Capital Vol. 1, Ch. 3 — mind map

Economic Manuscripts: Capital Vol. I - Chapter Three — marxists.org

Capital Vol. I : Chapter Three (Money, or the Circulation of Commodities)

Ch. 3 — Money, or the Circulation of Commodities

Ch.2 showed why money must arise. Ch.3 asks what money then does — and finds the possibility of crisis lodged in the simplest act of exchange.

1. The Measure of Values

The first main function of gold is to supply commodities with the material for the expression of their values, or to represent their values as magnitudes of the same denomination, qualitatively equal and quantitatively comparable. It thus acts as a universal measure of value, and only through this function does gold, the specific equivalent commodity, become money.

It is not money that renders the commodities commensurable. Quite the contrary. Because all commodities, as values, are objectified human labour, and therefore in themselves commensurable, their values can be communally measured in one and the same specific commodity.

Money as a measure of value is the necessary form of appearance of the measure of value which is immanent in commodities, namely labour-time.

Price is the money-name of the labour objectified in a commodity.

Money has two entirely distinct functions: as the measure of value it is the social incarnation of human labour; as the standard of price it is a fixed weight of metal. As the measure of value it serves to convert the values of all the manifold commodities into prices; as the standard of price it measures those quantities of gold.

The possibility 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 averages between constant irregularities.

The price-form, however, is not only compatible with the possibility of a quantitative incongruity between magnitude of value and price … it may also harbour a qualitative contradiction, with the result that price ceases altogether to express value … Things which in and for themselves are not commodities, things such as conscience, honour, etc., can be offered for sale by their holders, and thus acquire the form of commodities. Hence a thing can, formally speaking, have a price without having a value.

2. The Means of Circulation — the metamorphosis of commodities

The exchange of commodities … C–M–C. The result of the whole process, so far as concerns the objects themselves, is the exchange of one commodity for another, the metabolic interchange of social labour.

The leap taken by value from the body of the commodity into the body of the gold is the commodity’s salto mortale, as I have called it elsewhere. If the leap falls short, it is not the commodity which is defrauded but rather its owner.

No one can sell unless someone else purchases. But no one directly needs to purchase because he has just sold … If the interval in time between the two complementary phases of the complete metamorphosis of a commodity becomes too great, if the split between the sale and the purchase becomes too pronounced, the intimate connection between them, their oneness, asserts itself by producing — a crisis.

These forms therefore imply the possibility of crises, though no more than the possibility. For the development of this possibility into a reality a whole series of conditions is required.

The circulation of money

The movement of the process of circulation of commodities is therefore represented by the movement of money as the medium of circulation … Money constantly moves away from the starting-point of its circulation, whereas the movement of commodities is a constant movement away from the sphere of circulation.

The quantity of money functioning as the circulating medium is determined by the sum of the prices of the commodities, divided by the number of times coins of the same denomination turn over.

Coin, and the symbol of value

In its function as coin, gold becomes entirely divorced from the substance of its value. The coin’s mode of existence becomes separate from its value-substance … Their nominal content and their real content begin to diverge.

Paper money is a token representing gold or money. Its relation to the values of commodities consists only in this: they find imaginary expression in certain quantities of gold, and the same quantities are symbolically and physically represented by the paper.

3. Money — hoarding

In order that the commodity-owner may be able to buy without selling, he must previously have sold without buying.

The desire for hoarding is in its very nature unlimited … money is not only the object but also the fountainhead of the desire for riches.

Just as every qualitative difference between commodities is extinguished in money, so money, on its side, like the radical leveller that it is, does away with all distinctions.

Means of payment

The seller becomes a creditor, the buyer becomes a debtor … the commodity is sold before it is paid for. Money functions here not as the means of circulation but as the means of payment.

In crises … the antithesis between commodities and their value-form, money, is raised to the level of an absolute contradiction. Money suddenly and immediately changes over from its merely notional shape as money of account into hard cash. Profane commodities can no longer replace it.

World money

When money leaves the domestic sphere of circulation it strikes off the local forms which it has acquired — its shapes as the standard of price, as coin, as small change and as a token of value — and falls back into its original form of precious metal in the shape of bullion.

On the world market, money functions as universal means of payment, universal means of purchase, and as the absolute social materialization of wealth as such.

Against the quantity theory

Prices are not determined by the quantity of money in circulation. The causation runs the other way:

sum of prices ÷ velocity = quantity of money required.

Prices are settled before circulation begins; the currency adjusts, with the surplus draining into hoards.

C — M — C

C–M the sale: the salto mortale. The commodity must find a buyer or its owner is ruined.

M–C the purchase: easy — money is the universal equivalent and always finds a taker.

The two halves interlock: my sale is someone’s purchase. Circulation is these chains crossing, endlessly.

Contrast Ch.4: M–C–M′, where the end is money again, and more of it.

The three functions of money

1. Measure of value — and, distinct from it, standard of price. Works ideally: no gold need be present to price a commodity.

2. Means of circulation — coin. Money is fleeting here, so it can be replaced by tokens.

3. Money as money — the hoard, the means of payment, world money. Here money must be actually present, and in its own body.

Note the direction of determination. Commodities are commensurable because they are objectified abstract labour; money merely gives that commensurability an outward form. Money does not create the comparison, it expresses one that already exists.

Price ≠ value, and Marx builds the divergence in deliberately. The law of value asserts itself only as a blind average across constant deviations. Again: not a theory of prices, but an account of why there is a price system at all.

Price without value — conscience, honour, unimproved land. The form outruns its content. Worth holding onto: it is the seed of fictitious capital and of the capitalisation of any revenue stream in Vol. III.

The germ of crisis theory, and the refutation of Say’s Law in principle. Under barter, sale and purchase are one act and a general glut is impossible. Money splits them in time and space — so the metabolism can break down. Marx is careful: this is possibility, not necessity.

Because money in circulation is only fleeting — a vanishing mediator — it can be represented by something of no value at all. Hence coin that wears thin, tokens, and finally state paper.

Credit means commodities change hands before payment, building a chain of obligations. When the chain snaps, everyone demands cash and nothing else will do — the use-value of commodities becomes worthless in the face of their own value-form.