Home > political-economy > “Here, Fred. Fixed that for ya!”

“Here, Fred. Fixed that for ya!”

In his paper, THE “MONETARY EXPRESSION OF LABOR” IN THE CASE OF NON-COMMODITY MONEY,, Fred Moseley admits Marx argues money is a commodity, but Moseley wonders if this was not just due to the fact Marx was trying to explain 19th Century capitalism.

Some critics of Marx claim his theory is invalidated by the contemporary use of worthless paper money, and Moseley takes exception to this argument. Moseley is clearly trying to salvage Marx’s theory in the age of digital currency, and, I think, his heart is in the right place. But, somehow he just screws up early on in his argument, which leads him off along a tangent wide of his mark. Moseley tries to salvage Marx by throwing out the one thing that is unique to Marx’s labor theory of value — his labor theory of value.

Moseley trips himself up right at his opening argument, which he illustrates with this equation:

Pi = (1 / Lg ) Li

This equation, which I was finally able to decipher with Kirsten Tynan’s (Twitter: @KirsteninMT) generous assistance, allegedly states:

…the prices of commodities are the exchange-values between all other commodities and the money commodity, and these prices are determined by the relative quantities of socially necessary labor time contained in all other commodities and the money commodity (e.g. gold).

This is Moseley’s first mistake: prices are not the exchange value between all other commodities and money, but the ideal expression of the socially necessary labor time contained in each. For a number of reasons, the actual price in a transaction can vary from the actual value exchanged in that transaction. One example: in the case of a clipped coin — a coin that was altered illegally — the nominal price will differ from the exchange value. The nominal price of the commodity is one gold dollar, but the actual piece of the coin used in the transaction was altered to weigh less than a “dollar’s” worth of gold.

The example is sufficient, I think, to show why the price is not the value exchanged in a transaction, but merely its ideal expression. However, if we are not looking at Moseley’s formulation with a critical eye, the illusory nature of price would be overlooked. What we would be overlooking is the fact that price is one thing — and ideal representation of a definite weight of gold — and exchange value is something altogether different — the actual weight of gold exchanged.

This has implications for Moseley’s first equation, and all subsequent equations based on it. But, more important, it has implications for all the economic data published by the fascist state — the data, which is always published in dollars, not gold, does not tell us anything about the actual value those dollars represent. I don’t know if this is the right way to say this, but the denomination of the prices of commodities and the “denomination” of those same commodities in gold are two different things. The two denominations are (ideally again) connected when we state the legal standard of price: how many dollars equal how many units of gold.

In 1932 this legal standard was $20.67 = One ounce of gold; so, a commodity with a price of $206.70 was legally the equivalent of ten ounces of gold:

$206.70/$20.67 = 10 oz.

In Moseley’s first equation this standard of price must figure as:


where SoP is the legal standard of prices.

It is fine if we a using actual weights of gold in exchange, since the standard of prices in that case is 1. But, as we move away from gold and visit the case of token money, we will lose sight of this relation unless we explicitly state it. So, we can change Moseley’s first equation to:

Pi/SoP = (1 / Lg ) Li,

or simply

Pi/SoP = Li/Lg

This means, when we try to calculate the labor time of the commodity Li, we are always doing it with reference to gold as the value object. Once we have fixed Moseley’s first equation this way, we can dispose of all the rest of his equations as unnecessary.

(To paraphrase Kirsten: “Here Fred. Fixed that for ya.”)

After this, there is actually very little to explain about the relation between price and value in either a gold standard regime, an inconvertible token regime (as existed from 1934-1971), or our present ex nihilo currency regime. The behavior of prices, tokens and money can be explained with the same equation. In the gold standard regime, the equation is held “honest” by the fact that gold, as Marx puts it, is a “pledge for its own value”. If the actual quantity of currency in circulation is over its necessary limit, folks will trade the currency in for gold, and vice versa. Gold, as Marx argues, flows into and out of hoards.

In the case of inconvertible token money, what has occurred in history is the formation of a dual price system — one price for tokens and another for gold. This happened in the US during the Civil War when both sides issued inconvertible tokens. It also happened in Germany during its Weimar Republic hyperinflation, and in the Soviet Union before and during the period known as “war communism”. Prices become detached from their legally defined standard due to the overissue of currency by the state. (Oddly enough, something very similar happened in Zimbabwe between Zim dollars and US dollars, although both are worthless. That is another question for another time)

By far, the most massive expression of the imbalance of state issued currency and the price standard did not happen in some place far away, nor in some ancient epoch, but here in the United States in the 1960s — and it led to a breakdown in the global financial system. That is why the US closed the gold window in 1971, and floated the dollar against gold. The official dollar standard was $35 to one ounce of gold, but dollars amounting to well more than that sloshed through the world economy. Overissue of dollars broke the bullion banks and crash the global financial system.

This was nothing more than the law of value working its way out. The overissue of worthless dollar since the creation of Bretton Woods was so massive, the price standard of $35 = 1oz. gold collapsed; gold prices — which is the actual standard of all other prices — rocketed to $900 by 1980. Let me state that again: The price of gold — the actual market exchange ratio between gold and any currency — is the standard for all other prices in an ex nihilo monetary regime. Just because there is no legal, state defined price standard, does not in the least mean there is no price standard. The state can no more abolish the effective price standard than it can abolish the law of value.

As the Austrian writer FOFOA explains, along with his fellow writers, FOA and Another, in the murky, secretive world of gold traders, currencies do not buy gold, gold buys these worthless currencies. Currencies are a commodity, of sorts, since they are necessary if one wants to purchase labor power in a given country and turn gold into capital. Gold, i.e., money, cannot become capital unless it is first converted into one or another token currency. But, just because it must first be converted into a token currency does not in the least unmake gold as money.

The exact opposite happens: with gold no longer tied to currencies directly, labor power can be devalued ruthlessly via the currency!

Marx’s argument about prices in chapter 3 of Capital 1, is that price is an illusion, an obscuring material that hid the real world from us. Economists failed to explain capitalism precisely because they take this illusion for reality. Stop looking at the illusion — it is only there to confuse you and obscure your reality from you.

Your reality is that communism, a classless, stateless society founded on complete freedom, is an immediate possibility.

  1. internationalist
    February 3, 2012 at 8:10 pm

    “One example: in the case of a clipped coin — a coin that was altered illegally — the nominal price will differ from the exchange value. The nominal price of the commodity is one gold dollar, but the actual piece of the coin used in the transaction was altered to weigh less than a “dollar’s” worth of gold.

    The example is sufficient, I think, to show why the price is not the value exchanged in a transaction, but merely its ideal expression.”

    The more I think about this, the more I think I understand very little about Marx on money, price, and exchange-value. I’ll try anyway:

    I’m having a hard time understanding this quote in particular. You’re saying I can illegally clip a $1 gold coin but still pass it off as $1 — that is, it retains its price on the market even though it no longer contains the amount of gold (thereby the amount of labor-time, thereby the exchange-value) that a $1 coin is supposed to have. If the coin retains its price irrespective of the change in composition/labor-time/exchange-value, then aren’t we already at a stage of society at which the coin is really just a “token”, in spite of its still being made of gold? Presumably if I accept the clipped coin from you for $1 worth of my goods, it’s because I know I can give that coin to somebody else or to my bank or government and redeem it for a full $1. Insofar as it’s a token, the exchange-value/labor-time of the physical stuff it’s made of should be irrelevant, right? That is — while clipping a piece off the coin affects its exchange-value qua “piece of gold”, it doesn’t affect its exchange-value qua “token”.

    About your claim, generally, that Marx’s predictions only make sense if we look at GDP over the past 70 years in terms of gold rather than the dollar — wouldn’t they also similarly make sense if we looked at GDP in terms of so-called “real dollars”? I suppose I can see how inflation is a great way to distract labor from the stagnancy of wages; to provide capitalists with an endless supply of play money to multiply for themselves; and to create jobs that couldn’t exist if not for an increase in supply of said play money. I am just wondering about ways to make that point without wading into what is (for me, at least) the confusing and difficult work of understanding Marx’s stuff about money qua commodity and qua token. I also don’t mind staying away from talk about gold because it evokes for me the paranoid primitivism of the Paulites, when the point of the criticism is certainly not that we ought to revert to a more “authentic” currency but rather that we ought to move forward to form of society in which exchange-value and price no longer exist.

    • February 3, 2012 at 9:20 pm

      Yes. Clipping was rather a bit of an art back in the day. Sir Isaac Newton spent many good years in the English Mint tracking down clippers — the sentence for which crime was death, I understand. http://en.wikipedia.org/wiki/Later_life_of_Isaac_Newton#Appointment_to_the_Mint

      It was because of such behavior, as well as normal wear and tear, that Marx argued nominal prices and real exchange values should not be confused. Prices, like value, was distinct from exchange value. The weight of the coin is irrelevant to its nominal price for sure, but the nominal price is irrelevant to the law of value. So, from the standpoint of the law of value — and this is what concerns us — nominal prices though relevant, should not be the focus of our attention. If we did not focus on the real exchange value of money, rather than the nominal value represented by the token, we would not be able to explain some very serious things like debasement of the dollar in 1933, and the subsequent collapse of Bretton Woods in 1971. Both of these events imply a growing divergence between prices and value, i.e., between labor time of society and socially necessary labor time.

      Marx’s theory does not make sense if we focus on dollars. Rather, what makes sense is neoclassical theory of money. The historical trajectory of capitalism is revealed only when we look at gold, i.e., at value, and compare this to nominal dollar values.

      I think we should not get hung up on the gold bugs. For us gold is a tool of analysis, not a preferred means of exchange. In fact, although Marx always saw commodity money as money, he actually referred to credit money and state issued token as a higher form of money — a form closer to our own goal: the abolition of money, prices, value and exchange itself.

  1. February 5, 2012 at 6:17 pm
  2. February 5, 2012 at 6:21 pm
  3. February 5, 2012 at 6:28 pm

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