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The Function of Money

Views: 39 Money – its origins, its nature, and its functions – is a subject laden with superstition and wild theory. Even those who are supposed to …

by World Socialist Party US



5 min read

"money" by khrawlings is licensed under CC BY-NC 2.0.

Money – its origins, its nature, and its functions – is a subject laden with superstition and wild theory. Even those who are supposed to know all that is worth knowing about it, the economics experts, frequently find themselves tangled in the intricacies of their explanations. To the nonprofessional  students of Marxian economics the confusions are based primarily on the fact that the training to which the “legitimate” theorists are subjected is geared to the needs of capitalism. To understand the real nature of capitalism, in general, and money, in particular, would inhibit ones effectiveness as an expert and a hired analyst of a society such as capitalism. It is better for those who own the means of wealth production and who hire the experts that inhibiting factors in their expertise be not encouraged.

Somewhere in my studies when a boy in school I learned that money was “invented” by some ruler or other in the periphery of Ancient Greece. The statement is made bluntly and, as I remember, with no equivocation and is probably widely believed today. The truth of the matter is that money was not invented by anybody but developed at a time ante-dating the particular ruler who gets the credit as a normal and natural consequence of a development in primitive trading. Early domesticators of animals had an advantage over other less developed tribes. Their goats, their sheep, and their cattle gave them a relative abundance of food and materials that could be fasioned into clothing and footwear. It is easy to envisage nomadic tribes as having surplus goods which they would seek to exchange for other types of goods more common to agricultural communities. So important an article of exchange was the cow to early people that it became accepted as an equivalent value for anything else – in proper quantity – and it became money. The Latin word for money, pecunia, meaning cattle, preserves this ancient fact.

Trading or exchanging in its most primitive forms required no equivalent. Simple barter was sufficient. But eventually simple barter is impossible when trading develops to the point where a number of commodities are traded during the same period. So as trading developed under the impetus given it by the wandering herdsman, money became necessary and such primitive commodities as animals snd even – on occasion – human slaves were used as money. A number of other commodities over the years took the form of money but eventually the universal equivalent became the precious metals. Silver and gold had many advantages. They are portable; they can be cut readily into bars and are relatively scarce; gold does not deteriorate in air or water; and most important of all reasons, they have a great deal of socially necessary labor time wrapped up in small amounts.

The most important point to grasp about money, then, is that a specific commodity becomes required to effectuate the exchange of other commodities and is real money. But it is also of utmost importance to understand that it is not the fact that money is a commodity, and has a value, that imparts value to the commodities with which it exchanges. It is the other way around. The fact that the commodities have value, and must find a universal equivalent to express their value, is what causes money to exchange with them. The reason this point is so important is that almost everybody seems to put the function of money on its head and endow it with a mystical power it doesn’t possess. All that is needed, it is widely believed, to put commodities into circulation is to put more money into circulation. It should go without saying that were this true the only explanation for business slow-downs and depressions is stupidity on the part of those with large amounts of money. Why keep their money in hiding when the mere act of investment can bring prosperity? The fact is that it is not money money that brings into being the circulation of commodities, it is the other way around. Despite the widespread fetichism attatched to money it has no magical qualities, and a mere throwing into circulation of money in an attempt to stimulate trade can only result in such phenomena as a rasing of prices and/or a direct devaluation of currency, i.e., the money tokens.

Money Today

In its earlier stages of development, capitalism could function well enough on the gold standard. There have been times and areas where silver functioned side by side with gold as money but it follows as a necessity that silver would have to be considered in ratio to gold and ultimately be used as tokens in the form of currency – in lieu of real money. A silver quarter or half or even a silver dollar as minted in the United States until recently was certainly not worth anywhere near its equivalent weight in gold. In fact, the price of silver itself was artificially pegged for many years by the U.S. government as a concession to silver capitalists. So gold has been – and still is – the only real money and this despite government embargo on its use by U.S. citizens unless licensed to purchase it for use in industry. With all of the theories and plans to demonetize gold and create some new medium, gold remains. It would seem that short of some new discovery of a method of cheapening gold production and making it as plentiful as other metals, gold must continue to lurk in the background as money.

As capitalist trade expanded, particularly in the period following the end of World War I, the volume reached a peak so great that it is no longer feasible to permit gold to circulate as money in the more highly developed nations. There just isn’t enough of it. So a gold exchange  standard system was substituted for the old gold standard and British and American currencies were accepted on a basis that they were as good as gold. So trade could now be carried on without the necessity of demanding hard money providing one had U.S. dollars or British pounds. There was enough stability in the economies of these two nations to guarantee that the gold could be had at any time. But, as we all know, this system had not been doing so well as of late and new schemes are now in force and on the drawing boards to attempt stabilization of the world money system. The vaunted currencies of Britain, America, and now France are not as universally acceptable as they were despite economic strength or even despite relatively high gold reserves. If it can be argued – which it can be – that American balance of payments deficits are the cheif cause of America’s economic bind; that the outflow of gold is gradually throttling American capitalism; then how explain the economic miseries of France that led to the recent political convulsions there despite her accumulation of gold which – relative to the French economy – was vast in comparison to other countires. Once again, if all it takes is a throwing into circulation of money to bring prosperity what stupidity could have impelled the rulers of France to sit on their gold reserves rather than to throw more money into industry? Could it be that the economists really do understand that there is really nothing magical about money?

The fact is that nothing can make capitalism operate smoothly for the majority. Great Britain and France are now both out of the empire business. Since the end of World War II it was the costs involved in maintaining their empires that was supposed to have been the direct cause of working class poverty in those countires – according to popular belief. So what explains working class poverty in Britain and France today? Does it make sense to believe that if and when the United States gets out of the empire business the American workers will benefit? Could even the return of Uncle Sam’s disapearing gold, together with the return of his fighting workingmen help economic conditions for the United States population, generally? Again we have the example of Britain and France before our eyes.

A Value Measure

Let us look at money from anothyer angle. One of its several functions is as a measure of value. To measure value, however, it is not necessary to have hard – or even soft – cash and it is this fact that lends credence to the fanciful view that gold is really not so important to capitalism. A recent issue of Fortune Magazine researched the present crop of American capitalists. Oilman J. Paul Getty and financier Howard Hughes, like a pair of Abou ben Adhems, lead all the rest and are classed as billionaires. But there are a number of others that are not that far behind that it makes a great deal of diffrerence. Fortune tells us that:

“All told, 45 persons in the U.S. were identified then (in 1957) as having fortunes over $100 million. In the decade since, the centimillionaire population has more than tripled and tose with $150 million or more has grown to 66.” (Bostion Herald Traveler, April 29, 1968.)

It should be obvious that no actuall money is needed in arriving at the estimated financial worth of these gentlemen. Nor can one conceive of Mr. Getty or Mr. Hughes selling their holdings and storing the money in their own Fort Knoxes, even were they able to get actual gold rather than bank notes. Money, with the exception of the relatvely small percentage of it required to procure their personal consumption needs – their homes, jewels, yachts, limousines, private planes etc. – is of no use to the capitalists unless it can be used as capital. When money is invested in the precess of producing more wealth through the exploitation of the working class it serves its chief function for the capitalists. Lying in hiding, it has no more use than idle machinery and idle factories, yet unless opportunities exist for further exploitation of the working class (a market that can obsorb the result of such exploitation) not all the money in the world can convert slow trade conditions into good ones.

What, then, is the final destiny of money? So long as production is designed for the purpose of sale on the market with a view to profit money will be necessary. Value will have to be estimated in order that the commodities can exchange, one with another. A universal equivalent will also be needed as a standard of price and as a means of payment. Given a new and different type of social system, however, money will no longer be required. How can one measure value for exchange when goods are produced for use and not for exchange? The very concept of value will not arise. For what reason is a standard of price required when goods will have no price? Wherein lies the need for a means of payment when all the earth is commonly owned by all mankind instead of – as now – the proprty of a minority? Socialism will have no need to abolish money. The need for money will have vanished with the abolition of capitalism.


From the Western Socialist, No. 5 – 1968

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Standing for socialism and nothing but.

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