A Contribution to the Critique of Political Economy/Chapter 2/Note B

by Karl Marx

 

B. THEORIES OF THE UNIT OF MEASURE OF MONEY.

The circumstance that commodities are converted into gold only in ideas as prices and that gold is therefore turned into money only in idea, gave rise to the theory of the ideal unit of measure of money. Since, in the determination of prices, gold and silver serve only ideally as money of account, it was asserted that the names pound, shilling, pence, thaler, franc, etc., instead of denoting certain weights of gold and silver or labor incorporated in some way, stood rather for ideal atoms of value. Thus, if, e. g., the value of an ounce of silver should rise it would contain more such atoms and would therefore have to be estimated and coined in a greater number of shillings. This doctrine, revived again during the last commercial crisis in England and even voiced in Parliament in two separate reports attached to the report of the select Committee on the Bank Acts sitting in July, 1858, dates from the end of the seventeenth century.

At the time of the accession of William III., the English mint-price of an ounce of silver was 5s. 2d., or 1-62 of an ounce of silver was equal to a penny; 12 of these pence were called a shilling. According to that standard, a piece of silver weighing, say, 6 ounces, would be coined into thirty-one coins, each called a shilling. But the market price of an ounce of silver rose above its mint price, from 5s. 2d. to 6s. 3d., or, in order to buy an ounce of silver bullion 6s. 3d. had to be paid. How could the market price of an ounce of silver rise above its mint price, when the mint price is merely a reckoning name for aliquot parts of an ounce of silver? The riddle was easily solved. Out of £5,600,000 of silver money which was in circulation at that time, four millions were worn out, clipped and debased. A trial disclosed that £57,000 of silver which were supposed to weigh 220,000 ounces, weighed only 141,000 ounces. The mint went on coining according to the same standard, but light-weighted shillings in actual circulation represented smaller parts of an ounce than their name implied. Hence, a greater quantity of these lightweighted shillings had to be paid in the market for an ounce of silver bullion. When a general recoinage was decided upon in consequence of the derangement that had been produced, LOWNDES, the Secretary of the Treasury, declared that the value of an ounce of silver had risen and therefore it must henceforth be coined into 6s. 3d. instead of into 5s. 2d. as heretofore. His argument practically amounted to the assertion that the rise in the value of the ounce caused a fall in the value of its aliquot parts. His false theory, however, served merely as an embellishment for a just, practical purpose. The government debts were contracted in light shillings, were they to be paid in heavy ones? Instead of saying pay back four ounces of silver, when you had received nominally five ounces but virtually only four, he said pay back nominally five ounces but reduce the metallic contents to four ounces and call a shilling what you had called four-fifths of a shilling heretofore. Thus Lowndes practically adhered to the metallic weight while theoretically he clung to the reckoning name. His adversaries who clung only to the name and therefore declared the 25 to 50 per cent, lighter shilling to be identical with the full-weight shilling maintained on the contrary that they adhered to the metallic weight.

JOHN LOCKE, who was an advocate of the new bourgeoisie in all forms, the manufacturers against the working classes and paupers, the commercial class against the old fashioned usurers, the financial aristocracy against the state debtors, and who went so far as to prove in his own work that the bourgeois reason is the normal human reason, also took up the challenge against Lowndes. John Locke carried the day and money borrowed at ten or fourteen shillings to a guinea was repaid in guineas of twenty shillings.^[1] SIR JAMES STEUART sums up the entire transaction as follows: ". . . the state gained considerably upon the score of taxes, as well as the creditors upon their capitals and interest; and the nation, which was the principal loser, was pleased; because their standard (The standard of their own value) was not debased."^[2] Steuart thought that the nation would prove more alert with the further development of commerce. He was mistaken. About 120 years later the same quid pro quo was repeated.

It was just in the order of things that Bishop BERKELEY, the representative of a mystical idealism in English philosophy, should have given a theoretical turn to the doctrine of the ideal unit of measure of money, something which the practical "Secretary to the Treasury" had failed to do. He asks: "Whether the terms Crown, Livre, Pound Sterling, etc., are not to be considered as Exponents or Denominations of such Proportion? [namely proportions of abstract value as such.] And whether Gold, Silver, and Paper are not Tickets or Counters for Reckoning, Recording and Transferring thereof? (of the proportion of value). Whether Power to command the Industry of others be not real Wealth? And whether Money be not in Truth, Tickets or Tokens for conveying and recording such Power, and whether it be of great consequence what Materials the Tickets are made of?"^[3] Here we find a confusion, first of the measure of value and the standard of price, and secondly of gold and silver as measures on the one hand and mediums of circulation on the other. Because precious metals can be replaced by tokens in the process of circulation Berkeley comes to the conclusion that these tokens represent nothing, i.e., only the abstract idea of value.

SIR JAMES STEUART had so fully developed the theory of the ideal unit of measure of money, that his successors—unconscious successors since they do not know him—have added to it neither a new version nor even a new example. "Money, which I call of account, is no more than an arbitrary scale of equal parts, invented for measuring the respective value of things vendible. Money of account, therefore, is quite a different thing from money coin, which is price^[4] and might exist, although there was no such thing in the world as any substance which could become an adequate and proportional equivalent, for every commodity. . . . Money of account . . . performs the same office with regard to the value of things, that degrees, minutes, seconds, etc., do with regard to angles, or as scales do to geographical maps, or to plans of any kind. In all these inventions, there is constantly some denomination taken for the unit. . . . The usefulness of all those inventions being solely confined to the marking of proportion. Just so the unit in money can have no invariable determinate proportion to any part of value, that is to say, it cannot be fixed to any particular quantity of gold, silver, or any other commodity whatsoever. The unit once fixed, we can, by multiplying it, ascend to the greatest value. . . . The value of commodities, therefore, depending upon a general combination of circumstances relative to themselves and to the fancies of men, their value ought to be considered as changing only with respect to one another; consequently, anything which troubles or perplexes the ascertaining those changes of proportion by the means of a general, determinate and invariable scale, must be hurtful to trade . . . Money . . . is an ideal scale of equal parts. If it be demanded what ought to be the standard value of one part? I answer by putting another question: What is the standard length of a degree, a minute, a second? It has none . . . but so soon as one part becomes determined by the nature of a scale, all the rest must follow in proportion. Of this kind of money . . . we have two examples. The bank of Amsterdam presents us with the one, the coast of Angola with the other."^[5]

Steuart speaks here simply of the part money plays in circulation as the standard of price and money of account. If different commodities are marked in the price-list at 15s., 20s., 36s., respectively, then I care, in fact, neither for the silver substance, nor for the name of the shilling when comparing the magnitudes of their values. The ratios between the numbers 15, 20, 36, tell everything, and the number 1 has become the only unit of measure. Only the abstract proportion of numbers can at all serve as a purely abstract expression of proportion. In order to be consistent, Steuart should have dropped not only gold and silver, but their legal baptismal names as well. Since he does not understand the nature of the transformation of the measure of value into a standard of price, he naturally believes that the definite quantity of gold which serves as a unit of measure relates as a measure not to other quantities of gold, but to values as such. Since commodities appear as quantities of the same denomination through the conversion of their exchange values into prices, he denies that property of the measure which reduces them to one denomination; and since in this comparison of different quantities of gold the quantity of gold which serves as a unit of measure is conventional, he does not see the necessity of fixing it at all. Instead of calling 1-360 part of a circle degree, he might give that name to 1-180th part; the right angle would then be measured by 45 degrees instead of 90, and acute and obtuse angles would be measured accordingly. Nevertheless, the measure of the angle would remain, then, as before, first a qualitatively definite mathematical figure, the circle, and second a quantitatively definite part of the circle. As for Steuarts economic illustrations, he refutes his own argument with one and does not prove anything with the other. The bank money of Amsterdam was, in fact, merely the reckoning name for Spanish doubloons, which retained their full weight by lying idly in the bank vaults, while the circulating coins became thinner from hard rubbing against the outer world. And as for the African idealists we have to abandon them to their fate until critical travelers will tell us more about them^[6] The French assignat could be called an almost ideal money in Steuart's sense: "National property. Assignation of 100 francs." To be sure, the use-value which the assignation was supposed to represent, namely, the confiscated land, was indicated here, but the quantitative definition of the unit of measure was forgotten and "the franc" became a meaningless word. How much or how little land the assignation franc represented depended on the results of the public auctions. In practice, however, the assignation franc circulated as a token of value of silver money and its depreciation was, therefore, measured by this silver standard.

The period of the suspension of cash payments by the Bank of England was hardly more fruitful of war-bulletins than of money theories. The depreciation of bank notes and the rise of the market price of gold above its mint price called forth again the doctrine of the ideal unit of money on the part of some of the advocates of the Bank. Lord Castlereagh found the classical confused expression for the confused idea by speaking of the unit of measure of money as "a sense of value in reference to currency as compared with commodities." When a few years after the peace of Paris conditions permitted the resumption of cash payments, the same question which had been stirred up by Lowndes under William III., came up, hardly changed in form. An enormous government debt, as well as a mass of private debts, accumulated in twenty years, fixed obligations, etc., had been contracted on the basis of depreciated bank notes. Were they to be paid back in bank notes of which £4672, 10s. nominal, actually represented 100 pounds of 22 carat gold? THOMAS ATTWOOD, a banker of Birmingham, came forth as Lowndes redivivus. The creditors were to receive nominally as many shillings as had been nominally borrowed, but if about 1-78 of an ounce of gold constituted a shilling according to the old standard of coinage, then say 1-90 of an ounce should now be christened a shilling. Attwood's adherents are known as the Birmingham school of "little shillingmen." The controversy over the ideal money unit, which had started in 1819, still went on in 1845 between Sir Robert Peel and Attwood, whose own wisdom, as far as the function of money as a measure is concerned, is exhaustively summed up in the following passage, in which, referring to Sir Robert Peel's controversy with the Birmingham Chamber of Commerce, he says: "The substance of your queries is . . . in what sense is the word pound to be used? . . . To what will the sum one pound be equivalent? . . . Before I venture a reply I must enquire what constitutes a standard of value? . . . Is £3 17s. 10½d. an ounce of gold, or is it only of the value of an ounce of gold? If £3 17s. 10½d. be an ounce of gold, why not call things by their proper names, and, dropping the terms pounds, shillings and pence, say ounces, pennyweights and grains? . . . If we adopt the terms ounces, pennyweights and grains of gold, as our monetary system, we should pursue a direct system of barter. . . . But if gold be estimated as of the value of £3 17s. 10½d. per ounce . . . how is this . . . that much difficulty has been experienced at different periods to check gold from rising to £5 4s. per ounce, and we now notice that gold is quoted at £3 17s. 9d. per ounce? . . . The expression pound has reference to value, but not a fixed standard value. . . . The term pound is the ideal unit. . . . Labour is the parent of cost and gives the relative value to gold or iron. Whatever denomination of words are used to express the daily or weekly labour of a man, such words express the cost of the commodity produced."^[7]

In the last words the hazy conception of the ideal money measure melts away and its real meaning breaks through. The reckoning names of gold, pound sterling, shilling, etc., should be names for definite quantities of labor-time. Since labor-time constitutes the substance and the intrinsic measure of values, these names would then actually represent definite proportions of value. In other words, labor-time is maintained to be the true unit of measure of money. With this we leave the Birmingham school, but should add in passing that the doctrine of the ideal measure of money acquired new importance in the controversy over the question of the convertibility or non-convertibility of bank notes. If paper receives its name from gold or silver, then the convertibility of a note or its exchangeability for gold or silver remains an economic law, no matter what the civil law may be. Thus a Prussian paper thaler, although legally inconvertible, would immediately depreciate if it were worth less than a silver thaler in ordinary trade, i. e., if it were not practically convertible. The consistent advocates of inconvertible paper money in England, therefore, sought refuge in the ideal measure of money. If the reckoning names of money, £, s., etc., are names of certain quantities of atoms of value, of which a commodity absorbs or loses now more, now less in exchange for other commodities, then an English £5 note, e. g., is just as independent of its relation to gold as of that to iron and cotton. Since its title would no more imply its theoretical equality with a certain quantity of gold or any other commodity, the demand for its convertibility, i. e., for its practical equality with a definite quantity of a specified thing would be excluded by the very conception of the note.

The theory of labor-time as the direct measure of money was first systematically developed by JOHN GRAY.^[8] He makes a National Central Bank ascertain through its branches the labor-time consumed in the production of various commodities. The producer receives an official certificate of value in exchange for his commodity, i. e., he gets a receipt for as much labor-time as his commodity contains,^[9] and these bank notes of one week's labor, one day's labor, one hour's labor, etc., serve at the same time as a check for an equivalent in all other commodities stored in the bank warehouses.^[10] This is the fundamental principle carefully worked out in detail and based throughout on existing English institutions. Under this system, says Gray, "to sell for money may be rendered, at all times, precisely as easy as it now is to buy with money; . . . production would become the uniform and never-failing cause of demand."^[11] The precious metals would lose their "privilege" as against other commodities and "take their proper place in the market beside butter and eggs, and cloth and calico, and then the value of the precious metals will concern us just as little . . . as the value of the diamond."^[12] "Shall we retain our fictitious standard of value, gold, and thus keep the productive resources of the country in bondage? or, shall we resort to the natural standard of value, labour, and thereby set our productive resources free?"^[13]

Labor-time being the intrinsic measure of value, why should there be another external measure side by side with it? Why does exchange value develop into price? Why do all commodities estimate their value in one exclusive commodity, which is thus converted into a special embodiment of exchange value into money? That was the problem which Gray had to solve. Instead of solving it, he imagined that commodities could be related directly to each other as products of social labor. But they can relate to each other only in their capacity of commodities. Commodities are the direct products of isolated independent private labors, which have to be realized as universal social labor through their alienation in the process of private exchange, that is to say, labor based on the production of commodities becomes social labor only through universal alienation of individual labors. But by assuming that the labor-time contained in commodities is directly social labor-time. Gray assumes it to be common labor-time or labor-time of directly associated individuals. Under such conditions a specific commodity like gold or silver could not confront other commodities as the incarnation of universal labor, and exchange value would not be turned into price; but, on the other hand, use-value would not become exchange value, products would not become commodities and thus the very foundation of the capitalistic system of production would be removed. But that is not what Gray has in mind. Products are to be produced as commodities, hut are not to be exchanged as commodities. He entrusts a national bank with the carrying out of this pious wish. On the one hand, society, through the bank, makes individuals independent of the conditions of private exchange, and on the other, it allows them to go on producing on the basis of private exchange. The logic of things, however, compels Gray to do away with one condition of capitalistic production after another, although he wishes to "reform" only the money system which results from the exchange of commodities. Thus he transforms capital into national capital,^[14] land into national property,^[15] and if his bank is to be watched closely, it will be found that it not only receives commodities with one hand and issues certificates for work delivered with the other, but that it regulates production as well. In his last work, "Lectures on Money," in which Gray is anxious to demonstrate that his labor-money is a purely bourgeois reform, he gets tangled up in even more glaring contradictions.

Every commodity is directly money. That was Gray's theory deducted from his incomplete and, therefore, false analysis of commodities. The "organic" structure of "labor money," the "national bank" and the "ware-docks" are mere fantastic visions in which the dogma is made by a legerdemain to appear to us as a universal law. The dogma that a commodity is money or that the isolated labor of the individual contained in it is direct social labor, will of course not become true through the mere fact that a bank believes in it and carries on operations accordingly. It is more likely that bankruptcy would play in that case the part of the practical critic. What remains concealed in Gray's writings and hidden from himself as well, namely, that labor-money is a well-sounding economic phrase for the pious wish to get rid of money, and with money, of exchange value, and with exchange value, of commodities, and with commodities, of the capitalistic mode of production, was clearly expressed by some English socialists of whom a few preceded and others followed Gray.^[16] But it remained for Mr. Proudhon and his school to preach in all earnest the degradation of money and the exaltation of the commodity as the gist of socialism and thus to reduce socialism to an elementary misconception of the necessary connection between commodity and money.^[17]

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1. Locke says among other things: ". . . call that a Crown now, which before . . . was but a part of a Crown . . . An equal quantity of Silver is always the same Value with an equal quantity of Silver. . . . For if the abating 1-20 of the quantity of Silver of any Coin does not lessen its Value, the abating 19-20 of the quantity of the Silver of any Coin will not abate its Value. And so a single Penny, being called a Crown, will buy as much Spice, or Silk, or any other Commodity, as a Crown-Piece, which contains 20 times as much Silver. . . . Now [all that may be done] is giving a less quantity of Silver the Stamp and Denomination of a greater. . . . But 'tis Silver and not Names that pay Debts and purchase Commodities" (l. c, p. 135–145 passim). If to raise the value of money means nothing but to give any desired name to an aliquot part of a silver coin, e.g., to call an eighth part of an ounce of silver a penny, then money may really be rated as high as you please. At the same time, Locke answered Lowndes that the rise of the market price above the mint price was due not to the rise of the value of silver, but to the lighter silver coins. Seventy-seven clipped shillings do not weigh a particle more than 62 full-weighted ones. Finally he pointed out with perfect right that, aside from the loss of weight in the circulating coin, the market price of silver bullion in England could rise to some extent above its mint price, since the export of silver bullion was allowed while that of silver coin was prohibited (l. c, p. 54–116 passim). Locke was exceedingly careful not to touch upon the burning question of public debts, and no less carefully avoided the discussion of the delicate economic question, viz., the depreciation of the currency out of proportion to its real loss of silver, as was shown by the rate of exchange and the ratio of silver bullion to silver coin. We shall return to this question in its general form in the chapter on the Medium of Circulation. Nicholas Barbon in "A Discourse Concerning Coining the New Money Lighter, in Answer to Mr. Locke's Considerations, etc.," London, 1696, tried in vain to entice Locke to difficult ground.
2. Steuart, l. c., v. II., p. 154.
3. The Querist, l. c. (p. 5–6–7.) The "Queries on Money" are generally clever. Among other things Berkeley is perfectly right in saying that by their progress the North American colonies "make it plain as daylight, that gold and silver are not so necessary for the wealth of a nation, as the vulgar of all ranks imagine."
4. Price means here real equivalent in the sense commonly employed by English economic writers in the seventeenth century.
5. Steuart, l. c., v. II., p. 154, 299 [1st London edition, of 1767, v. I., p. 526–531. Transl.].
6. On the occasion of the last commercial crisis the ideal African money received loud praise from certain English quarters, after its seat was this time moved from the coast to the heart of Barbary. The freedom of the Berbers from commercial and industrial crises was ascribed to the ideal unit of measure of their bars. Would it not have been simpler to say that trade and industry are the conditio sine qua non of commercial and industrial crises?
7. The Currency Question, The Gemini Letters, London, 1844, p. 260–272, passim.
8. John Gray: "The Social System. A Treatise on the Principle of Exchange, Edinburgh, 1831." Compare with "Lectures on the Nature and Use of Money, Edinburgh, 1848," by the same author. After the February revolution Gray sent a memorial to the provisional French government, in which he instructs the latter that France is not in need of an "organization of labour," but of an "organization of exchange" of which the plan is fully worked out in his money system. Honest John did not suspect that sixteen years after the appearance of his "Social System" a patent for the same discovery would be taken out by the ingenious Proudhon.
9. Gray, "The Social System," etc., p. 63: "Money should be merely a receipt, an evidence that the holder of it has either contributed certain value to the national stock of wealth or that he has acquired a right to the same value from some one who has contributed to it."
10. An estimated value being previously put upon produce, let it be lodged in a bank, and drawn out again, whenever it is required, merely stipulating, by common consent, that he who lodges any kind of property in the proposed National Bank, may take out of it an equal value of whatever it may contain, instead of being obliged to draw out the self-same thing that he put in." L. c., p. 68.
11. L. c., p. 16.
12. Gray: "Lectures on Money, etc.," p. 182.
13. L. c., p. 169.
14. "The business of every country ought to be conducted on a national capital." John Gray, "The Social System," etc., p. 171.
15. "The land to be transformed into national property." L. c. p. 298.
16. See e. g. W. Thompson: "An Inquiry into the Distribution of Wealth, etc.," London, 1827. Bray, "Labour's Wrongs and Labour's Remedy," Leeds, 1839.
17. Alfred Darimont's "De la Reforme des banques," Paris, 1856, may be considered as a compendium of this melodramatic theory of money.