DAS KAPITAL, VOL 1150 YEARS
The Significance of Marxs Theory of Money
RAMAA VASUDEVAN
The highly abstract formulation of Marxs theory of
money in Capital, Volume I is just the first step of a
materialist analysis of concrete monetary phenomena.
His concrete analysis of monetary phenomena in Capital,
Volume III has remarkable resonance in todays world.
While Marx emphasised the primacy of production, he
saw capitalist dynamics as being deeply entwined with
money and finance.
Ramaa Vasudevan (ramaa.vasudevan@colostate.edu) is with the
Department of Economics, Colorado State University, Fort Collins, US.
70
M
arxs theory of money was integral to his analysis
of capitalist dynamics. The rich potential of Marxs
analysis of money has, unfortunately, not received
the attention it deserves both by political economists and by
those who have been inspired by Marxs political vision.
One problem is that Marx has for a long time been regarded
simply as a theoretical metallist (Schumpeter 1954: 288). His
highly abstract formulation of the origins of money in the
commodity form, as commodity-money, has been seen as
largely irrelevant to contemporary capitalism where money no
longer takes the shape of a commodity like gold or silver but is
tied/linked to the monetary liability of the state. But Marxs
copious notes from a wide array of sources from newspapers,
journals like the Economist, to parliamentary reports on Com-
mercial Distress and the Banking Act, are evidence that he
engaged deeply not only with the monetary theorists of his
time (including David Ricardo, Thomas Tooke and John Full-
erton) but also with the concrete institutional workings and
social foundations of the financial system. The precise link
between money and the credit system in Marxs framework
thus needs elaboration.
A second difficulty arises in that Marx never fully fleshed
out his analysis of the credit system. Part Five of Capital,
Volume III, which brings together Marxs writings on the
credit system, was edited by Friedrich Engels posthumously.
Engels bemoaned the fact that there was no finished
draft or even an outline plan to be filled in, but simply the
beginning of an elaboration which petered out more than
once in a disordered jumble of notes, comments and extract
materials (Marx 1981: 94). In this sense, Marxs writings on
the credit system in Volume III are as Brunhoff (1976) notes
more stimuli to thought than constituent elements of a
completed theory. Developing such a complete theory re-
mains a challenge even today, 150 years after the first publi-
cation of Capital.
While this article does not quite take up this challenge, it
does attempt to delineate the critical elements of Marxs theo-
risation of money and highlight its continued relevance to
contemporary capitalism. Marxs theory of money, as will be
evident from the presentation below, is inseparable from the
rest of his analysis of capitalist dynamics. Nevertheless, for
considerations of space and clarity of exposition, many sig-
nificant pieces of Marxs larger theoretical canvas will be
ignored, along with the debates surrounding these. The pres-
entation of Marxs theory of money in this article has been
influenced, in particular, by the work of Brunhoff (1976,
2005) and Duncan Foley (1983, 1985, 1986, 2005).
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Structure of Marxs Argument
If we are to understand Marxs theory of money we have to
first understand his methodological approach. He had a logical
and historical analysis of the successive development of the
role and functions of money, as a measure of value, a medium
of circulation and finally as money proper. This last role itself
included moneys role in hoarding, as a means of payment and as
world money. This logical structure is integral to his analysis.
At the beginning of the first volume of Capital, Marx puts
forward a general theory of money and traces the emergence
of money as a general equivalent in the context of simplest
relations of exchange of commodities. This abstract theory is
the basis on which moneys role in capitalist economies is com-
prehended. However, it is quite clear from Marxs writings that
this abstract theory of money as a general equivalent was only
the starting point of his analysis of concrete monetary phe-
nomena. One can trace the arc of the evolution of his approach
from Grundrisse through Contribution to the Critique of Politi-
cal Economy to Capital. It is only in the later work that Marx
derives the function of money as money proper in the context
of simple commodity exchange where producers directly sell
their products to each other, before he begins his analysis of
capitalist commodity relations (Arnon 1984; Rosdolsky 1977).
This analysis of the origin of money in the commodity-form
is critical to Marxs development of the different forms and
functions of money. The logical order in which these different
aspects of the money form are developed is also the key to un-
derstanding the contradictions inherent to the money form
(Brunhoff 1976). Even in its simplest form of commodity-
money, his analyses bring out clearly that though money is
produced like any other commodity, its laws of circulation are
quite distinct. He went beyond the mere fact of the existence of
commodity-money and sought to discover how and why and
by what means a commodity becomes money.
Starting with how exchange produces the doubling of the
commodity as use value and exchange value, Marx shows how
this contradiction is resolved when the exchange value of the
commodity acquires a separate, material existence in the form
of money, alongside and in opposition to all other commodi-
ties. With exchange, products become commodities and the
commodities appear as exchange values. Prices are thus the
concrete expression of exchange values, in the money form.
The social character of private labour is established through
exchange so that the concrete expression of value in the form of
money (as prices) emerges simultaneously with exchange
valueabstract, socially necessary, labour. The money commod-
ity, while being a commodity, is a commodity unlike all oth-
ers.1 Money thus appears as the objective expression of general
exchangeability. As long as exchange value remains the form
of social product, and to the extent that the producer becomes
more dependent on the exchange, the money relation develops.
With this growing dependence of private producers on social
relationships of exchange, Marx (1973: 14647) argues that the
exchange relation appears as a relation alien to the producers.
Marx introduces moneys role as a measure of value as a
logical necessity emerging from exchange and a manifestation
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DAS KAPITAL, VOL 1150 YEARS
of the dual nature of commodities (1972: 6476, 1976: 18898).
He also makes a distinction betwen money as a measure of
value and as the standard of price, with the latter being insti-
tutionally determined by the state. He then goes on to elabo-
rate how once money is established as a measure of value, the
actual circulation of commodities through multiple acts of ex-
change implies a movement of money between producers and
consumers; money actualises the prices of commodities and
serves as a medium of circulation, mediating the process of
circulation of commodities through exchange (Marx 1972: 76
106, 1976: 198221).
As a medium of circulation, money both exposes and resolves
the latent contradiction between use value and exchange val-
ue by the duplication of the commodity in the course of the
circulation, as a commodity on one hand and as its polar op-
posite, money on the other (Marx 1972: 8889). The moment
of sale, which transforms the commodity into money, and that
of purchase, which converts money into a commodity, is split
and occurs at different points of time and space.
It is here that Marx first refutes Says law, by arguing that
while every sale is a purchase and every purchase a sale, the
circuit of commodity circulation can result in there being more
buyers than sellers of one commoditymoneyat the same
time that there are more sellers than buyers of all other com-
modities. Holders of these commodities find themselves una-
ble to sell and consequently cannot buy (Marx 1972: 9698).
Commodity circulation involves a whole network of relations of
sales and purchases between private agents. The social cohesion
of this network is outside the control of the individual agents.
The separation of sales and purchase creates the abstract pos-
sibility of crisis as sale and purchase fall apart (Kenway 1980;
Crotty 1985). The separation of purchase and sale also forms
the basis, in Marxs analysis, for the entry of commerce proper
the specialised function of buying and selling commodities on
behalf of producersinto the circuit of commodity production
in order to take advantage of this separation.
Contrary to Quantity Theory
As a medium of circulation, money is in constant flux, realis-
ing the prices of this network of sales and purchases. Marx
contends, in direct opposition to the advocates of the quantity
theory of money, that prices are given, independent of the pro-
cess of circulation, and do not depend on the quantity of money
in circulation. The quantity of money in circulation is deter-
mined by the sum of prices of commodities to be realised, and
the velocity with which currency circulates and therefore rises
and falls along with prices (Marx 1972: 10307, 1976: 21720).
Causation thus runs from prices to the quantity of money
from the needs of circulation to the mechanism that meets
these needs (Foley 1983, 1985, 1986; Brunhoff 1978).
Marx elucidates the complementary and contradictory rela-
tionship that these two functions (as a measure of value and a
medium of exchange) bear to each other. In its aspect as a
measure, in its ideal character as a unit of account, the actual
quantity of money is irrelevant, though its material substance
is essential. This role is the precondition for the circulation of
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DAS KAPITAL, VOL 1150 YEARS
commodities and for the emergence of moneys role in com-
modity circulation. The money commodity, however, as a pro-
duced commodity itself has a variable value here. In its func-
tional form, as a medium of circulation, the quantity in which
it is available is crucial, while its material substance is irrele-
vant so that its value is taken as fixed (Marx 1972: 120, 1973:
20316). Thus commodity-money can be replaced by symbols
or tokens, in circulation. This contradiction gives rise to the
third function of the money form. Money finally reappears, at
the culmination of the analysis of the different roles of money,
as money proper, in the simplest form as an object of hoarding
or a store of value, as a material representative of social wealth
(Marx 1972: 12237, 1976: 22732).
The necessity of hoarding, the withdrawal of money from
circulation emerges from the separation of sale and purchase
within simple commodity circulation. While the act of hoarding
marks an interruption in the process of circulation, it also be-
comes the means of preserving and reconstituting the process,
and unifying and regulating the functions of money. Hoards
act as conduits of contraction or expansion of quantity of
money in circulation, allowing variations in the quantity cir-
culating in accordance with demand. Thus, hoarding or the
accumulation of money, proceeds from the mechanism of
circulation itself, and preserves the money form as distinct
from money, as well as the contradictory characteristics inher-
ent in monetary circulation (Brunhoff 1976). Hoarding redis-
tributes the monetary stock at the macro level between circu-
lating and non-circulating money (Lapavitsas 1994).
The movement of money in and out of hoards was the second
basis for Marxs rejection of Says law and the dictum that supply
created its own demand. Hoarding created the possibility that
aggregate supply and aggregate demand of commodites may
not match. It also explained how money supply could adapt and
respond to the demands of circulation, further underlining why
the quantity theory view to money was mistaken. Finally, in
Marxs approach, this aspect (of money as an object of hoarding)
contained the seeds of its quality as capital (Marx 1973: 217).
As money develops through the process of hoarding and
accumulation into money proper, it also assumes a special
function in the process of circulation. It now enters the circula-
tion process not as a medium of circulation but as a means of
payment (Marx 1972: 13748, 1976: 23240). The relation bet-
ween the seller and buyer here is transformed into that of
creditor and debtor. The potential separation of purchase and
sale, inherent in the metamorphoses of commodities, becomes
a real separation in the form of claims to payment.
The compulsion to sell is now no longer an individual
necessity but a social necessity, independent of the sellers
individual wants. The borrower is compelled to sell in order to
repay her debt. Money from being a means of circulation now
develops into its end or final result (Marx 1973: 190). The chain
of payments that propel the circulation process reflects a deep-
er implication of producers in social relations of exchange.
As means of payment, Marx shows, money contains a new
contradiction. As long as payments balance, the process of circu-
lation can be mediated by money in its transient chimerical
72
form as a medium of circulation, but when payments do not
balance and actual payments have to be made, money enters
as the universal equivalent or as money proper. Marx high-
lights how with the spread of such chains of payments any inter-
ruption in the flow of payments at any point in the chain of
payments leads to ripple effects, as failures to fulfil obligations
spread through the chain. The mechanism for balancing pay-
ments reciprocally is upset and money is demanded as the
absolute material embodiment of wealth. This is the root of
monetary crises, which erupt whenever this chain of payments
is disturbed (Marx 1972: 14546, 1976: 23536).
At such times money transforms from its nominal or imagi-
nary form into its solid, material form. Marx is thus able to
argue that as long as the social character of labour appears in
the form of money, and hence as a thing outside actual pro-
duction, monetary crises, independent of real crises or as an
intensification of them are unavoidable (Marx 1981: 649).
This foreshadows Keyness postulation of a liquidity trap
when the demand for money becomes insatiable, from a dis-
tinctively different perspective. Keyness argument was based
on the conception of a demand for money for its own sake for
speculative purposes. For Marx this crisis expresses the anti-
thesis between commodities and moneyan antithesis that
develops most fully under capitalism.
Money as World Money
Finally, after going through these different functions of mon-
ey, Marx puts forward his conception of world money, the form
in which money functions to the fullest extent as the universal
embodiment of social labour in the abstract (1972: 14953,
1976: 24047). The role of money as world money, as a means
of settling international balances, arises with the development
of trade and the world market, and the extension of the inter-
national division of labour. Money, however, does not assume
any new or special functions as world money in the domain of
international trade and finance that have not arisen in the do-
mestic sphere. It serves as the universal means of payment, as
the universal means of purchase, and as the absolute social
materialization of wealth as such (Marx 1976: 242).
When payments have to be settled with a transfer of world
money, money also serves as the means by which wealth is
transferred from one nation to another and redistributed in-
ternationally. Nation states establish reserves of money, not
only for the purposes of regulating internal circulation, but
also to ensure the role as of world money in settling balance of
payments. Such public hoarding implies that the monetary
power of the state is circumscribed by the reserves accumulated
by other states (Brunhoff 1976).
Marx had distinguished national spheres of circulation
where the state would establish the standard of price from the
international arena where, in the historical context in which
he was writing, bullion functioned as world money. Marxs
analysis of the role and functions of money already contained
the notion of money as an embodiment of power internation-
ally. Such a conception of the acquisition of money in the form
of reserves or hoards as social power in a material form is
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contingent on the international social relationsthe interna-
tional division of labour and the international financial system
that mediate this division.
Within the logical structure of Marxs theorisation, the anal-
yses of the role of money as a hoard and a means of payment
form, on the one hand, the basis for the analysis of world money,
and, on the other, for his elaboration of the emergence of credit
money and the financial system (Brunhoff 1976). While Marxs
analysis of the development of the credit system forms part of
Volume III of Capital, the possible extension of his theorisation of
world money to the analysis of imperialism and the relations
between nation states, remained unfinished.2
Marxs discussion of the distinct roles of money is not merely
a listing of the variety of things money does. The different
functions and forms of money are introduced as preconditions
for comprehending the transformation of money into capital.
The development of the analysis of these functions through
successive steps reflects Marxs understanding of the funda-
mentally complementary and contradictory nature of these
different functions. What is noteworthy is that he develops his
analysis of all these functions in the context of the circulation
of commoditieswhat he calls simple commodity produc-
tionbefore discussing the role of money in financing capital-
ist production. This includes his analysis of world-money.
Joseph Schumpeter is said to have remarked that there are
only two theories of money that deserve the name the com-
modity theory of money and the claim theory, which from
their very nature were incompatible (Schumpeter 1917 quoted
in Ingham 2004: 6). In the former approach, a commodity
whether gold or even cowries and shellsperforms the func-
tions of money, and in the latter, debt or promises to pay serve
as money. Even in the 19th century at the time when Marx was
writing Capital, monetary debates were broadly divided along
the lines of these two approachesthe currency school and
the banking school.
One point of contention was the direction of causation
between prices and quantity of money referred to earlier. The
former saw the direction of causation going from quantity of
money in circulation to prices, and money supply was seen as
being exogenously determined. The latter theorised the supply
of money as endogenously adapting to demand (and the price
level). Further, the currency school advocated a strict control
of note issue and for rules to enforce the separation of money
creation from banking and financial intermediation. In con-
trast the banking school believed that the attempt to separate
money issuance from financial intermediation were illusory
and self-defeating (Goodhart and Jensen 2015). The banking
school also argued that bank notes (as a means of payment)
were a form of credit that would flow back to the point of issue
as debts were repaid (what was called the law of reflux), so
that the currency school preoccupation with over-issue of
notes (in relation to gold reserves) was misplaced.
Knut Wicksell (1936) has argued that the pure cash (com-
modity-money) system and its antithesis, the pure credit (claim)
system were both hypothetical constructs and concrete mone-
tary phenomena were explicable as combinations of these two
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DAS KAPITAL, VOL 1150 YEARS
extreme cases. But the question of how to achieve a viable
synthesis of these two cases was left open (Leijohnhufvud 1997).
This difference in approach forms a fault line in monetary the-
ory that continues to this day. It manifests itself in the form of
the diametrically opposed approaches of monetarism on one
hand and Post-Keynesianism on the other. Patnaik (2008) refers
to this divide in monetary theory as that between monetarism
and propertyism. Monetarism in contrast to propertyism sub-
scribes to a kind of scarcity view where the value of money in
terms of other commodities is determined by the forces of sup-
ply and demand. Within the tradition of propertyism, the value
of money is fixed exogenously, independently of demand and
supply. Thus it can be determined by production conditions in
the case of commodity-money and by the institutionally fixed
money-wage unit, a la Keynes, in the case credit-money.
A Monetary Theory of Credit
The novel structure of Marxs argument, which is constructed
as a sequence of successively more concrete determinations,
allows him to position his theory between these two opposing
camps in a unique way. While deriving his monetary theory
from commodity-money, he takes issue with the proponents of
the quantity theory of money and the currency school who fo-
cus only on moneys role as a medium of circulation and fail to
acknowledge moneys role in hoarding and as a means of pay-
ment. Credit money belonged to a more developed and ad-
vanced system of capitalist production, but all the contradic-
tions of the money form that were evident in this developed
credit-money system were, as Marx demonstrated, explicable
in the context of the commodity-form of money.
But while a line can be drawn from the banking school
through Marx, to Keynes, Hyman Minsky and the Post-Keynes-
ians, Marx went much further than the banking school in his
analysis of the role of money in hoarding and as a means of
payment by embedding his analysis in his conception of mon-
ey as a universal equivalent, even before he addresses mone-
tary circulation and the formation of hoards in the process of
reproduction of capital (Brunhoff 1976; Lapavitsas 1994). Crit-
ical in his correction of the banking schools argument is the
starting point of his analysis in moneys role as a measure of
value. His approach illuminates a logical relation between
money and credit, but also affirms the contradictory character
of this relation by postulating a monetary theory of credit as
distinct from a theory of credit-money (Brunhoff 1976).
Marx explains how, even in the commodity-form, money
was distinct from all other commodities, in that it embodied
and helped establish social relations. It is in this fundamental
sense that money is never neutral. One does not have to theo-
rise money as a claim or as credit-money, to comprehend
that money is a social relation. This analytical insight is what
distinguishes Marx from the tradition of scholars like Ingham
(1996, 2004), whose seminal work on the history and sociology
of monetary relations is, nevertheless, aligned with Marxs
conception. His method of analysis allowed Marx to clearly
distinguish money and commodities, and further between
money and capital as distinct analytical categories when he
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DAS KAPITAL, VOL 1150 YEARS
integrates this theory of money into his analysis of capitalist
production and the accumulation process of capital. While
money does not, by itself, explain capital, it is a necessary pre-
condition for its emergence.
Money and the Accumulation of Capital
Marx begins his investigation of capitalist accumulation in
Volume II by laying out the unified process of circulation and
production that constitutes the circuit of capitalist production.
The simple form of circulation has been transformed to the
capitalist form of circulation, with the establishment of capitalist
social relations along with the market for wage-labour (Marx
1978). The circuit of capitalist production (Marx 1978) begins
with the conversion of a sum of money into commodities with
the purchase of labour power and means of production. This is
the moment of transformation of money capital into productive
capitalcapital in the form that can produce surplus value.
Money capital is thus the transitory form in which capital appears
in the course of the circuit of capitalist production. It is both
the precondition, and the ultimate aim of the circuit. The pur-
chase of labour-power presupposes the existence of capitalist
social relations and money enters the circuit not simply as a
means of payment but as a form of capital. Marx was at pains
to distinguish the analytical categories of money (constituted
by all its functions) and capital (in its form as money capital).
The transformation of money capital into productive capital
interrupts the circuit, as productive capital is transformed into
a new inventory of commodities in the course of the capitalist
production process, where surplus value is created and appro-
priated through the wage relation. The money relation, bet-
ween the capitalist who buys labour power and the worker
who sells, is embedded in production and production rela-
tions. At the end of the production process, capital appears as
commodity capital. As commodity capital, capital must now
re-enter the sphere of circulation as the capitalist realises the
value of this capital only by selling the inventory of commodi-
ties. The value of the capital advanced is realised along with
the surplus value it contains. The circuit is complete as capital
once again assumes the form of money, but it now expresses
both the outcome of capitalist social relations and also the
point of its return. With this final metamorphosis, a new cir-
cuit can be launched. Money capital, productive capital and
commodity capital are the different functional forms that capi-
tal successively assumes in the course of the circuit of capital.
Marx (1978, Part 2) further elaborates how these different
forms also coexist and function alongside each other as a given
capital is divided into the different forms of capital.
Money capital performs monetary functions because of its
form as money and not because it is capital. But as capital, it can
perform only the monetary functions of capital and no other
(Marx 1972: 112). On the one hand, it is the prime mover that
propels the circuit of capital and on the other it is also the ultimate
goal and motive force of the circuit. The appearance of this rela-
tion in the independent form of money also creates the illusion
that money breeds money, without any acknowledgement of
the intervening phase when capital is applied to production.
74
But the circuit can falter at any of the phases. If the stoppage
occurs in the phase of productive capital, labour and the machinery
remain unemployed. At the stage of commodity capital, the block-
age created by a lack of demand results in unsold inventories.
A breakdown in the first phase, and again at the point when the
circuit is renewed, results in a withdrawal of money capital
from the circuit of capital in the form of a hoard (Marx 1978).
Hoards also form when money capital is not immediately
invested, either because the amount of accumulated money
capital has not reached the minimum scale necessary for prof-
itable investment or because the market is saturated due to
stagnant demand. Variations in the length of the production
process or of the period of turnover (the time taken to com-
plete the full circuit) of capital in circulation also lead to the
temporary accumulation of hoards. Hoards also serve as a
reserve fund that allows the capitalist to deal with temporary
disturbances (like rising input prices). Thus stagnant hoards
are regularly created in the course of the circuit of capital in
the form of temporarily idle profits, depreciation funds, and
reserves that ensure continuity of turnover between produc-
tion and circulation (Itoh and Lapavitsas 1999). The formation
of such hoards, therefore, accompanies the accumulation of
capital, whether it is expedient or inexpedient, voluntary or
involuntary, functional or dysfunctional (Marx 1978: 158).
Hoarding, however, preserves its ambivalent role as an instru-
ment of capitalist reproduction and at the same time as an
interruption of the process of circulation (Brunhoff 1976).
A Keynesian Flavour
What is significant is that Marx had first introduced his analysis
of hoarding as a trade-off between commodities on one hand
and money on the other, in the context of the simple commod-
ity circulation, before the discussion of its role in the circuit of
capitalist production. This framing is the logical precursor to
analysing hoarding as a trade-off between money and financial
assets in the context of a developed capitalist financial system, as
Keynes does in his formulation of liquidity preference.3 Marxs
discussion of the circuit of capital encapsulates a dual move-
mentthat of flows of value (in the form of commodities) cre-
ated in production on the one hand, and that of flows of money
released in the process of circulation on the other. From this
dual movement there also occurs the possibility of incongruence
between the structure of demand represented in the income
flows produced and that of the concrete use-values produced
in the course of the circuit.
Marxs analysis has a very Keynesian flavour, and in many
ways anticipates Keyness postulation of the principle of effec-
tive demand and the demand for money outside circulation.
But the point of departure of Marxs analysis is the contradic-
tory unity of use value and exchange value, which is then re-
produced in the contradiction between money and commodi-
ties (Rosdolsky 1977). Not only does he build his analysis of the
circuit of capital, in Volume II, on the basis of metallic money,
he also derives possibility of shortfalls of demand from capital-
ist behaviourthe compulsion to buy in order to sellrather
than on the role of speculation and volatile expectations, as
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distinct from Keynes (Foley 1985). The role of money as a gen-
eral equivalent, distinct from other commodities, is thus pre-
served. Further, the accumulation of hoards is linked to the
structure of capital accumulation in his analysis. The issue is
that of financing accumulation in a capitalist economy where
the circulation of money is combined with, and implies the cir-
culation of capital (Brunhoff 1976; Foley 1983, 1985, 1986).
The fact that his analysis is conducted in terms of metallic
commodity money does not, however, negate the role and signifi-
cance of credit-money and credit systems in his analysis of capi-
talist economies. While Marx constructs his theory of credit as
a secondary, concrete layer of his analysis, it plays an integral
role in his analysis of capitalist dynamics. The structure of his
argument is meant to clarify how the credit system is simply a
form of the money economy (Marx 1978: 195).4 The formulation
of the distinct and complementary roles of money remains valid
if we extend the analyses from gold money to the modern forms
of credit money, which are simply tradable promises to pay.
Credit-money and the credit system spring directly out of the
function of money as means of payment, and monetary mech-
anisms that save on the use of commodity-money and cash re-
serves, are founded on credit. While credit-money plays a limited
role where capitalism has not yet developed, Marx argues that the
credit-economy develops, on the basis of the monetary economy,
with the growth and spread of capitalism and further comes to
dominate and replace it (Marx 1981). Credit-money, while dif-
ferent from commodity money, acquires the characteristics of
money.5 It continues to obey the general laws of monetary cir-
culation and undergoes the process of both dematerialisation
and re-emergence as the material embodiment of social
wealth that Marx observed in his discussion in the context of
metallic money (Brunhoff 1976). In some senses, the spread of
credit-money reflects the full fruition of the money form, and
the opposition between the class of commodities, as a whole,
and money, under capitalism. But in Marxs analytical frame-
work, money preserves its significance however much money
may in practice be eliminated by credit (Brunhoff 1976).
We have already presented Marxs argument explaining
how the money-form arose from the contradiction between
the dual existence of commodities as use value and as ex-
change, and further how the act of exchange then split into
two mutually independent acts of purchase and sale. The con-
tradiction of the commodity form is displaced in a manner that
contains the possibility of crises. In the Grundrisse, Marx de-
velops the analysis further, to elucidate how this separation
engenders a third level of contradiction, when the overall
movement of exchange itself becomes separate from the ex-
changers. The sphere of commerce, separate from the pro-
ducers and concerned solely with exchange for the sake of
exchange and not for consumption, interposes itself in the
circulation of commodities. Production is subsumed to the
imperatives of commercebuying cheap and selling dear.
Dominance of Money-business and Credit
Finally, as the internal contradictions of the money form con-
tinue to unfold, they are manifested in the separation of credit
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DAS KAPITAL, VOL 1150 YEARS
and financial operations from real transactions and actual
tradethe separation of money business from commerce
proper (Marx 1973: 14650). Money-business and credit arise
in context of commerce, develop independently and finally
acquire dominance over it. Commercial credit, therefore, lies at
the border between the monetary system and the financial
system (Brunhoff 1976). The circulation of credit-money itself
breeds the development of financial intermediaries whose pri-
mary function is the mediation of these credit transactions.
These passages in the Grundrisse contain the core of Marxs
argument of the way which money evolves with the develop-
ment of capitalism to become both a general equivalent and a
financial asset (Marx 1973: 14753). Marx planned to correct
what he called the idealist manner of presentation through
an elaboration of the institutionally concrete trajectory of the
evolution of the role of money and finance with the develop-
ment of capitalism. We find the beginnings of this elaboration
in Capital, Volume III, where he presents his analysis of mer-
chant capital (comprising both commercial capital and money
dealing capital), interest-bearing capital and fictitious capital.
In fact, the formulation in Grundrisse provides, in a sense, a
road map to a path to integrating the concrete discussion of
credit and finance in Capital, Volume III with the abstract
theory of Capital, Volume I.
World trade and commerce (and its expansion through the
16th century) was the historic presupposition for the emer-
gence of capitalism, and merchant capital was the original
form in which capital takes root. With the development of cap-
italist production, however, Marx argues that commercial cap-
ital and money-dealing capital appear as particular functions
of capital in the sphere of circulation, which have now been
transfered to capital that exists separate and autonomous from
industrial capital. The former mediates the trade of commodi-
ties, while the latter, money-dealing capital, performs the
technical operations associated with commerce and monetary
circulation, drawing up and settling accounts, management of
reserve funds and money-changing in the market for bullion
(Marx 1981: Chapters 19 and 20). Money-dealing capital devel-
ops more fully, once borrowing and lending, and the manage-
ment of interest bearing capital, emerge as special functions of
money-dealing capital, in the context of the development of
the credit system under capitalism (Marx 1981: 528).
Money-dealing capital emerges from its roots in merchant
capital to become an integral part of the working of the capi-
talist credit machinery, once it is incorporated within the
banking system, which mediates between the suppliers of
funds for lending and the borrowers. What is significant for
Marx is how the banking system centralises and concentrates
money capital for loans, so that the bankers take on the role of
the general managers of money capital (Marx 1981: 528).
This has implications for the circuit of capitalist production
and the accumulation process, since now the money capital
that initiates the circuit is no longer simply money advanced
by the capitalist, but money capital that is borrowed (Marx
1981: 638). Marx had already established the source of profit in
the exploitation of other peoples labour in Capital, Volume I.
75
DAS KAPITAL, VOL 1150 YEARS
He now uncovers how the capital that launches this exploitation
of labour in the production process is not the result of saving by
the industrial capitalist but consists of other peoples property,
capital that has been borrowed from financial capital.6 With
the development of the capitalist financial system, the savings
of others are transformed into a source of enrichment for
financial capital. And so the final illusion of the capitalist
system, that capital is the offspring of a persons own work and
savings is thereby demolished (Marx 1981: 640).
The estranged character of capital has been shifted outside
the exploitation in production process by the credit system.
The loan of money capital to the industrialist transforms it into
interest-bearing capital. The capitalist who borrows has to
repay this sum along with an interest payment, which is deduct-
ed from the gross profits earned. The quantitative distribution
of gross profit between the financial capitalist who lends and
the industrial capitalist who borrows money capital, gives rise
to a qualitative distinction between interest and profit of
enterprise, which appear as two mutually independent parts
determined by their own particular laws. The competition
among financial and industrial capital leads to the emergence
of a market rate of interest.7 A part of profit is now ossified
and externalised in the form of interest. Interest appears as
something, which would be yielded even without productive
application, fostering the illusion that it is the innate property of
money to spawn more money. The result of the capitalist pro-
duction process has thus acquired an autonomous existence.
Marx thus uncovers how the grounds for division of gross
profits into interest and profit of enterprise in the split between
industrial and financial capital are then turned into the grounds
for the very existence of profits. Capital in its financial form
appears as a mysterious and self-creating source of interest
independent of its application in production (Marx 1981: 516).
While this might be true for the individual capitalist, Marx
argues that it is not true for social capital as a whole. Social
capital cannot be transformed into money capital without the
smooth functioning of the reproduction process. Money capital
cannot yield interest, on the basis of the capitalist mode of pro-
duction, without functioning as productive capital, that is,
without creating surplus value (Marx 1981: Chapter 24).
When it is said that Marx saw money as a social relation
(Ingham 1996), it is true only in the sense that money (and
credit) obfuscates and mystifies the underlying social relations.
It does not mean, as it did for the classical economists, that
money is neutral. On the contrary, it is clear from the develop-
ment of the Marxs analysis that money is embedded in social
relations, and helps mediate relations not only between capi-
tal and labour, but also between financial and industrial capi-
tal, and further between nation states (in the form of world
money). However, Marx does emphasise the roots of these
social relations in the organisation of production, so that money
relations mediate forces set in motion and decisions at the level
of production.
Money also reflects the contradictions embedded in social
relations underpinning commodity exchange, and capitalist
commodity production. Thus,
76
As long as the social character of labour appears as the monetary ex-
istence of the commodity and hence as a thing outside actual produc-
tion, monetary crises, independent of real crises or as an intensifica-
tion of them are unavoidable. (Marx 1981: 649)
Marxs argument is that
money does not create these antithesis and contradictions; it is rather
the development of these contradictions and antitheses which creates
the seemingly transcendental power of money. (Marx 1973: 146)
While elucidating the monetary roots of credit, Marx also
discusses how credit usurps the position of money as the social
form of wealth. The dominance of credit is based on confi-
dence in the social character of production, but this also
makes the money form of products appear as something
merely evanescent and ideal, and does not therefore do away
with the clamour for money in its absolute sense when this
confidence is shaken. This contradiction, common to all sys-
tems that are based on commodity trade, assumes its most
striking and grotesque form under capitalism because pro-
duction has been completely subsumed to the imperative of
the market and profits and further because with the develop-
ment of the credit system, capitalist production constantly
strives to overcome the metallic barrier, which is both a mate-
rial and imaginary barrier to wealth and its movement, while
time and again breaking its head on it (Marx 1981: 708).
Finance and Accumulation
Having clarified the monetary roots of credit, Marx goes on to
elucidate how the evolution of the system of credit, in the par-
ticular form of a banking system organised on capitalist lines,
is crucial to the expansion and development of capitalism.
However, what is pivotal in his analysis of the role of credit is
its dual character. On the one hand it accelerates the expan-
sion of the scale of production, development of technology and
the creation of the world market. Thus the expansion of indi-
vidual capitalist enterprises need not be limited to the rein-
vestment of their retained earnings. On the other, the credit
system, which is grounded in the capitalist impulse to make
profit, accelerates the violent outbreak of contradiction and
crises. As the principal lever of overproduction and excessive
speculation, the credit system develops the motive of capital-
ist production, enrichment by exploitation of others labour,
into the purest and most colossal system of gambling and
swindling and restricts even more the already small number of
exploiters of social wealth (Marx 1981: 572).
The capitalist financial system under capitalism functions as
a massive engine of centralisation and concentration. The
hoards that accumulate in the course of the accumulation pro-
cessthe portion of profit earnings of industrial capitalists that
are meant for accumulation but not immediately reinvested in
the same enterprise, and of revenues that are not immediately
consumed, or used to replace the wear and tear of machinery and
shortfalls in inventories, are all drawn into the banking system.
Profits not reinvested in the sphere in which they were real-
ised, are also now available for investment in other branches.
Marx notes how both conditions favourable to accumulation (like
the declining costs of machinery due to technological progress)
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and unfavourable to accumulation (like stagnation and satu-
ration of the market) release funds into the banking system.
Similarly, all revenue streams, including ground rent, and
the income of unproductive classes and higher forms of
salaried workers (Marx 1981: 636), that are not immediately
spent, also assume the form of deposits and can be loaned out
by the banking system. The spread of banking thus transforms
private hoards of different classes into loanable capital and
concentrates them in the financial system. Even the idle funds of
workers, that part of the wage income that is not spent as soon as it
is received, but gradually over the period before the next wage
payment becomes fodder for the growth of bankingpotential
money capital that can initiate the accumulation process.
Also highlighted in Marxs discussion of the transformation
of money into financial capital, is how more funds get concen-
trated with the banking system as the number of those who
have feathered their nests and withdrawn from the reproduc-
tion process; the number of retired capitalists and the rentiers
grows with the development of capitalism (Marx 1981: 643).
Growing profits, the concentration of incomes and a rise in in-
equality promotes the growth of the banking system. With the
concentration of wealth, Marx argues the credit system must
be further developed, which means an increase in number of
bankers, money lenders, financiers etc (Marx 1981: 643). But
the banking system does not merely intermediate between the
depositors (the original lenders) and the borrowers. Marx has
a remarkably modern exposition of how banks also create
money and deposits in the very process of extending credits.8
With the growth of the banking system, the volume of finan-
cial assets and securities also expand (Marx 1981: 643). This
results in the proliferation of what Marx calls fictitious capi-
tal. Fictitious capital refers to tradable titles that constitute
claims on future flows of income and surplus. Showing how
any periodic income can be capitalised to represent the sum of
money that would yield this income flow if lent out at the pre-
vailing rate of interest, Marx argues that the capital so formed
embodies fictitious capital, insofar as it represents a title to
future revenues from real capital invested but not actual own-
ership of that capital. The value of the security is illusory since
capital cannot exist twice, once as the discounted value of the
title and then again as the capital actually invested (the actual
source of the revenues to which the title grants a claim). The
secondary trade and independent circulation of the financial
asset strengthens the illusion that it is real capital. For the per-
son buying the title the earnings appear as earnings from a
sum invested, confirming the notion that capital is automati-
cally valorised by its own powers (Marx 1981: 597).
A considerable portion of the capital of the banking system
is constituted by such claims and interest-bearing paper, and is
thus fictitious capital (Marx 1981: 600). Accumulation of such
capital is not dependent on the supply of funds by depositors,
but can proliferate and multiply as the same claim is traded
multiple times (Marx 1981: 60103). While the accumulation
of such claims and titles can arise from genuine accumulation,
and surges at certain phases of the business cycle, it is still
different from both the genuine accumulation from which it
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DAS KAPITAL, VOL 1150 YEARS
arises, and from the future accumulation which is mediated
by the lending of money (Marx 1981: 641).
Thus titles, claims and even debt in the form of tradable as-
sets, are transformed into commodities in the mind of the
banker; however, they are valued in a fundamentally different
way from produced commodities. The price of the security
varies with revenues and the interest rate, and is partly specu-
lative in that it is determined by anticipated revenue. This rep-
resents the kernel of a Marxian two-price approach, that posits
two distinct methods for the valuation of commodities and fi-
nancial assets, much before Minsky (1986) postulated his two-
price model to analyse financial fragility.
Minsky (1986) posed the problem of instability, in terms of
the divergent movements of the prices for current output and
those of financial assets with speculation and entrepreneurial
behaviour under uncertainty playing a pivotal role in the anal-
ysis. He conceived of capitalist enterprises as financial entities
that used debt to acquire assets. He showed how the behaviour
and stability of the economy would vary with the changing
relation of debt commitments to the funds arising from invest-
ment. As long as commitments on past debts can be met from
the income generated from investments, the process is sustain-
able. But enterprises become financially vulnerable once cash
outflows due to such commitments persistently exceed the
cash inflow due to their operations, and enterprises resort to
further borrowing to fulfil the debt obligations precipitating
bankruptcy, debt deflation and financial crisis. Profit opportu-
nities and the prospect of capital gains propel the thrust
towards financial fragility as the conditions of prosperity
themselves fuel speculative behaviour, and the innovations in
the forms of money and financial instruments. The financial
structure is the cause of both the adaptability and the instability
of capitalism (Minsky 1986: 175).
Monetary Crisis
Marx has a strikingly similar discussion of cyclical dynamics
of accumulation and the variations in the interest rate in the
course of the business cycle (Marx 1981: Chapter 30). In the
early phase of the cycle, interest rates are low, there is an
abundance of loanable capital, and industrial capital is ex-
panding. This buoyant phase attracts and is further fuelled by
financial traders and brokers, operating without reserve capi-
tal on borrowed money (Marx 1981: 645). This is a phase of
overproduction and credit swindling, which fosters a growing
pressure on interest rates further fuelling speculation. Marx
notes how in this phase, interest payments are increasingly
made out of borrowed capital rather than profits, in contrast to
the initial recovery phase when borrowing finances purchases
and investment. As interest rate rises and peaks, squeezing the
profit of the enterprise, credit dries up, and a crisis breaks out
(Marx 1981: 64445).
The crisis is marked by an absolute lack of capital for loan,
alongside a surplus of unoccupied industrial capital. The con-
traction of industrial capital launches a period of lower inter-
est rates and a new recovery. The variation of the interest rate
across the business cycle is explained not so much by the
77
DAS KAPITAL, VOL 1150 YEARS
strong demand for loans in the period of prosperity as com-
pared to that of stagnation, but rather to the greater ease with
which this demand is satisfied in the period of the boom (Marx
1981: 582). The value of securities falls as the interest rate rises
triggering distress sales and a downward spiral of asset prices
(Marx 1981: 59799). The crisis, which is a monetary crisis, is
characterised by a paucity of money specifically as a means of
payment and not by a lack of capital (Marx 1981: 62022).
The implications of the speculative aspects of asset holding
for investment, and the nature of the financial system that
translates volatile animal spirits into effective demand is piv-
otal to Minskys approach to cycles. For Marx the financial
cycle, in particular, the circulation of fictitious capital, moves
relatively independently of the industrial cycle even though it
is intertwined with it. Its impact is linked to the role of credit
in facilitating accumulation, and how it helps establish the
social relation between finance and enterprise. In his discus-
sion of speculation, Marx is more focused on the distributive
implications rather than the psychological propensities that
might motivate speculation.
This process of concentration of money capital in the finan-
cial system also underscores the changing relation between
financial and industrial capital. Marx discusses the role of
credit in the formation of joint stock companiesthe forerun-
ners of the modern corporations (Marx 1981: Chapter 27).
Ownership in joint stock-companies takes the form of owner-
ship of tradable shares and stocks that grant the owner a claim
to future profits of the company but do not embody actual con-
trol of the capital. They constitute another form of fictitious
capital whose value is determined independently of the value
of the real capital they represent.
The pervasive spread of the joint-stock structure (even to
the banking sector) also implies the separation of ownership
and control of capital, so that social capital is applied by those
who are not its owners, and who therefore proceed quite un-
like owners (Marx 1981: 56870). This development has con-
sequences for capitalist dynamics. It also further entrenches
the significance of the banking system, which mediates the
trade of these securities, in the overall structure of accumula-
tion. It is also the motor of the process of centralisation and
corporate restructuring through mergers and acquisitions,
that is so integral to capitalist accumulation. Marx also high-
lights how in the wake of crisis, bankruptcies and takeovers
further accelerate the process of concentration.
Finance is thus pivotal to capital accumulation, but at the
same time exacerbates its contradictions and is a powerful
engine for concentration. One dimension that is missing in this
discussion so far of the development of the credit system and
the elaboration of its monetary characteristics is the analyses
of the role of the state.
Modern Money, the State, and Imperialism:
Future Directions
Does Marxs monetary theory, which was constructed on the
basis of a commodity-money standard have relevance for the
present day where the monetary standard is the monetary
78
liability of the banking system (in the form of bank notes and
deposits) and further where the forms of money are taking
new and more varied forms?
The growing dominance of credit money in the financial
system is fundamentally an expression of the separation of the
sphere of finance and money-dealing from that of commerce
that Marx alluded to in Grundrisse. Marx points to how this
separation gives rise to a contradiction between the value of
money as money and as a particular commodity that is sub-
ject to particular conditions of exchange in its exchange with
other commodities, conditions which contradict its general
unconditional exchangeability (Marx 1981: 150). This contra-
diction can be interpreted as the contradiction between the
value of money as a produced commodity whose specific value
is determined by production conditions like all other commod-
ities and the value that expresses its role as a general equiva-
lent. But it is also possible to translate this approach to the
modern world where commodity-money has been superseded
by credit-money, an eventuality that Marx did in fact foresee.
Foley (1989) points to how little difference there is in prac-
tice between systems with and without commodity-money.
But as credit-money, money has features of both a general
equivalent and a financial asset. The fact that credit-money
does not receive explicit interest does not mean it is valueless
paper, or that its value arises in a fundamentally different way
from other financial assets. It remains a form of fictitious capi-
tal (Foley 2005). The question that is left hanging theoreti-
cally is the determination of the particular value of credit-
money (Foley 2005). But the path to resolving this issue lies in
the incorporation of Marxs theorisation of a distinct method
of valuation for fictitious capital.
The potential contradiction between moneys value as a
general equivalent and its particular valuation as an asset is,
in concrete practice, expressed and resolved through the work-
ings of the money market, where short-term paper is traded.9
The monetary system is constituted by a structured hierarchy
of claims and liabilities, and yet at each level of this hierarchy
there is a higher form of moneyas a means of paymentthat
can extinguish the debt (Mehrling 2013). In 19th century Eng-
land, at the time Marx was writing, a hierarchy of different
forms of credit-money substituted for commodity money in the
form of bullion.10 He records in detail how bills of exchange
and deposits were used to mediate trade and other transac-
tions on a wide scale, substituting for Bank of England notes.
Under buoyant market conditions such credit-money prolifer-
ated, but as conditions on the money-market got tighter, there
was a rush to convert this form of credit money to Bank of
England notesa higher level of the monetary hierarchy. But
the notes that the Bank of England issued were themselves
convertible to goldthe apex of the monetary hierarchy.
Convertibilty between different levels of this hierarchy is
established and confirmed in the everday transactions of the
money market. It is when routine trades begin to falter in the
market that convertibility is threatened. Such threats demand
large scale actions on the part of the bank to reassert the
terms of convertibility (Marx 1973: 133). Marx underscores
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why it becomes imperative for capital that the power of the
state is deployed to preserve and guarantee the value and con-
vertibility of credit-money at such times, precisely because the
devaluation of credit-money (not to speak of a complete loss of
its monetary character, which is in any case purely imaginary)
would destroy all existing relationships (Marx 1981: 649). The
variety of forms of money and the convertibility between these
different forms is thus preserved and guaranteed through
state intervention.
The modern financial system, with its pyramid of debt obli-
gations and the spectacular growth of fictitious capital, de-
pends in the final analyses on the role of the state as the ulti-
mate arbiter of these debt obligations. The money market is a
bridge between future claims and current cash flows (Mehr-
ling 2013) but it is also the bridge between the state (through
the actions of the central bank) and the private financial sec-
tor. Marx (1981) had undertaken a remarkably detailed and in-
depth investigation of the functioning of the money market of
his times (Vasudevan 2017). He highlighted the particular role
that the Bank of England played as a quasi-state institution,
and the fact that its note issue was backed by the credit of the
state and the entire wealth of the nation (Marx 1981: 674).
But he also stressed that the power of the Bank of England was
limited not only by the magnitude of gold reserves in its vaults,
but also by the power of private finance.
Even though Marx saw the central bank as the pivot of the
credit system, he argued that the metal reserve is in turn the
pivot of the bank (Marx 1981: 706). He also noted the limits of
the central banks exercise of power to control the mechanisms
of credit-money in normal times. In times of crises when the
credit system tended to collapse back to its monetary basis, the
central bank did exercise greater power over the money mar-
ket, but if the crises coincided with periods when its reserves
of gold had dwindled, its ability to intervene would remain
circumscribed in the face of competition from the private
financial system. With the evolution of the modern monetary
system into a state-credit standard, where the monetary liabil-
ity of the state functions as money, the pivot of the system is no
longer metal reserves but the debt of the state (Vasudevan
2017). The valuation and management of public debt thus
becomes central to the functioning of the monetary system.
This brings us to the other great divide in monetary theory
that between the metallists and chartalists (Schumpeter
1954; Goodhart 1989, 1998). The chartalists break with the
metallists in delinking the monetary standard from any spe-
cific commodity, and instead trace the origin of money to the
legal and fiscal authority of the state. In this view, money is a
creature of the state and law, and all forms of money derive
their acceptability from legislative validation and in particular
on their use in the payment of taxes. In the hierarchy of money,
proximity to the state is crucial in determining the position in
the pyramid of debt obligations. The chartalist view presents a
story of the origin of money that is embedded in social
relations and history. Private exchange through markets takes
a backseat to law and custom in this approach (Bell 2001;
Wray 2014).
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DAS KAPITAL, VOL 1150 YEARS
We have already outlined how Marxs theorisation of a com-
modity-money standard was compatible withand buttressed
his conception ofmoney as a social relation, setting his views
apart from the metallists. Commodity-money did not function
simply as a numeraire, but was a vehicle for articulating social
relations of exchange. But what is of essence, in Marxs analysis,
as distinct from the chartalist view, was the mediation of these
social relations through private transactions in the market. His
account of the logical origin of money did not rest on any parable
of a barter economy that existed before money. Marxs concep-
tion is closer to what is referred to as the money-view in seeking
the origins of the origin of modern money in private money
rather than the coercive power of the state (Mehrling 2000).
Role of the State
So where does that leave the role for the state in a Marxian theory
of money? Marx indicated that the development of commer-
cial and banking credit was linked to that of state credit,
even if he did not explicitly spell out the precise manner in
which these links took shape and evolved (Marx 1981: 525).
We have noted the role of the state in the setting of the stand-
ard of price within the domestic economy. But Marx had also,
as we have seen, accorded a central role to the Bank of England
in the functioning of the credit system. He discussed how this
power was exercised through the Banks ability to control the
interest rate, but also emphasised that the power of the central
bank was limited by the power of other large private banks and
financial institutions (Marx 1973: 124). Through the crises of
1847, 1857 and 1866, it was already evident that while the Bank
of England felt compelled to intervene to prop up the crisis-ridden
banking system, it had yet to develop the tools and mechanisms
of enforcing its will in periods of normalcy when the market
was dominated by the private financial institutions.
But the Bank of England did learn in the last decades of the
century to exercise greater control over the money market and
the post-war world has seen an expansion of the states role
both in providing a guarantee for the private credit system,
and in regulating and disciplining it. With the introduction of
the treasury bill at the end of the 19th century, short-term
claims on the state also came to play a greater role in the money
market. The evolution of the financial system in the advanced
capitalist world after the Great Depression and World War II
ushered in a period where the state played an even greater role
in regulating the channels of private liquidity and the financial
system. The scale and scope of state support to the banking
system has also ratcheted up (Haldane 2009). Since the 1980s,
with the adoption of inflation-targeting as the policy goal, cen-
tral banks are directly intervening to pre-empt the possibility
of rising wages eroding profitability. This shift can be seen,
from a Marxian lens, as central bank targeting of surplus
value (Foley 2005).
But as Leijohnhufvud (1997) underscores, the imperative to
economise on the cash reserves continually propels the growth
of private unregulated channels of credit and consequently the
level of risk embedded in the financial system. At the same time
as the betting of the banking system gets larger, the extent of
79
DAS KAPITAL, VOL 1150 YEARS
state guarantee that is demanded also keeps increasing, so that
the bets in the next round after the state has stepped in to save
the failing financial markets are even larger. The state is bound
to private finance in a growing doom-loop (Haldane 2009).
Since the 1980s the advanced capitalist world has seen a
sharp expansion of parallel private monetary mechanisms
through what is called the shadow banking systemthat lies
outside the ambit of control of central banks. This private
credit-money system represented precisely the ever-lengthen-
ing chain of payments and the artificial system of settling
them which also made the system vulnerable to monetary cri-
sis (Marx 1976: 235). The collapse of Lehman in 2008 that trig-
gered an immediate collapse in these private monetary mech-
anisms and a breakdown of the credit machinery marked such
a crisis. The increased demand for US treasury bills, the only
safe asset in the meltdown, was the hallmark of such a crisis
when the only demand was for money in its absolute form. The
crisis thus reinstated the power of the central bankthe US
Federal Reserveover the money market as it stepped into the
fray with bailouts and the Quantitative Easing programme to
restart the credit engine. But in the end the main repercussion
of this policy has been to further consolidate the power of
private finance, as the banking sector has emerged even more
concentrated than it was before the crisis, and has also resumed
its pursuit of speculative profits. The interventions of the
Federal Reserve have also, perversely, contributed to increasing
inequality through their impact on asset prices and returns
(Montecino and Epstein 2015).
But Marx had also pointed to another aspect of the power of
the central bankthe constraint posed by the drain on its reserves
in times of balance of payments crisis when gold reserves were
also needed for settlement of international payments. The
gold reserves of the Bank of England had a dual role, on the
one hand, as world money, and on the other, as a security for
convertibility of credit-money. Thus the monetary crises in
1847, 1857, and 1866 were compounded by the outflow of gold
(which functioned as world money) that threatened converti-
bility. The effects of this drain of gold reserves are, Marx
argues, a striking demonstration that the social form of wealth
exists alongside wealth itself as a thing in the form of gold
and also that production is not subject to social control as
social production (Marx 1981: 707).
Marx has an insightful discussion of how balance of payments
crisis spreads in succession from one country to another like
volleyball firing (Marx 1981: 62324). He demonstrates that
while a balance of payments crisis may begin in one country
a creditor country like England, the drain of gold this induces
along with the bankruptcy of importers, and the distress sale of
exports and securities, transmits the crisis to its trading partners.
Like Keynes after him, he recognised the inherent deflationary
bias of the gold standard system. But as the preceding discus-
sion has stressed, for Marx this contagion-like spread of defla-
tion does not arise specifically from the use of a metallic stand-
ard, but rather from the contradictions of the money form.
Significantly, Marxs discussion of the debt-deflation spiral
places its effects within the developed commercial world. The
80
implications of trade with the countries outside this commer-
cial core, thus, bear investigation. Marx recognised how Eng-
land deployed its role in mediating triangular patterns of trade
to contain the impact of the drain of reserves (Marx 1981: 70106).
Thus Indias exports to North America and Australia were
covered by drafts on England, which had the same effect as a
direct export from India to England. The opium trade between
India and China, similarly, helped finance Englands deficits
with China. The East India Companys drafts and later that of
the British Indian government were in fact, Marx quipped,
brought into being by an import from India for which Eng-
land does not pay an equivalent and boiled down to tribute
exacted from India (Marx 1981: 716).
The post-war world after the collapse of the Bretton Woods
system has now come to rest on a floating dollar standard. It is
based on the monetary liability of the US state rather than on
gold. But even by the last decades of the 19th century, the
International Gold Standard was in effect a British pound
sterling standard with the Bill on London, a form of credit
money, being used increasingly to finance trade and interna-
tional transactions. The Bank of England was able to calibrate
international liquidity through its manipulation of the dis-
count rate, on the basis of relatively small gold reserves be-
cause it could draw on its surpluses with its colonies and other
countries on the periphery, and shift the burden of adjustment
and crises to these countries (Vasudevan 2009). The standard
was the outcome of consensus (and Britains leading role in es-
tablishing this) and competition between the advanced capi-
talist countries (Brunhoff 2005). There is thus a link between
Marxs theory of world money and imperialism that needs to
be fleshed out more fully.
Imperialism and Marxs Theory of World Money
The imperial mechanisms embedded in the present-day floating
dollar standard can be comprehended through the prism of
Marxs elaboration of world money, and a brief overview of how
this has been attempted would give a flavour of the possibili-
ties of this line of analysis. Patnaik (2008) provides a frame-
work for analysing imperialism, in terms of the role of pauper-
ised workers in the pre-capitalist sectors in the periphery, who
form a continually recreated reserve army of labour, in stabi-
lising the value of money in the core, by securing favourable
terms of trade for the goods produced in the periphery, and by
putting a lid on the wage claims of workers in the core. The
crucial insight in this conception of world money is the link
between world money and the international division of labour
forged by the exercise of imperial power. It is however also
necessary to situate this division of labour in a hierarchy of inter-
national credit relations and the emergence of the monetary
liability of the dominant key-currency state as world money.
In this vein, Vasudevan (2009) elaborates on the role of
parallel monetary mechanisms that enable the recycling of
surpluses from and export of fragility to countries in the pe-
riphery. The unregulated euro-dollar market through the
1970s and 1980s, and in the post-1990s period, the profusion of
new financial instruments and liberalised capital flows, were
SEPTEMBER 16, 2017 vol liI no 37 EPW Economic & Political Weekly

crucial to the workings of the floating dollar standard. Debtor
countries served as a safety valve, facilitating the financing of
the growing deficits of the US. This fomented the dispropor-
tionate growth of international financial flows. In Lapavitsas
(2013) account of the dollar standard, the promotion of capital-
market based private financial mechanisms served as the
means for integrating countries in the periphery into the US
imperial system in what he calls a process of subordinate fi-
nancialisation. He also thinks that the more recent stockpiling
of reserves by countries in the periphery is an outcome and re-
flection of this subordinate status.
The evolution of the floating dollar standard based on the
debt of the US statethe US treasury billalso implies the
emergence of an international monetary system based on ficti-
tious capital since public debt is fictitious capital (Foley 2005;
Brunhoff and Foley 2007; Vasudevan 2009). The US treasury
bill is not simply the link between the US state and private cap-
ital markets. As world money, the dollar is the link between
the US state and a hierarchy of other national states and pri-
vate capital in the international sphere (Vasudevan 2016). The
challenge of developing an analysis of imperialism which
would integrate Marxs theory of money to a theory of the
state, and build on Marxs insights into the relation between
public debt and private finance remains.
By Way of a Conclusion
Running through Marxs notes and writings is the fundamen-
tal insight that money is a social relation and further that cred-
it offers absolute command over the capital and property of
others. This insight has profound political implications. It
informs his critique of those who seek to overturn capitalist
social relations by simply abolishing money or replacing its
financial system with utopian credit and labour-money schemes.
It explains how monetary policy can become a tool to promote
the growth of finance. It also reveals quite clearly why the
power of the state and of the central bank is drafted to the res-
cue of the financial system at the expense of the working class.
The compulsion is even more acute as the banks get larger and
larger and therefore too big to fail.
As one reads through Marxs concrete discussion of financial
markets in 19th century England, one is also struck, by the
remarkable continuity between the world he was describing and
contemporary capitalism. The incipient trends he identified
have matured and ripened, and taken new forms but the tra-
jectory remains that which Marx outlined in the Grundrisse
the separation of the sphere of finance from that of commerce.
Recent decades have witnessed a proliferation of new and
complex financial instruments. For instance, multiple loans
and mortgages are bundled together, then sliced and diced
into novel kinds of securities that bear an extremely complex
and opaque relationship to the original loans. Such securities
have been central to the creation of vast financial machinery
of wealth accumulation, driven disproportionately by profits
acquired through financial channels. There has been a shift in the
centre of gravity of economic activity from production to finance
(Sweezy 1994; Foster 2007). Such accumulation represents an
Economic & Political Weekly EPW SEPTEMBER 16, 2017 vol liI no 37
DAS KAPITAL, VOL 1150 YEARS
accumulation of claims and an accumulation of their market
value from the capital gains of fictitious capital. The recent
crisis revealed the illusory nature of this wealth most brutally.
Lapavitsas (2014) details how non-financial enterprises,
banks and workers in the advanced capitalist world have, since
the eighties, become increasingly implicated in the web of
finance. The disproportionate growth of finance is driven by
and also helps drive growing inequality and concentration of
wealth. The discipline imposed by finance on production has
bred the strategy of rationalize, retrench and outsource,
leading to greater concentration and centralisation of all spheres
of production on the one hand, and to a greater squeeze of the
share of workers income on the other. Dos Santos (2009) has
highlighted how both lending and money dealing services
have been reoriented towards private wage income as source
of revenues in contemporary banking. The subsumption of
working class households into the realm of finance is not
simply a measure of financial inclusion. It has a predatory
aspect in enabling the financial expropriation of the incomes
of working households.
The inroads made by profit-oriented microfinance compa-
nies in India, particularly in Andhra Pradesh, which saw a
spate of suicides engendered by an unbearable burden of
household debt, mirrors this pattern. The promise of financial
inclusion that has spurred the push to fintech and the re-
placement of cash transactions in the context of the recent
demonetisation decree, would in a similar vein help mobilise
the incomes of working class households, petty commodity
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81
DAS KAPITAL, VOL 1150 YEARS
producers, and traders and farmers in the service of the big
business houses and the colossal system of gambling that the
rise of finance inevitably engenders.
The highly abstract formulation of Marxs theory of money
in Capital, Volume I is just the first step of a materialist analy-
sis of concrete monetary phenomena. His concrete analysis of
monetary phenomena in Capital, Volume III has remarkable
Notes
1 Marxs logical construction allows him to show
the limitations of the proposals to use labour
money or time-chits in place of money. He ar-
gues that since it is the social process of ex-
change which gives rise to money as a objective
independent measure of value, labour-money
cannot directly express this value (which is the
abstract expression of social labour). The belief
that money could be managed and subject to
collective control without also managing and
reorganising production was therefore utopian
(Marx 1972: 8586, 1973: 15356).
2 The analysis of the state, foreign trade and the
world market were originally part of Marxs plan
for further three volumes of Capital, a project
which was cut short by his death (Rosdolsky 1977).
3 Brunhoff (1976) notes this analytical distinction in
Marx and Keyness approach to the demand for
money as a hoard. The formulation in Marx is
grounded in moneys role as a general equivalent
and serves to preserve this unique role, while that
of Keynes is noted in psychological propensities
and the speculative and precautionary motives.
The need for a liquid store of wealth is driven by
funadamental uncertainty about the future.
4 He draws an analogy of the relationship between
the monetary system and the credit system and
that between Catholicism and Protestantism to
make the point that the credit system is no
more emancipated from the monetary system
as its basis than Protestantism is from the foun-
dations of Catholicism (Marx 1981: 727).
5 Marx broke from the currency school in arguing
that note issue and credit money bore no rela-
tionship to the quantity of gold reserves with the
banks and also delineated how the flow of such
credit money in circulation responded to the
needs of circulation. In this framework the bank-
ing system cannot enforce the actual flow of
credit money beyond the demands of circulation.
6 I use financial capital instead of money capital or
moneyed capital (as Marx does) in order to dis-
tinguish money capital functioning autonomous-
ly as an external agent providing the finance that
launches the circuit of capital from its transition-
al form as money capital in the circuit of capital.
7 The space of this article does not allow further
discussion of how this interest rate is deter-
mined in Marxs framework other than to high-
light its dependence on relative bargaining
power of industrial and financial capitalists
and the phase of the business cycle and that for
Marx there was no natural rate of interest.
8 This approach is at odds with the standard
textbook version of the money creation where
banks simply lend out deposits received and
further expand deposits through the money-
multiplier process. Post-Keynesian economists
have also been arguing against this interpreta-
tion of the banking system. What is interesting
is that the Bank of England has recently come
around to adopt the contrary view of Marx and
the the Post-Keynesians (McLeay et al 2014).
9 Brunhoff (1976) notes that in building the suc-
cessive stages of his theory of money and cred-
it, Marx does not speak of the price of money
when discussing its role as a measure of value
but only its value. However, Marx talks of the
market price of money in the context of its role
82
resonance in todays world. While Marx emphasised the primacy
of production, he saw capitalist dynamics as being deeply en-
twined with money and finance. The importance of finance
has only grown in the last 150 years. The dominance of fi-
nance, today, has profound political consequences in engen-
dering inequality and shaping working class lives and liveli-
hoods in deep and penetrating ways.
as a medium of circulation. Finally, while in-
vestigating the credit-system he introduces the
price of money in the money market.
10 Lapavitsas (2000) points to the connection be-
tween the form and function of money, with
credit money reflecting moneys function as
means of payment.
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