Wednesday, June 30, 2010

Comment on Inquiry vs. Exposition

I think Marx is consistent on his views in this passage and his method of presentation in Volume 1. In the passage, he seems to argue that one has to inquire in concrete level in great detail how the material exists, develops in historical forms, and how its dialectical inner contradiction manifests itself. I think this is the reason why Marx’s analysis is always so rich in history, institutions, real life examples, etc. Then, he says in the passage, only after one inquires at that level, then one can begin presenting, i.e. exposing, the material to the reader. I think this is the reason why he wrote drafts of volume 2 and 3 earlier than volume 1 (correct me if I am wrong).

Why did he begin with his conception of commodity? Well, after reading Aristotle, Aquinas, Petty, Smith, Ricardo, Malthus, Mill, and so on in the past three weeks, and seeing the development of labor theory of value in the minds of these great thinkers, it seems only logical to me to start with a discussion of what commodity is, how the contradiction between use-value and exchange-value exists, and how this contradiction reaches its highest level under capitalist mode of production.

Aristotle clearly recognized this contradiction, but did not ground it in labor theory of value. Smith achieved this, but his conception was dual: labor commanded vs. labor embodied. It was Ricardo who elaborated on the latter conception, which was then taken by Marx to show how surplus-value was created in the “hidden abodes of production” (which was not there in Ricardo’s labor theory of value). I think by beginning his presentation with the concept of commodity, Marx achieves (at least) two objectives: (1) Distinguish between simple commodity production (C-M-C’) and capitalist production (M-C-M’) since the latter requires the product to be a commodity and therefore express itself as money, and through this expression must go through the process of metamorphosis. (2) Labor-power as a commodity: The consumption of labor power creates more value than its purchase resulting in surplus value.

These two ideas seem simple to the regular Marx reader, but very hard to conceive by those who have very little exposition to Marx. And I have experienced that it is indeed a challenge to try to explain these ideas to people who are used to seeing things in a C-M-C world. When the central function of money is seen as enabling the exchange of one commodity for another and not as a means for exploitation of labor power, “there alone rule Freedom, Equality, Property and Bentham” as Marx famously wrote in Volume 1.

On Preface: Inquiry Versus Exposition

The famous passage from the preface of the German Edition is as follows:
"Of course the method of presentation must differ in form from that of inquiry. The latter has to appropriate the material in detail, to analyse its different forms of development, to trace out their inner connexion. Only after this work is done, can the actual movement be adequately described. If this is done successfully, if the life of the subject-matter is ideally reflected as in a mirror, then it may appear as if we had before us a mere a priori construction." p.28
In light with this passage how can we interpret the way Marx began its exposition in Volume 1. He seems to strangely starts with the discussion about commodity after years of years of reshuffling of Volume 1. Why? Could have been better if he had began the discussion in a different way?

Comment on Park's comment on commodity Money and Gold Standard

This is an interesting observation. As far as I remember, we had a similar discussion in one of our Grundrisse discussion. Although I partially agree with the idea that during the crisis, demand for commodity money increases, which means that fiat money system may have problems, these may not strongly support some Marxist's position that commodity money is necessary to anchor capitalism or fiat money may not survive. This is a huge topic. I guess, we can discuss this issue further at our face to face meeting.
For now, I would like rise a few points.
1-From a Marxian perspective, the commodity money's value (as a commodity) should come from the socially necessary time embodied in it. However, how can we explain the current price of gold in terms of labor theory of value? I feel that the gold prices are mainly driven by speculative purposes as in the case of the price of any other financial assets. So, for me, it would be better to treat gold as another form of financial asset (though it has a tangible character) due to the fact that there is no relation whatsoever between the price of gold and its underlying fundamental value.
2-Furthermore, during the crisis, the demand for treasury bills and bonds went hand in hand with very high demand for gold . That’s why, although all other interest rates were rising during the crisis, the treasury bills and bond interest rates were at their historical low levels. They are still very low. Under current system, treasury bills or/ bonds can be considered a form of claim in terms of paper money (fiat money). It is not linked to gold or any other commodity money. So, how can this be explained in relation to commodity money? I do not have an exact answer. But, I think, It shows that high gold prices may not always an indication of decrease in appetite for fiat money.
3-Capitalism, to be able to function in a worldwide scale ,needs several different institutional structures. In a Polanyian sense, one of the key institutions is a well established monetary system either based on gold standard or Bretton woods type of mixture, or current fiat money. However, as we know from history, pure gold system restricts the trade and exchanges in a way that total quantity of gold restricts the expansion . That’s why capitalism needs much more flexible worldwide monetary system which is suitable to its main tendency of “nestling everywhere and settling everywhere”. Bretton Wood system partially meets this. However, under strain, it works exactly as a gold standard due to the fact that dollar (main currency) is supported by gold reserves. I can argue that fiat system is the most developed and sophisticated system which is in line with the thrust of capitalism for expansio. However, it is also prone to several other problems. There is no anchor within the system and those countries who have world currency privileges (due to their hegemonic or semi-hegemonic position) have enormous amount of power. And, Fiat money system is much more prone to fluctuations etc.

In this sense, for me, commodity money system, mixed system, fiat money system should be discussed as historical and institutional episodes. So, it is not clear to me, a current developments can support the idea that money can be only in commodity money form. Indeed, I can even argue that given the development of capitalism, commodity money can be only burden to capitalist development. It does not have fluidity to support the functioning of current capitalism though fiat money has all sorts of its own problems..In short, Capitalism cannot return to commodity money.

What other people think….?

Tuesday, June 15, 2010

Rise in the price of gold and Marx's commodity money theory

Last week all news media were crazy about the gold price skyrocketing over $1,250 per ounce, the highest price ever. Since the collapse of the Bretton Woods system, the connection between money and gold has officially disappeared. However, the demand for gold as a storage of value continued to exist; especially so at the time of crisis. And we have observed the price of gold soaring during the last couple of years marked by consecutive blows of financial crisis and sovereign crisis with tumbling of euro and stagnating dollar. Does this lend support to Marx's commodity money theory, as presented in the first three chapters, to any meaningful extent?

As we know, there are largely two responses to Schumpeterian critique of Marx's money theory as metallist: 1) Entirely reject Marx's money theory as being outdated in the contemporary capitalism where gold does not function as money anymore. 2) Explain that within Marx's theory non-commodity - e.g. fiat money anchored on government credibility not on material, metalic ground - can also function as money.

In this debate of 'commodity vs. non-commodity money theory,' the core controversy would be whether money itself necessarily has to have an intrinsic value or not within Marx's theoretical system. And some implications from the recent soaring of gold price seem to be the following: First, an artificial situation, where valueless non-commodity is assigned an essential function of money such as measure of value and storage of value, cannot be sustained especially during the time of (sovereign) crisis. Second, as commodity money theorists argue, if the circulation of non-commodity money is a transitory and unusual phenomenon relying upon the government credibility, which can possibly be subject to question and finally collapse, then something like the recent rise in the demand for gold at the expense of government-printed money or government bond may be repeated in a much more violent way anytime in the future.