Commodity Money

11 Key excerpts on "Commodity Money"

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  eBook - PDF

  Modeling Monetary Economies

  • Bruce Champ, Scott Freeman, Joseph H. Haslag(Authors)
  • 2022(Publication Date)
  • Cambridge University Press

    (Publisher)

  Money – whether fiat money or Commodity Money – may have value in excess of its intrinsic value because it provides a means of trading for goods desired (c 2 ) but otherwise unattainable. Because the use of a commodity as money may raise its value, what serves as a medium of exchange in an economy has implications for the distribution of wealth. For example, if a Commodity Money system with v g t > ˜ v were replaced with a fiat money system, the price of gold would fall to its intrinsic value of ˜ v. For this 4.4 A Model of Commodity Money 69 reason, owners of gold or other possible commodity monies are very interested in the medium of exchange used in their economy. 4.4.2 The Inefficiency of Commodity Money Economists have often stated that commodity monies are inefficient. Friedman (1960) made the inefficiency clear over 60 years ago. What is meant by this statement? From the development of this chapter, we can gain useful insights into this claim. It is useful to compare the economy developed in this chapter with the fiat money economy in Chapter 3. In that chapter, we considered a monetary equilibrium in which there was a constant population and a constant money supply. Hence, the environment was similar to the environment of the Commodity Money economy of this chapter. Recall the combined budget constraint governing individual choices in our Commodity Money economy (Equation 4.3, with a stationary equilibrium): c 1 +  v g t v g t +1  c 2 ≤ y . (4.10) We found that, in this economy, the price of gold is constant over time, which implies a return on gold of 1 (v g t +1 /v g t = 1). Substituting this result, we find c 1 + c 2 ≤ y . (4.11) This represents the budget set available to future generations. Equation 4.11 shows that the budget set in the Commodity Money economy is identical to that in the comparable fiat money economy. The choices open to people of future generations are the same.

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  Money and Abstract Labour

  On the Analytical Foundations of Political Economy

  • Ulrich Krause, Jon Rothschild, Pete Burgess(Authors)
  • 2020(Publication Date)
  • Verso

    (Publisher)

  3

  Money and thePrice-Form

  Money exists, and has existed, in a variety of concrete forms, ranging from cattle to gold coins to the European Currency Unit.1 Theories of the functions and essence of money are no less plentiful, extending even to the question of why money exists at all. The profusion of disparate theories of money suggests that there is no theory of money yet.

  This chapter will focus on a question raised by the points made in the previous chapter. Although simple, it has received the most divergent answers: to what extent does money as a commodity play a special role in relation to all other commodities, and how can this role be described with greater precision?

  In some respects the analysis that follows takes up Marx’s discussion of money in the framework of his analysis of the value-form; in others it builds on some recent contributions to the micro-economic foundations of monetary theory.2 The essence of my point of view is that money should be treated not as a mere magnitude, but as a structure. This aspect of money, I would argue, has so far been neglected.

  1. The Structure of Money

  Intuitively a money-commodity will be a commodity that serves both as the measure for all other commodities and as a medium for the circulation of commodities. (The limited scope of the basic question raised above excludes money’s possible role as a so-called store of value.)

  A given system of commodity exchange may have a single money-commodity or several, up to a limiting case in which all commodities are money-commodities.

  To be more precise, a system of commodity-exchange is here regarded as a certain relation between quantities of commodities, in other words, a relation τ on the set of commodities C = {xCi | x > 0 1 ≤ i ≤ n}. (As before, for the sake of brevity we will write Ci = 1Ci for the commodity Ci or for one unit quantity of this commodity, depending on the context.) To represent interchanges such as direct exchange itself as a relation such as τ, we must consider relations τ that are more general than value relations (although τ

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  Capital and Exploitation

  • John Weeks(Author)
  • 2014(Publication Date)
  • Princeton University Press

    (Publisher)

  While money must be a commodity, the money commodity cannot be treated as if it were like all other commodities, which the above argument does. The money commodity differs from all other commodities in that it need not be realized, since it is the general equivalent. 18 All other commodities must be converted into money in order that the circuit of capital be 16 Shaikh, "On the Laws of International Exchange." 17 Strictly speaking, gold does not have a price in this context, since it is itself the denomination of price. It only has an exchange value relative to any other particular commodity. 18 Consider the circuit of capital from the point of view of the producers of all but the money commodity. Their circuit has three moments, M-C . . . P . . . C-M', capital advanced (M-C), the moment of production (P), and the moment of realization (C 1 -M'). The producer of the money com- modity has no realization moment, M-C . . . P . . . C'-M'. For the producer of the money commodity there can be no problem of realization, since money is realized abstract labor. THEORY OF MOMEY 111 renewed. If an excess supply of one of these commodities exists, then either the price of the commodity must fall in order to sell the excess or part of value and surplus value is unrealized and remains in a form in which it is useless to the capitalist. Not so with the money commodity. All producers must convert their commodities into money; money, however, need not be converted into commodities, but can be held as the general embodiment of socialized wealth. The money commodity is a commodity "of its own type," the commodity into which all others must be con- verted in the circuit of commodities and capital. Thus, the circulation of money is stimulated by the need to realize the nonmoney commodities, and it is drawn into circulation or lies idle depending upon the number and value of commod- ities to be realized.

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  Money, Income and Time

  A Quantum-Theoretical Approach

  • Alvaro Cencini(Author)
  • 2013(Publication Date)
  • Bloomsbury Academic

    (Publisher)

  In truth, the problem caused by the dichotomous perception of reality — which gave so many problems to neoclassical economists — is not even considered within the theoretical framework of classical economics. As a commodity, money is immediately integrated with real output, and its value is deter-mined by its direct relationship to labour. Thus the problem of purchas-ing power is also immediately solved: possessing a positive intrinsic value, money can be exchanged against any other commodity whose production requires the same quantity of homogeneous labour. Moreover, if the bank issues money by linking its promise to gold, the purchasing power of bank money is easily explained by the fact that this currency is endowed with the value of the real goods that it represents. Finally, the exchange between money and output defines the exchange between two products even when money is reduced to a simple stroke of a pen. 1.2. Money as a dimensional standard of value The reasoning behind the introduction of the classical concept of commodity-money is simple. Having defined the value of goods in terms of labour, it became apparent that this economic predicate of real output was somehow analogous to its physical attributes, necessitating The Concept of Commodity-Money 105 a standard of value comparable to the standards used in physics. In other words, it was assumed that value is a kind of economic substance pertaining to the product. This concept of dimensional value — discussed as early as Smith (1978: 136) — is particularly evident in the works of Ricardo. In his search for a constant standard of value, the author of the Principles clearly defines the logical boundaries of the classical analysis of labour-value. If output is economically defined through its value, and if this value can only be expressed in terms of labour, then it is necessary to look for an invariable measure of labour, that is for a commodity whose labour-value remains constant in time.

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  Money and Calculation

  Economic and Sociological Perspectives

  • M. Amato, L. Doria, L. Fantacci, M. Amato, L. Doria, L. Fantacci(Authors)
  • 2010(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  Indeed it is clear to see, when the issue of Commodity Money is addressed, how universal is the presumption that the money commod- ity must be a physical commodity, even though in advanced capitalist countries around 80 per cent of produced commodities are services. When we move away from the notion that Commodity Money must be a physical commodity, many of the supposed critiques of Commodity Money lose significance. In essence, there are four ‘standard’ critiques of Commodity Money (understood as gold). Let us see how each applies to financial derivatives (in italics). (a) Inappropriate quantity: Gold is limited in supply (but supply can be subject to sudden growth, such as with the discovery of new deposits), and supply does not grow in proportion to the value of output. For derivatives, quantity (and turnover) may be extremely high, but there is a counterparty on each side of a contract and what matters is price, not quan- tity. (And for this reason, the growing turnover of derivatives is not inflationary.) Time and Place: Foundations of Commodity Money 113 (b) Physical limitations: Gold as money requires periodic verification of its weight and quality associated with the potential for gold ‘clipping’ and other forms of cur- rency debasement. It also has portability problems. Derivatives inher- ently involve a process of continual verification of the value of one form of money in terms of other forms of money, and all in terms of other asset prices. The concern about verification in derivative markets, as we have seen with asset-backed securities and other collateralized debt obligations, is that insuf- ficiently regulated markets permit market-deceiving behaviour. But these con- cerns are not money-specific. (c) Dual values: Gold’s value as money and its value as a commodity may not be the same – indeed, if gold’s industrial value is greater than its monetary value, currency will be melted back into metal.

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  Beyond Bitcoin

  The Economics of Digital Currencies

  • Hanna Halaburda, Miklos Sarvary(Authors)
  • 2016(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  However, as we saw in our historical overview, there are important frictions that limit trade or make it more difficult. Money is an impor - tant innovation in that it alleviates some of those frictions. M e d i u m o f E x c h a n g e : E v e r - P r e s e n t C o m p e t i t i o n 23 The adoption of a given type of money will depend on how well the money’s attributes satisfy consumers’ eco- nomic needs. We discussed a number of such attributes— for example, divisibility, ease of storage and transport—in our overview and we present them in its summary table. We now discuss them more systematically. Economists often use the following three-part definition of money: (1) unit of account, (2) medium of exchange, and (3) store of value. This definition means that two people can agree how much a good is worth in terms of money (that’s part 1); people accept the money when they are selling the good, because they believe it will be accepted elsewhere when they want to exchange it for a good they want to buy (part 2); and money will not lose its value drastically between the time people get it and the time they spend it to buy something else (part 3). These three characteristics make it possible for money to facilitate trade. Each of these dimensions is important. If we know that even one is missing, we would probably not accept a given kind of money in a transaction. There are, however, some issues with this definition. First of all, it is somewhat circular. In essence, it says that money is something that is being used as money . In this sense, it just describes an equilibrium. What it cannot do is tell us whether a can of mackerel or a Zimbabwean dollar is money. Moreover, the definition sounds like three yes-or-no questions, suggesting that if you answer “yes” three times, what you are evaluating is money . That’s not the case. For example, there is nothing that could serve as medium of exchange in all transactions and nothing that could potentially store value forever.

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  The Value of Money

  • Prabhat Patnaik(Author)
  • 2009(Publication Date)
  • Columbia University Press

    (Publisher)

  This is because any separation of purchase and sale, which the transaction demand for money presupposes, implies that there is a certain transitional period when wealth is held in the form of money, a fact underscored by Marx’s concept of “money capital” into which “commodity capi-tal” is transformed, and which in turn is transformed to “commodity capital.” Money in the World Economy 199 In a world in which there are no currencies at all but only commodities, one com-modity from among them would have to be set aside to serve the role of a wealth-holding medium; and typically it would be that commodity whose expected rate of change of relative price, less the relative carrying cost, is the highest. Putting it differ-ently, if all commodity prices are expected to move more or less in tandem, then that commodity would be chosen as the money commodity that has the lowest carrying cost. Gold typically has been the money commodity, since it has a very low carrying cost. And because of this very fact, namely the low carrying cost, which has made it a favorite form of wealth holding, its price is generally expected not to fall relative to the world of commodities, thus reinforcing its position as the money commodity. In a world of currencies, that particular currency would be chosen as money that is “as good as gold” in the minds of wealth holders. Throughout history, until very recently, this “as good as gold” status has been enjoyed by particular currencies by virtue of their being statutorily enshrined as being freely convertible to gold. Under the gold standard, the pound sterling, which was the leading currency of the time, had a fixed price vis-à-vis gold at which it was freely convertible; and so, in principle, were the other currencies, which had fixed exchange rates vis-à-vis the pound ster-ling.

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  Marx's Theory of Money

  Modern Appraisals

  • F. Moseley(Author)
  • 2004(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  This is important because we can thus appreciate the total absence of any reference in Marx to the hypothesis that money must at any point become a non-commodity. Finally, my goal is to provide a clear exposition of what Marx’s theory of money is, rather than engage in discussion regarding the extent to which his theory is the one which most accurately captures reality. 1 Marx defines money, the general equivalent of value, as a commodity According to Marx, the exchange value of a commodity is merely the proportion in which use values of one sort are exchanged for those of another sort (Marx 1867a: 13, 23). 1 The form of value is the theoretical name of the exchange value when the general equivalent, or money, is already pre- sent (Marx 1867a: 19; Marx 1880: 187, 202), which means that the latter is also a use value (i.e., a commodity). In effect, the three peculiarities of the general equivalent, presented by Marx, unequivocally define it as a com- modity: ‘the first peculiarity … is this: use-value becomes the form of mani- festation … of its opposite, value’; ‘the second peculiarity … is that concrete labor becomes the form under which its opposite, abstract human labor, manifests itself’; ‘a third peculiarity … [is] that the labor of private individu- als takes the form of its opposite, labor directly social in its form’ (Marx 1867a: 23–5). There is ample textual evidence corroborating that this is Marx’s consistent definition of money, briefly exemplified by the following: Money … the universal commodity – must itself exist as a particular commodity alongside the others … (Marx 1939: 165) the universal equivalent form becomes identified with the bodily form of a particular commodity, and thus crystallised into the money-form. … Commodities find their own value already completely represented, with- out any initiative on their part, in another commodity existing in company with them.

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  Money and its Origins

  • Shahzavar Karimzadi(Author)
  • 2012(Publication Date)
  • Routledge

    (Publisher)

  Reification of money emanates from the fetishism of the commodity. A commodity is primarily a repository of value. The first phase in the history of exchange is when two commodities of equivalent values are exchanged. The equivalent value of one commodity is being exchanged into another. By the same token, the effect is going to be the same when a few commodities are exchanged with one another.

  The process of reification of money gradually materializes when more and more commodities tend to be exchanged first to fewer commodities and ultimately to one commodity. At the apex of this pyramid is gold. It symbolizes the head of Commodity Money. Gold was selected then to play this role, the role of the common denominator. Initially then units of money in the form of gold were exchanged with units of commodities that embodied equal amounts of labour. The full-bodied gold coins (coins that required an equivalent amount of labour) were exchanged with commodities of equal value. This phase in history of exchange is characterized by exchange of commodities which have intrinsic value.

  The next phase commences with the introduction of counterfeit gold coins. Fake gold coins represent gold coins with full intrinsic value. This gradual transformation slowly but surely alienates money from its initial entity. Then appearance deviates from its actual reality. Depreciated gold coins would do the job of full-bodied gold coins. The debased coins were now exchangeable with commodities of greater value. That in turn separates the form from the essence of money.

  In the section of Capital designated to commodity fetishism, Marx describes the origin of fetishism in commodities. He relates it to one of the two components of a commodity. It is not in the use value since this aspect of a commodity is so obvious and detectable with common sense. It amounts to the utility or usefulness acquired from a commodity. The fetishism must then reside in the exchange value and in the abstract labour. In a commodity with full intrinsic value abstract labour makes it exchangeable. How then can this process of commodity fetishism be applied to money? In his Critique Marx explains this process, commenting that it is done when one commodity is selected to represent the universal labour time. He calls the process: “the direct reification of universal labour-time,

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  Monetary Economics

  Theories, Evidence and Policy

  • David G. Pierce, Peter J. Tysome(Authors)
  • 2014(Publication Date)
  • Butterworth-Heinemann

    (Publisher)

  The use of a unit of account greatly reduces the number of exchange ratios between goods and services. With η commodities, one of which is acting as a unit of account, there will need to be only n-l rates of exchange. Without a unit of account, however, there will be V2n{n-) separate rates of exchange. Thus, if there are 1000 goods, one of which is a unit of account, then each of the remaining 999 goods will have an exchange rate in terms of the nth, i.e. there will be 999 exchange rates. With no unit of account, however, there will be a separate exchange rate between each pair of commodities, giving 499,500 separate exchange rates. Money as a unit of account is an abstract form of money, though it may have a physical counterpart. In primitive societies a tangible object such as a cow or a cowrie shell may act as the unit of account, so that the exchange values of all other 2 The functions, advantages and definitions of money commodities are expressed in terms of a quantity or number of cows or cowrie shells. But physical objects such as cows tend themselves to vary in the very quality they are supposed to be a measure of. In other words there is no such thing, for example, as a 'standard' cow. No two cows are exactly alike, so that if it is said that a week's labour services are equal to one cow, there is the added problem of deciding which cow is being used as the standard of measurement. Consequently, in developed monetary systems, physical units of measurement are replaced by abstract ones, which are uniform in the sense that they do not themselves vary in the quaUty measured. One pound sterhng is the same as any other pound sterHng, one USA dollar is the same as any other USA dollar etc. The unit of account may, as we have already suggested, have a physical counterpart. This brings us to the second meaning of the word money; money in its more 'concrete' or tangible form.

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  A Theory of Economic Systems

  • Manuel Gottlieb, Charles Tilly, Edward Shorter(Authors)
  • 2013(Publication Date)
  • Academic Press

    (Publisher)

  18 The available supply of precious metals in most economic systems—the socialist alone excluded— has thus always been divided between indirect exchange use as coins or bul-lion, and between ornamental or utilitarian use; and the amount held or used in the two latter forms has often been estimated to exceed that held in mon-etary form. 19 The interchange in form has its own cycles: the conversion of gold and silver to luxury goods predominating in times of peace, in Marx's judgment, while return to monetary use is favored in turbulent periods. 20 Coined money was thus the first improved form of the institution of money by which it moved from a simple commodity used as means of payment and of indirect exchange into a socially prescribed measure of value with a set of denominations passing current as money by sanction of the state. Coined money was the first massive exercise in standardized weights and measures, and it stepped up the process of monetization that makes for a more rational use of resources. Each piece of money advertised the sovereignty of the state and the benevolence of its ruler. Hence states became jealous of foreign mon-eys, usually prohibited their free circulation, and required that they be turned in for reminting—with some charge for the operation to boot. The operative organization of the institution of money is the mint—an office of the state endowed with the monopoly privilege of preparing precious metals for circulation by certification of their weight and fineness according to set standards.

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