This little book is a guide to Marx’s views on money. It is a point of access to ideas that have been much neglected in twentieth-century debates on monetary theory and policy, but provide, I think, valuable and plausible scientific alternatives to the views that have dominated these debates.
The first thing a student of money notices is that in a monetary economy the movements of money and commodities are intertwined. At the level of the individual transaction some means of payment moves in one direction and some commodity moves in the opposite direction. The theoretical question then arises as to which is the determining factor. Does the movement of money determine the movement of commodities or the movement of commodities determine the movement of money? Even if we come to acknowledge a large measure of mutual determination between the movements of money and commodities this question still provides the starting point for theories of money, and in the end we will want to know from our theory which aspect is the primary determining factor.
Consider for example the early form of the Quantity Theory of Money. Since in every transaction a certain amount of money changes places with commodities having a certain price, it is clear that the total money price of commodities that a given quantity of money can exchange for in a period is proportional to the average number of times each unit of money moves in the period, its velocity. This identity is the quantity equation of money. The quantity theory asserts that all existing money participates equally in this circulation, so that the existing quantity of money, and velocity, which depends on social and technical factors outside the monetary sphere, determine the total price of commodities exchanged in a period. In this theory the proximate determinant of changes in the amounts of commodities exchanged is the effort of individuals to acquire or get rid of money. The quantity theory usually argues that in long-run equilibrium the money prices of commodities will adjust proportionately to the quantity of existing money, so that the actual quantities of commodities exchanged in the long-run equilibrium are determined by nonmonetary factors like tastes and technology. Still it is clear that the starting point of the early quantity theory is the idea that movements of money determine movements of commodities. Keynes and those who adopt his monetary theory by and large take up a similar, though somewhat modified position. Changes in asset prices, interest rates, and, as a consequence, in spending within Keynes’ theoretical framework are the result of the attempts of individual wealth-holders to adjust their holdings of money to some desired level. Again, changes in commodity flows are in large part determined by monetary changes.
As this book makes clear, Marx started from the opposite view that the movement of commodities is largely determined outside the monetary sphere, and that movements of money in most cases are determined by those commodity movements. Marx thus emphasizes a view of money as a medium through which commodity exchange takes place, a medium that transmits, but in most instances does not create, impulses of spending that originate outside itself. Units of money are moved by the exchange of commodities as molecules of water are displaced by a wave propagating through a pond. This general point of view is well illustrated, as de Brunhoff shows in the first part of this book, by Marx’s discussion of the quantity equation, on which he bases his law of circulation. Not only the quantities of commodities produced and exchanged and the transactions velocity of money, but also the money prices of commodities are taken by Marx as determined outside the circulation process. It is the quantity of circulating money in Marx’s view that adjusts to satisfy the quantity equation, a sharp reversal of the quantity theory interpretation.
This view that money is primarily a transmitting medium rather than an active disturbing element in the economy also carries over to Marx’s complex and incomplete discussion of credit and interest. Here interest appears as a simple quantitative division of total profit, with no power to determine the rate of profit or the rate of investment. This is in sharp contrast to Keynes’ view that the rate of interest is an important determining factor in investment through its influence on the “marginal efficiency of capital” (the profit rate on current investment).
Despite the fact that Marx sees movements of money as primarily determined by movements of commodities, he does not argue that money is “neutral” or “a veil,” or that it “does not matter.” For example, Marx emphasizes that the existence of money and the possibility of hoarding are preconditions for a general crisis of overproduction in a capitalist economy. This is one instance where Marx’s unified treatment of “macroeconomics” and “microeconomics” is clearly advantageous. Marx never separates the theoretical terms in which he discusses the reproduction of particular capitals from the terms in which he discusses the reproduction of the capitalist system as a whole. At each level Marx explicitly analyzes the role and movement of money and makes clear its qualitative importance. In this way he avoids the theoretical embarrassment of having distinct and incompatible theories of macroeconomics and microeconomics. Modern bourgeois economics begins with a theory of the firm and the household which abstracts from the existence of money and assumes that commodities can be exchanged directly for each other without the intervention of money. This type of theory leads to a notion of equilibrium for the economy as a whole that rules out crises of overproduction and widespread unemployment of labor. To explain these important features of capitalist economic development bourgeois economics adopts a quite different theory, developed from the work of Keynes, which is unfortunately inconsistent with the bourgeois microeconomic theory of the firm and household in several ways. A leading theoretical problem in modern bourgeois economics is to reconcile these two theories with each other in an appropriate way. Marx avoids this problem by creating a unified treatment of individual capital and the capitalist system as a whole, a treatment which at every level acknowledges the role that money plays. This feature should recommend the study of his theory of money to modern students of monetary problems.
Marx’s treatment of money, which as Suzanne de Brunhoff shows, represents his reading and criticism of the major writers on money available to him, offers a consistent scientific explanation of the major phenomena of monetary economies. Furthermore, this explanation is distinctly different from the dominant positions in twentieth-century monetary theory, and yields different explanations of particular historical events. An instance of this is the question of the degree to which the monetary policy of the state can create or moderate crises in the accumulation of capital. Keynes’ analysis of this question, which concludes that within broad limits monetary policy can alter the rate of investment and determine aggregate demand, is at sharp variance with the presumption we arrive at on the basis of Marx’s discussion, which limits the effects of monetary policy to the sphere of money and credit, and sees monetary policy having its major impact on the concentration of capitals in periods of crisis.
To discover and formulate these differences in a form sufficiently precise for use in statistical and historical studies is a substantial theoretical task. Marx’s writings on money remain in a “pre-model” stage, and it will be necessary for us to bring this theoretical position to the point of exact expression in a series of models. De Brunhoff’s work in this book represents an invaluable first investigation of this problem on which much further work can be built.
As de Brunhoff shows, the question of money is one of the central organizing threads in Marx’s analysis of capitalist production. In the course of outlining Marx’s thoughts on money this book provides very valuable insights into the structure of his study of capitalism and throws light on certain very difficult questions of Marxist interpretation. A good example is the vexed question of the starting point for Capital, the question of why Marx began his studies of capitalism with an analysis of commodity and money forms. Marx on Money provides an illuminating discussion on this problem. De Brunhoff’s method of analysis also gives us a complete overview of the structure and argument of the three volumes of Capital taken together.
Most modern monetary theory has been undertaken with the explicit aim of improving state monetary policies in modern capitalism. This study of Marx’s monetary theory shows how little Marx was motivated in this direction. In monetary theory, as in most of his analytical work on capitalism, Marx seeks first of all to discover the objective determinants of social phenomena, the laws of motion of the system. A correct understanding of the relation of money to the production and exchange of commodities, which is clearly the aim of Marx’s contribution, is a precondition for a sensible evaluation of the potential and performance of monetary policy in capitalist society. But Marx’s approach does not necessarily lead directly to results that will help monetary policy-makers in their problems.
This does not mean that Marx’s monetary theory has no political consequences. In advanced capitalist societies the monetary mechanism is closely bound up with the State, and political struggles often focus around monetary policy and management. Inflation and unemployment are in advanced capitalist societies major issues over which class struggle is fought out. Workers who have again and again been asked and forced to accept lower or less rapidly rising wages or unemployment as part of a national policy against inflation can testify to this. These issues are intimately connected to monetary theory and policy. A scientific understanding of the nature and consequences of monetary policy is necessary for a correct strategy of political struggle and debate over these questions of national economic policy. Those who are engaged in these struggles on the side of the working class can only be weakened by relying on a monetary analysis adopted from Keynes or other bourgeois economists to the extent that this analysis is incorrect. A correct theory of money firmly based on the principles of the materialist conception of history is essential. Marx worked to formulate such a theory in its basics, and Suzanne de Brunhoff in this book takes the first steps toward recovering and completing that theory. Marx on Money is in this sense an important intellectual contribution to political struggle.
—Duncan K. Foley