Wednesday, March 6, 2013

A Primer on Money

Money is the ‘father of private property’ (Weber, [1923] 1961:179) and is ‘the headquarters of the capitalist system’(Schumpeter, 1912: 126). Money is an indispensable condition that represents abstract social labor (Marx 1867: 67). Its value, as such, cannot be determined by an amount of concrete labor expended in the production of a certain money commodity, like gold. Money is socially determined, which is socially guaranteed by institutions, like the state. In this sense, money is nether reducible to an analysis of physical properties or to methodologically individualistic economic calculations (Dodd, 1994: 18).

The special difficulty in grasping money in its fully developed character as money […] is that a social relation, a definite relation between individuals, appears as [a mystification] a metal, a stone, as a purely physical, external thing which can be found, as such, in nature, and which is indistinguishable in form from its natural existence (Marx 1859–61: 239).

Since finance is the defining trait of capitalism, the primary function of money is that of a means of payment that transforms commercial relations between buyers and sellers into financial relations between creditors and debtors (Ingham, 1996; Ingham, 2004: 12, 178, 187). As such, money is a socially accepted token of value that can be described as a hierarchy of promises to pay with increasing social validity and liquidity (Hein, 2006).

We have here M - M’, money creating more money […] the result of the entire process of reproduction appears as a property inherent in the thing itself (Marx, 1894, 391-392).

What is at hand is a complex financial system where the role of credit offers absolute command over property (Marx, 1894: 570). Capitalist social relations are thus credit relations, in which “money business” is separated from “commerce proper” (Marx, 1894: 151). The financing of capitalist production via bank lending creates the conditions for the process of accumulation to be spawned irrespective of capitalist savings out of profits. The implication is that gross profit, surplus value, is quantitatively distributed between ‘financial’ capitalists and ‘industrial’ capitalists, which gives rise to a qualitative distinction between interest and profit of enterprise.
[…] profit of enterprise is not related as opposite to wage-labor, but only to interest. […] Assuming the
average profit to be given, the rate of the profit of enterprise is not determined by wages, but by the rate of interest. It is high or low in inverse proportion to it (Marx, 1894: 379).
‘Financial’ capitalists own interest-bearing capital, credit, which functions as a particular use-value of
[…] being able [...] to produce the average rate of profit under average conditions (Marx, 1894: 352).
Interest-bearing capital exists in the sphere of circulation. As soon as the ‘industrial’ capitalist employs such borrowed capital in the sphere of production to generate surplus value, the interest bearing capital serves for the 'industrial capitalist' as the means by which to purchase the necessary material inputs to be employed in the process of production. The ‘industrial’ capitalist, by not working entirely with his own means of production, is obligated to relegate a portion of profits actualized at the point of sale to the banking sector, what is left over is the ‘profit of enterprise’ (Panico, 1980).

The implication is that if rates of interest regulate rates of profits, real wages are thus endogenously determined. The presence of financial instruments, which represent titles to future flows of income, makes it so that the actual center of distributive conflict in capitalism lies not necessarily in the technical conditions of production, but rather is governed by the rate of interest which is an conventionally-determined exogenous variable that reflects the relative powers of finance capitalists vis-à-vis industrial capitalists. High rates of interest, for instance, induce industrial capitalists to prefer short-term speculative financial investment instead of long-term productive real investment, since access to credit is expensive. As such, industrial capitalists are forced to center attention on the pursuit short-term profit realization, via speculation, in order to handle the burden of costly interest payments—the social cost being nominal wage suppression. It is pertinent that one accept the notion that rates of profit, instead of the wage rate, should be taken as the independent variable in the distribution of social surplus:

The rate of profit, as a ratio, has a significance, which is independent of any prices, and can well be ‘given’ before the prices are fixed. It is accordingly susceptible of being determined from outside the system of production, in particular by the level of money rates of interest (Sraffa, 1960: 33).

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