7 The Grundrisse: The Chapter on Money. Part 4 – Value and price (pp. 78-89)

If commodity a equals 1 shilling, and 1 shilling equals 1/x (let us suppose ounces) of silver, and commodity b equals 2 shillings (2/x of silver), then commodity b is of twice the value of commodity a. ‘The value relationship between a and b is expressed by the proportion in which each exchanges against a definite quantity of a third commodity, silver; not against a value relationship.’

Each commodity (whether it is a product intended for unproductive consumption or an article of productive consumption) is equal to ‘the objectification of a particular [amount of] labour time.’ The proportion is which it is exchanged for other commodities (or other commodities are exchanged for it) is equal to the amount of labour time realised in it. A commodity which is equal to one hour’s labour time can be exchanged for any other commodity which is equal to one hour’s labour time. (Assuming, of course, Marx reminds us, that ‘exchange value’ = ‘market value’, that ‘real value’ = price.)

But: ‘[t]he value of a commodity is different from the commodity itself.’ A commodity becomes  value only in exchange (whether real or ‘imagined’ [‘vorgestellten’]). The value of a commodity is both its exchangeability ‘in general’ and its ‘specific exchangeability’. ‘It [value] is at once the indicator of the ratio in which the commodity exchanges for others and the indicator of the ratio in which it has already been exchanged for others (materialised labour time) in the process of production.’

‘Value is a commodity’s quantitatively determined exchangeability.’ Different commodities are different in that they possess different properties, they are measured in different units, and are, as such, incommensurable (Marx does not use the term ‘use value’ but that is what he means here), but, as values, they ‘are qualitatively equal and only quantitatively different, hence they can be measured in terms of each other and are mutually replaceable (exchangeable, convertible into each other) in definite quantitative proportions.’

The value of commodities is both their social relationship and their ‘economic quality’. Different kinds of otherwise incommensurable commodities (effectively different use values) are as values mutually exchangeable in given ratios. As a value, a commodity is an ‘equivalent’, and as an equivalent its natural properties disappear. ‘As value it [the commodity] is money.’ But the commodity as a product (‘product’ here is synonymous with what Marx will later call ‘use value’) is distinct from the commodity as a value (and the commodity as a value is distinct from the commodity as a product): the commodity, in one of its guises, is distinct from itself. Thus, since the commodity as a value is qualitatively distinct from itself as a value (and, as a value, is qualitatively similar to other commodities), its value requires a qualitatively distinct existence from itself.

More (pdf 138KB): Grundrisse7_chapter on money4

Previous post: 6 The Grundrisse: The Chapter on Money. Part 3 – Value and price (pp. 74-78)

6 The Grundrisse: The Chapter on Money. Part 3 – Value and price (pp. 74-78)

Marx announces a digression. ‘Although it is still too early, we may make a few remarks about the delusions that underlie the labour-time ticket, and peer into the deepest secret that links Proudhon’s theory of circulation with his general theory, his theory of the determination of value.’

(Before he does that, Marx says that, ‘incidentally’, if paper money, which is simply a draught on gold, is issued in excess of the gold on which it is a draught it cannot help but be depreciated. ‘Three bank drafts of £15 each, which I issue to three separate creditors on the same £15 in gold, are in fact only drafts on £15/3 = £5 each. Each of these notes would therefore be depreciated to 33 1/3 % from the outset.’)

The value of a commodity (Marx calls this its ‘real exchange value’) is determined by its cost of production, ‘in other words, by the labour time required for […] [its] production.’ Its price is ‘this exchange value […] expressed in money.’

Replacing metallic money (or tokens representing metallic money) with labour money (denominating labour time) would amount to ‘equat[ing] the real value (exchange value) of commodities and their nominal value, price, money value […] [i.e. the] [e]quation of real value and nominal value, of value and price.’But this equation would only be possible were it the case that the distinction between value and price were only nominal. But it is not only nominal. ‘The value of commodities determined by labour time is only their average value. An average which appears [erscheint] as an external abstraction [äusserliche Abstraction] […].’ This abstraction is ‘very real’, since it is ‘both the driving force and the moving principle of the fluctuations which occur in the prices of commodities during a particular period of time.’ It also ‘constitutes the basis of commercial speculation, where the calculation of probability proceeds from both the mean average price, which is taken as the centre of the fluctuations, and the average heights and depths of these fluctuations above or below this centre.’

More (pdf 127KB): Grundrisse6_chapter on money3

Previous post: 5 The Grundrisse: The Chapter on Money. Part 2 – Money and the relations of production (pp. 60-74)

Next post: 7 The Grundrisse: The Chapter on Money. Part 4 – Value and price (pp. 78-89)

5 The Grundrisse: The Chapter on Money. Part 2 – Money and the relations of production (pp. 60-74)

Marx clarifies why he started the manuscript with a critique of Darimon and his theories.

We have now arrived at the basic question, which is no longer connected with our point of departure. The general question is: is it possible to revolutionise the existing relations of production and the corresponding relations of distribution by means of changes in the instrument of circulation—changes in the organisation of circulation? A further question: can such a transformation of circulation be accomplished without touching the existing relations of production and the social relations based on them?

A positive answer to this question would be reveal a ‘misunderstanding concerning the inner connection between the relations of production, distribution and circulation.’

Marx asks as to ‘whether the various civilised forms of money—metal coinage, paper money, credit notes, labour money (this last as a socialist form)—can achieve what is required of them without abolishing the production relation itself which is expressed in the category of money; and whether it is not then necessarily a self-defeating effort to seek to overcome the essential conditions of a relationship by effecting a formal modification within it.’ His answer is no.

The various forms of money may correspond better to social production at various stages of its development; one form may remove certain shortcomings with which the other cannot cope. But none of them, so long as they remain forms of money, and so long as money remains an essential relation of production, can resolve the contradictions inherent in the money relationship, they can all only express these contradictions in one form or another.

Darimon ‘identifies money circulation with credit, which is an economic fallacy.’ All that Darimon in fact establishes is that ‘the banks, which deal in credit, like the merchants, who deal in commodities, or the workers, who deal in labour, sell at a higher price when demand rises in relation to supply, i.e. they make it more difficult for the public to obtain their services at the very moment when the public most needs them.’ That this is the case (as we have seen) has nothing to do with whether or not the notes issued by the Bank are convertible or not. In addition, Darimon errs when he seems to imagine that ‘the Bank […] regulates credit by means of its monopoly.’ This is not the case, argues Marx. ‘[T]he power of the Bank only begins where the power of the private “escompteurs” [discounters] ends, that is, at a moment when its own power is already extraordinarily limited.’ The Bank can set a discount rate, but if the private discounters set a lower one then ‘[t]he escompteurs, instead of emulating the Bank, would discount all its business [away] under its very nose.’

More (pdf 143MB): Grundrisse5_chapter on money2

Previous post: 4 The Grundrisse: The Chapter on Money. Part 1 – Darimon’s theory of monetary crises (pp. 51-60)

Next post: 6 The Grundrisse: The Chapter on Money. Part 3 – Value and price (pp. 74-78)

4 The Grundrisse: The Chapter on Money. Part 1 – Darimon’s theory of monetary crises (pp. 51-60)

Marx begins the manuscript by jumping straight in to a critique of the politician and journalist, and follower of Proudhon, Alfred Darimon (1819-1902). Darimon had argued that in crises the drain of bullion from the banking system reduced the supply of available money (and hence credit), making the crisis worse. To counter this, Darimon had proposed a reformed monetary system based on joint-stock banking backed by system of credit-insurance, rather than having bank money backed by gold and silver.

‘All the trouble derives from the predominance of the precious metals which is obstinately being preserved in circulation and exchange,’ Marx quotes Darimon form the latter’s De la réforme des banques.

Darimon ‘[b]egins with the measures taken by the Banque de France in October 1855 “to remedy the progressive diminution of its cash reserves” […].’ To reduce the outflow of its reserves the Bank had raised the discount rate and reduced the payment period for discounted bills; as far as Darimon was concerned, the cause of the outflow of specie was the need to import grain in the face of crop failure—all the measures taken by the Bank achieved was hinder the release of its metallic reserves into circulation, precisely the wrong thing to do given the prevailing demand for funds.

Darimon ‘wants to give us a statistical tableau of the position of the Bank in the five months preceding its measures taken in October. For this purpose, he compares the size of its bullion reserves in each of these five months with the “fluctuations in its portfolio”, i.e. the amount of its discounts (the commercial papers, bills of exchange in its portfolio). According to Darimon, the figure expressing the value of the securities held by the Bank “represents the greater or lesser need which the public feels for its services, or, which amounts to the same, the requirements of circulation” […].’ (Darimon’s figures are reproduced in figure 1 on the next page; the first table is the Bank’s bullion reserve, the second its portfolio.) Marx disagrees with Darimon’s interpretation. The value of the bills presented for discount at the Bank reflect the demand for credit, not circulation. In order to determine anything about the requirements of circulation Darimon would have to take account of the actual quantity of paper money in circulation but he does not. Marx characterises this omission on the part of Darimon as betraying ‘at once amateurish incompetence and deliberate confusion of the requirements of credit with those of money circulation—a confusion upon which the entire secret of Proudhonian wisdom is in fact based.’

More (pdf: 352KB): Grundrisse4_chapter on money1

Previous post: 3 The Grundrisse: ‘Introduction’

Next post: 5 The Grundrisse: The Chapter on Money. Part 2 – Money and the relations of production (pp. 60-74)

3 The Grundrisse: ‘Introduction’

The ‘Introduction’ (‘Enleitung’) was written at the end of August 1857, a month or so before Marx wrote the actual 1857-58 Manuscript itself. Although it is an important text, it is not easy to say what it is the ‘introduction’ to, exactly. The 1857-58 Manuscript was never intended for publication, but seems to have been an exercise whereby Marx could set out his ideas in written form. The ‘Introduction’ is clearly not an introduction to this manuscript. When Marx did publish a version of his economic theories, at least in part, in the form of the 1857 Contribution to a Critique of Political Economy, he wrote a ‘Preface’ to it, in which he remarked that a ‘general introduction [to my work], which I had drafted, is omitted, since on further consideration it seems to me confusing to anticipate results which still have to be substantiated, and the reader who really wishes to follow me will have to decide to advance from the particular to the general.’ It is generally agreed that the ‘general introduction’ that Marx refers to in the 1859 Preface is the August 1857 ‘Introduction’, although it is not entirely clear to which specific ‘results’ Marx’s comment makes reference.

* * *

I  Production, Consumption, Distribution, Exchange (Circulation)

1.  Production

The ‘subject to be discussed’, Marx tells us, is ‘material production’. ‘Individuals producing in a society—hence the socially determined production by individuals[—]is of course the point of departure.’

Now, while it is evident that production is carried out by individuals, Marx points out that production is always carried out by individuals in society. The isolated individuals that feature, for example, in the depiction of early societies in the writings of Smith and Ricardo (‘[t]he individual and isolated hunter and fisherman’) are the product of the eighteenth-century fashion for Robinsonades. But this vision of the human being as primordially an individual is itself a product of the reification of the individual in that takes place in ‘bourgeois society’ (‘bürgerlichen Gesellschaft’), a ‘society of free competition [in which] the individual seems to be rid of the natural, etc., ties which in earlier historical epochs made him an appurtenance of a particular, limited aggregation of human beings.’ In this view of society (and of history) the defining characteristic of the human being is their individuality; and then because classical political economy takes bourgeois social relations as the result of human nature it retroprojects this ideology of bourgeois individualism into past—precapitalist—social structures (this is where the Smith-Ricardo Robinsonade narrative comes from).

More (pdf: 403KB): Grundrisse3_Introduction

Previous post: 2  The Grundrisse: Bastiat and Carey

Next post: 4 The Grundrisse: The Chapter on Money. Part 1 – Darimon’s theory of monetary crises (pp. 51-60)

2 The Grundrisse: Bastiat and Carey

This short text, which Marx apparently wrote in July 1857 (which makes it the first text included in the Manuscript of 1857-58―the text(s) we know today as the Grundrisse), is titled (by Marx) ‘Bastiat. Harmonies Économiques. 2 édit. Paris. 1851.’ The reference is to the work (Harmonies Économiques) of the French liberal economist and ardent supporter of free trade and laissez-faire Fédéric Bastiat (1850-1851).

* * *

The history of political economy, Marx tells us, begins, at the end of the seventeenth century, with Petty and Boisguillebert, and ends with Ricardo and Sismondi. The subsequent literature in its main part either ‘ends up […] in eclectic, syncretic compendia’, (Marx cites John Stuart Mill), or ‘detailed elaboration of particular branches, like e.g. Tooke’s History of Prices […].’

Standing out (Marx tells us) as exceptions among the more recent economic literature are the contributions of Bastiat and Henry Charles Carey. Despite the obvious superficial differences between the laissez-faire supporting Bastiat and the protectionist Carey both are defenders of the notion of economic ‘harmony’. Both, in addition, share in common the view that ‘the opposition to political economy—socialism and communism—finds its theoretical assumptions in the works of classical political economy itself, especially in Ricardo, who must be considered as its most complete and final expression’; both, as a consequence, ‘find it necessary to criticise the theoretical expression which bourgeois society has historically achieved in modern political economy as a misunderstanding and to demonstrate the harmony of the relations of production at the point where the classical economists naively analysed their antagonism.’

For Carey, the superiority of capitalist society in the Unites States over the ‘English’ (sic) lies in the fact that it is unfettered by precapitalist forms; specifically, for Carey, the influence of old—feudal—society manifested itself in the hold the State had on the economy, in the form of government taxes, State monopolies, public debt, etc. (while for Marx, of course, ‘these State influences […] themselves arise from bourgeois relations’).

However, if for Carey English society stands as an example of backwardness, for Bastiat it is a symbol of progress: for Bastiat it is the French State that fetters bourgeois development, while in England bourgeois forms are allowed their free development.

More (pdf: 121 KB): Grundrisse2_Basitiat and Carey

Previous post: 1  The Grundrisse: An introductory note

Next Post: 3 The Grundrisse: ‘Introduction’

1 The Grundrisse: An introductory note

The Manuscript of 1857-58―known as the Grundrisse (literally ‘floor plans’, i.e. ‘outlines’, but this title was not Marx’s) consists of those texts Marx wrote from the summer of 1857 to the summer or 1858, namely the text ‘Bastiat and Carey’; the ‘Enleitung’ (‘Introduction’); the two longer ‘chapters’, ‘Chapter on Money’ and ‘Chapter on Capital’; and the fragment ‘Value’ (even though the first two of these texts―‘Bastiat and Carey’ and the ‘Introduction’―do not really form an integral whole with the other three). The Manuscript, not intended by Marx for publication, and unknown at the time of his death, represents the first attempt by Marx to put his mature economic theories (developed in London over the course of the 1850s) into written form.

Marx had begun his enquiry into political economy in the summer of 1844. The previous year, the radical-democratic Rheinische Zeitung, of which he had been managing editor, had been suppressed; looking back on this period of his life some fifteen years later he noted that with this circumstance he had been given

the opportunity to withdraw from the public stage to my study. […] My inquiry led me to the conclusion that neither legal relations nor political forms could be comprehended whether by themselves or on the basis of a so-called general development of the human mind, but that on the contrary they originate in the material conditions of life, the totality of which Hegel, following the example of English and French thinkers of the eighteenth century, embraces within the term ‘civil society’; that the anatomy of this civil society, however, has to be sought in political economy.

Over 1842 and 1843, his engagement with Feuerbach had led him to focus his attention on what he saw in Hegel and Hegelianism as the mystification of human (social) relations. ‘In order to secure remission of its sins,’ he had written to Arnold Ruge, ‘mankind has only to declare them for what they actually are.’ On this was based his concept of ‘alienation’, the estrangement (‘Entfremdung’) of human beings from their true nature. This, he came to see, lay grounded on the architecture of a social alienation, which, through the ‘cash nexus’, embodied itself in and through private property. And to the extent that the political economy of the time posited private property as immutable to the human condition then political economy itself stood as an expression of the interests of private property. Thus began Marx’s critique of political economy. From this point onwards, when circumstances permitted (which often they did not), he wrote and researched with the intention of publishing an ‘Economics’ (which is how he would habitually refer to the project in his correspondence).

More (pdf: 128 KB): Grundrisse1_An introductory note (140 KB)

Previous post: Ricardo’s Principles, Chapter 7: On Foreign Trade

Next post: 2  The Grundrisse: Bastiat and Carey

Ricardo’s Principles, Chapter 7: On Foreign Trade

I  The value of imported foreign goods

The value of the foreign goods imported into a country is determined by the value of the domestic goods exchanged for them, and will be equal to the value of these domestic goods, plus profit. If the prevailing rate of profit is 20%, then, a merchant who sells £1,000 of domestic produce will be able to procure foreign goods which she will be able to sell for £1,200. Should she be able to sell these goods ‘for more than £1,200, the profits of this individual merchant would exceed the general rate of profits, and capital would naturally flow into this advantageous trade, till the fall of the price of wine had brought every thing to the former level.’ Given this, how many goods are procured for a given price is immaterial: ‘we should have no greater value, if by the discovery of new markets, we obtained double the quantity of foreign goods in exchange for a given quantity of ours.’ (Ricardo thus emphasises the difference between the value of a given mass of goods, and the size of the mass—in Marx’s terms, between wealth and value.)

II The rate of profit in foreign trade and the rate of profit in general

Ricardo opposes himself to the notion that the high rates of profit enjoyed by the foreign trade merchants will act to raise the general profit rate. The argument, which he imputes to Adam Smith, says that if the rate of profit on foreign trade is higher than on domestic manufacture, then capital will move out of the production of the latter in favour of the former, such that the supply of manufactured goods will fall and their price will rise, raising profits. He believes that profit rates will indeed equalise, but he does not believe that in the circumstances described the high profit in foreign trade will raise the profit rate in other activities; rather, the prevailing rate of profit elsewhere will force the high rate of profit in foreign trade down to the prevailing average.

Ricardo argues that capital will not be withdrawn from domestic manufacture in the absence of a fall in demand, and if it is withdrawn in these circumstances, the price of these goods will not rise.

If the quantity of domestically produced goods exchanged for foreign goods does not change, then the demand for domestic goods will remain the same too, and the amount of capital dedicated to their production will remain the same as well. If the price of foreign commodities should fall (and the quantity imported remain the same), then this may bring about a rise in the demand for domestic manufactures, for the domestic consumer will have more disposable revenue. But in these circumstances there will also be more capital available for the production of domestic manufactures, for less capital will be dedicated to the production of the domestic goods for which the foreign goods will be exchanged, and neither domestic profits nor the prices of domestic goods will rise.

More (pdf: 128 KB): ricardo_principles_7

Previous post: Ricardo’s Principles, Chapter 6: On Profits

Next post: 1  The Grundrisse: An introductory note

Ricardo’s Principles, Chapter 6: On Profits

Ricardo reminds us that we have seen that ‘[t]he profits of stock in different employments hav[e] been shown to bear a proportion to each other, and to have a tendency to vary all in the same degree and in the same direction.’ In this chapter, therefore, ‘it remains for us to consider what is the cause of the permanent variations in the rate of profit, and the consequent permanent alterations in the rate of interest.’

The price of corn is determined by the amount of labour necessary to produce it on the land that pays no rent. The price of the product that is produced on this land, likewise the price of manufactured goods, is ‘resolved’ into two components, the profits of stock and the wages of labour. If prices are constant, and productivity constant, then the only factor that can impact profits is wages: if they rise, profits fall, and vice versa.

But now, imagine that there is a fall in the productivity of corn-producing labour. Corn will rise in price. The price of manufactured goods would not change, but if wages, tending towards subsistence, rise in function of the rise in corn, then manufacturing profits will fall. Corn-producing profits will also fall, since the corn producer will also be hiring the new, higher-cost labour. The farmer on the previous highest-cost land, land on which now rent is paid, will dispose of labour of unchanged productivity, but part of the product will now pass to the landowner in the form of rent; the farmer on the new, less productive land, will employ more labour to produce a higher value product – in both cases, profits will conform to those of the manufacturer.

More (pdf: 128 KB): ricardo_principles_6

Previous post: Ricardo’s Principles, Chapter 5: On Wages

Next post: Ricardo’s Principles, Chapter 7: On Foreign Trade

Ricardo’s Principles, Chapter 5: On Wages

The natural price of labour is ‘that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution.’ Subsistence is of course a function of the real wage: ‘[t]he power of the labourer to support himself, and the family which may be necessary to keep up the number of labourers, does not depend on the quantity of money which he may receive for wages, but on the quantity of food, necessaries, and conveniences become essential to him from habit, which that money will purchase.’ Given the subsistence real wage, then, the money wage will move with the price level.

From this Ricardo draws the conclusion that the natural price of labour exhibits a long term tendency to rise, because ‘one of the principal commodities by which its natural price is regulated’ (Ricardo means corn) tends over the long term to become more expensive, even if ‘improvements in agriculture [and] the discovery of new markets […] may for a time counteract […] [this] tendency […].’

The natural price of commodities in general (‘excepting raw produce and labour’), however, display a long term tendency (‘in the progress of wealth and population’) to fall: this is due to the cheapening effect of technical and scientific advancements, which more than offset the effect on price of ever more expensive raw materials. The market price of labour is the price, under the effect of supply and demand, it actually sells at on the market; nevertheless, as is the case with other commodities, ‘[h]owever much the market price of labour may deviate from its natural price, it has, like commodities, a tendency to conform to it.’

More (pdf: 123 KB): ricardo_principles_5

Previous post: Ricardo’s Principles, Chapter 4: On Natural and Market Price

Next post: Ricardo’s Principles, Chapter 6: On Profits