Re: Marx and fiat money

["Devine, James" <jdevine@xxxxxxx>]

I treat Marx's stuff early in volume I about gold = money as a simplifying 
assumption. It's partly because he was following in the tradition of the 
political economy of his time (and is trying to talk to his contemporaries). 
But there is a basis for a theory  of "fiat money" in his work.
 
Early on in volume I, he talks about the "forced circulation" of fiat money within
national boundaries even though (at the time) gold was the "world money." Why 
can't we have "forced circulation" of fiat money on a world scale? there's no 
reason we can't. All that it requires is some sort of world government -- or 
simply a hegemonic power -- that both limits the quantity of that money in 
circulation and creates a demand for it (because it's the only way to pay 
taxes). (The Chartalist theory of money is relevant.)
 
That's why the general use of fiat money on a world scale only happened after 
World War II, when the US emerged as the military/financial/manufacturing 
hegemon, backed by most of its capitalist competitors as part of the Cold 
war coalition against the USSR. The chronic payments deficits that the US 
had meant that there were enough dollars in circulation around the world 
that it could be used as currency. But these deficits weren't large enough
that the dollar lost its scarcity value.
 
This doesn't mean that the world use of fiat money has no problems. As the
power of the US waned and waxed, so did the power of the dollar vis-a-vis
other fiat currencies and gold. If US imperialism collapses, so will the dollar.
 
As is usual with the relationship between prices and values, the "price" of 
the dollar (its scarcity value) differs from its (Marxian) value,  which is much 
lower. (How much labor-time does it take to print a dollar these days?) 
The US capitalists and state benefit from this seigneurage, using dollars 
to buy up real resources around the world. 
 
In volume III, Marx discusses fiat money and it turns out (horrors!) that something
amazingly similar to the quantity theory of money applies. If the quantity of fiat
money increases rapidly, so do prices when stated in that money (though it 
doesn't happen to prices stated in gold). But that hypothetical event occurs only 
in war or civil-war type situations, when the power of the government collapses.
 
Jim

	-----Original Message----- 
	From: Lance Murdoch [mailto:pen-l@xxxxxxxxxxxxxxxx] 
	Sent: Sat 11/1/2003 4:34 PM 
	To: PEN-L@xxxxxxxxxxxxxxxx 
	Cc: 
	Subject: [PEN-L] Marx and fiat money
	
	

	After several unsuccessful stabs at starting Marx's Capital, I have
	finally made it through a chapter or two.  I already have a problem
	though, which is perhaps due to the age of the material.
	
	Towards the end of Chapter 1, Marx makes it pretty clear that gold is a
	commodity just like any other commodity.  But due to certain qualities
	(it's homogeneity and so forth), it has become a universal commodity, it
	has become money.  So this brings a question to my mind - well what about
	nowadays?  In the USA we used fiat money ever since Auguest 15th, 1971.
	
	So then I get to Chapter 2.  In one of the footnotes, Marx says
	
	"Long before the economists, lawyers made fashionable the idea that money
	is a mere symbol...This they did in the sycophantic service of the royal
	power, supporting the right of the latter to debase the coinage, during
	the whole of the Middle Ages, by the traditions of the Roman Empire and
	the conceptions of money to be found in the Digest."
	
	Marx seems to be saying in Chapters 1 and 2 of Capital that money is a
	commodity like any other.  Thus if American fiat money truly were not
	backed by a commodity with a certain magnitude of value, it is worthless.
	Note Marx does not say that fiat money is historically impossible, as he
	notes the pressure put by the state "power" on lawyers and economists to
	claim that fiat money has worth.
	
	So is this Marx's theory?  It would seem a tenet of Marxian thought that
	fiat money is worthless (or at least that it would be implied that it is
	backed by gold or some other commodity in an emergency, if not in actual
	current legality).
	
	-- Lance