In rejecting the early modern fetishism of gold and silver, Adam Smith, Ricardo, and their successors held that money reduced to its proper role would amount to little more than a ticket to expedite the real exchange process of commodities for commodities. Socialist Ricardians reasonably inferred that the time spent by individual workers at work could be transparently recorded in coupons, the coin of a new, cooperative order of social bookkeeping, redeemable at consumer-producer cooperatives. Marx rejected this conclusion and argued that the very conception of the law of value upon which it was based was fallacious.
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Marx's criticism of political economy unfolded in both a major and minor register. Leading bourgeois economists were the main target, but socialist writers of a reformist bent inspired a more polemical mode of engagement. The meliorist proposals of the latter were typically based on a faulty understanding of the former, e.g., socialist Ricardians who interpreted the labor theory of value to mean that workers were entitled to the product—the so-called 'full fruits'—of their labor. With the Proudhonists and their like, an idealization of the law of value as a principle of exchange relations between the free and equal was invoked to denounce the exploitative toll of interest imposed by money holders on these true producers of wealth. In other words, the obstacle to the realization of the law of value, so conceived, was unequal exchange in the form of interest on borrowed money kept scarce by financial monopolists. All the ensuing social imbalances could be remedied by changing the coin of the realm from gold-backed money to certificates recording hours of labor expended. The timecards of workers would supplant hard money as the means of purchase. By making transparent the contribution of individual producers to the formation of the stock of social wealth, such coupons would make it easier for each and all to appropriate their fair share. With usury struck down, capital would cease to be a social power extorting wealth from the laborers it employed, and become nothing more than the stock of society's material conditions of production available at little cost to voluntary associations of laboring men, bound together by the exchange of value equivalents. The implementation of these arrangements would realize the ideals of liberty and equality without recourse to revolutionary violence.
Marx was dismissive of all such schemes: "this...shows the folly of those socialists (especially the French socialists, who wish to prove socialism to be the realization of the ideas of bourgeois society enunciated by the French Revolution) who purport to demonstrate that exchange, exchange value, etc., were originally (in time) or are essentially (in their adequate form) a system of the freedom and equality of all, but have been perverted by money, capital, etc. Or alternately, that history has so far failed in its attempts to realize exchange and exchange value in their real essence, and that now the socialists, e.g. Proudhon, have discovered the genuine recipe which will substitute the true history of these relationships for the false." Marx insisted that changing the material form of money from gold to paper or to coupons purporting to represent labor time would have no such transformative consequence: "the evil of bourgeois society is not to be remedied by 'transforming' the banks or by founding a rational 'money system.'"
Piecing together Marx's various objections to the idea of replacing money with labor coupons, the following line of argument emerges. The law of value presupposes a pattern of technological cost-reduction—where costs are ultimately reducible to homogeneous labor quantities—unfolding at different rates in different branches of the division of labor, giving rise to continuous, unpredictable changes in the values of commodities relative to one another. Assuming this dynamic of development, tickets or coupons purporting to represent an hour of labor would be unable to represent the value of the product of an hour of labor, as this magnitude is determined only by the time required by laborers employing the currently most efficient means of production. Tokens purporting to represent already expended quantities of labor time would be incompatible with the value form of the products streaming out of this pattern of development. "To maintain its convertibility, the productivity of an hour's labor would have to be kept constant." But kept constant, the law of value itself would cease to obtain. The money price form in which value relations appear manifests the necessarily unplanned, unpredictable relationship of supply and demand characteristic of a capital accumulation-driven economy, a relationship which manifests itself in the opposition of value to price.
"The first basic illusion of the champions of labor-time tickets consists in this: that by abolishing the nominal distinction...between exchange value and price, by expressing value in labor time... they also remove the real distinction and contradiction between price and value."
The law of value has often been conceived as a principle of cost governing the allocation of labor through the exchange of equivalents in all forms of society. It would seem to follow that this allocative mechanism ruled out the 'unequal exchange' involved in the exploitation of one class by another. This was the opposite of Marx's view: in all the periods of his career, the law of value was held to express a full-blown bourgeois or capitalist set of exchange-based relations of production, which were simultaneously understood to be relations of exploitation, even as the order of determination between the two came to be conceived differently.
"For the Ricardian doctrine to be generally true, it is essential a) that capital should be freely applicable to different branches of industry; that a strongly developed competition among capitalists should have brought profits to an equal level; that the farmer should be no more than an industrial capitalist claiming for the use of his capital on inferior land; b) a profit equal to that which he would draw from his capital if it were applied in any kind of manufacture; c) that agricultural exploitation should be subjected to the regime of large-scale industry; and finally, that the landowner himself should aim at nothing beyond the money return."
It follows from this that the labor to which the labor theory of value referred is not the work directly expended in production, but work taking place under social relations which separated owners from non-owners of the means of production, where the workers only claim to the product they contributed to producing is the wages they receive: "the right of property on the side of capital is dialectically transformed into the right to alien products or into the right of property in alien labor, the right to appropriate alien labor without equivalent; and on the side of the worker it is transformed into the duty to relate himself towards his own labor and its product as alien property."
Mired in juridical forms of thought—do ut facias, facio et facias, facio ut des, do ut des—Proudhon could not comprehend how the exchange of equivalents lies at the heart of its apparent opposite—class exploitation. Despite this deficiency in dialectics, Proudhon's forays into political economy were decked out in a Hegelian jargon of self-developing categories. Marx's continued preoccupation with the Frenchman's philosophical economics stemmed from his own unresolved relationship to the Hegelian system: the philosopher was the real target of diatribes against the anarchist.
The Currency vs Banking School
The first notebook of Grundrisse begins with a critique of Darimon, a prominent follower of Proudhon, who had argued for a relaxation of the French central bank's commitment to upholding a strong currency. The fort franc was defended by automatically raising the prime lending rate whenever economic expansion raised prices and increased imports, thereby stemming the resulting outflow of gold reserves.
The relation between bullion reserves of central banks and credit money loomed large in Marx's writings from this period, offering some incisive commentary on contemporary debates on National Bank monetary policy between the so-called Currency and Banking Schools. His first break from the conception of capital he had developed over the period from 1844 to 1847 came out of contentions on the nature of money at stake in the contentions between them. Contemporary debates surrounding the Bank of England's role in determining the supply of money motivated him to develop a deeper understanding of monetary phenomena which could no longer be understood in the terms of the simplistic assumptions of commodity circulation held by Ricardo and his predecessors going back to Hume, according to which the price level was determined solely by the quantity of money in circulation. The monetary stimulus of the American Gold Rush seemed to speak to the structural impetus of the supply of precious metals to the original formation and subsequent expansion of the world market. The significance of the gold standard was underscored by the stabilizing consequences of English monetary policy on world commerce after 1848.
The terms of these debates between the Currency and Banking schools were not exactly clear-cut. Both schools upheld the gold standard as the foundation of a world market monetary regime—this was a policy division within the ranks of the establishment. While it is often thought that Marx relegated all of post-Ricardian economics to the dustbin, he carefully followed these debates over the convertibility of bank notes into gold, the regulation of the quantity of money in circulation, and the role of the national bank in supporting the financial system, with great interest.
"Thus, the controversy in Britain among those who adhere to gold as the denominator of the note is not really about the convertibility of the note into gold...but about how this convertibility is to be secured: whether by the legal imposition of restrictions on the Bank, or by noninterference."
Marx opposed the tight money policies of the orthodox Currency School on theoretical grounds and expressed a guarded sympathy for the leading spokesmen of the Banking School, Tooke and Fullarton. The latter advocated a more deregulated financial system in which an elastic supply of money in the form of privately issued credit instruments would free up the formation of capital, now fettered by the Bank of England's anti-inflationary interest rate policy. Marx's studies of the history of gold and silver going back to antiquity, so evident inhis writings of the period up to 1859, in part, were motivated by this polemical interest in arguing that the new monetary status quo of the gold standard would hold for as long as the social relations of bourgeois society remained intact. The epoch of the law of value would be gilded.
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