx then goes on to describe the theory of money. The role of money is to stay in circulation and act as a lubricant of exchange. The circulation of money is reflection of the circulation of commodities. The velocity of money then is the pace of circulation of commodities. When this velocity decreases, an antagonism arises.
In the velocity of circulation, therefore, there appears the fluid unity of the antithetical and complementary phases, i.e. the transformation of the commodities from the form of utility into the form of value and their re-transformation in the reverse direction, or the two processes of sale and purchase. Inversely, when the circulation of money slows down, the two processes become separated, they assert their independence and mutual antagonism; stagnation occurs in the charges of form, and hence in the metabolic process (p. 217).
But the money form conceals the antagonism of process between sale and purchase, and thus concealing the origin of the crisis.
Marx goes on about coinage and symbols of money or notes and so on which would naturally replace gold or precious metals. He also alludes to credit as a standard of payment, which is as it was even his time. Marx notes the role of the state in this process. He then goes on to talk about hoarding in which a fetishism develops with money as a means of power in the market. Hoarding is implicit in the time structure of the production of commodities. Thus, money poses a latent power which can be used by the capitalist class, with the ability to accumulate capital through money and exercise it in the market place.
Aaron Medlin is a PhD student at the University of Massachusetts Amherst studying macroeconomics of private debt, monetary economics, international finance, and comparative economic systems.