Tag Archives: Capital

MONEY

Posted on by

Nate Edenhofer
Department of Politics, University of California, Santa Cruz

What is money? Given that money has so many uses in contemporary capitalism and so many different expressions, understanding what money is requires examining the different roles that money plays. David Harvey notes a wide range of functions of money which are “a measure of value, a mode of saving, a standard of price, a means of circulation, or it can function as money of account, as credit money, and last but not least as a means of production to produce capital” (2018, 61–62).  Multiple angles must be taken then, to define money.

First, most clearly, and widely agreed upon is that money is a means of exchange. That is, money serves as a sort of lubricant to make exchanges easier. Adam Smith shows this through the problems of barter. What is a cattle farmer, he asks, to do when he needs salt, exchange for an entire cow’s worth of salt? When money enters the equation—in the form of metal, for example—the farmer has a solution. He can sell the cow and piece out the value in later exchanges (Smith 1776, 43).

Karl Marx also noticed that money is central to the circulation of commodities, most importantly that it is a “form of appearance of value” (Marx 1867, 188), which serves as a universal equivalent to other commodities. This matters for Marx because, similar to how money splits up a commodity like Smith’s cow into tiny pieces, it also splits up buying and selling, allowing the process of exchange to expand temporally and spatially (Marx 1867, 208–9). This, in turn, means purchases do not immediately entail sales, opening up the possibility of crises, hoarding, manipulation of the money supply and inflation/deflation, and the valorization of capital (Marx 1867, chaps. 3–4).

In addition to being a means of exchange, money also serves as an expression of value. This is apparent to a certain extent in classical liberal writing. For example, John Locke understands property and value both to be derived from labor, the unequal distribution of property only being limited by what can be used (or traded) by the owner without spoilage. He writes:

…it is plain, that Men have agreed to disproportionate and unequal Possession of the Earth, they having by a tacit and voluntary consent found out a way, how a man may fairly possess more land than he himself can use the product of, by receiving in exchange for the overplus, Gold and Silver, which may be hoarded up without injury to any one, these metalls not spoileing or decaying in the hands of the possessor. (Locke 1689, 302)

For Locke (and in liberalism generally), what money does is justify an endless accumulation of value through exchange, crystallized into the money form. The role of money as a means of exchange and as a store of value are linked here.  

This concept of money as a store of value was also central for Keynes. He argued against classical economists who were looking at money as simply as a means of exchange of commodities. Money actually was a store of value itself, and allowed for people to delay consumption and express judgments about their economic security (Carter 2020, 264–65). This meant that economic fears could lead to saving and hoarding money, which in turn would slow and damage the economy as spending stopped.  

As noted above, for Marx, money is also fundamentally tied to value. Value is objective but immaterial, and as such it needs a material expression, which is money. Value is how commodities are understood as equivalent, and money is the universal equivalent of all other commodities. As Harvey writes: “Value is the social relation and all social relations escape direct material investigation. Money is the material representation and expression of this social relation” (Harvey 2018, 5).

Defining money as a representation of value, and as a means of exchange opens up an additional purpose for money–that is, money as capital. Marx noticed that for capitalists to not hoard money and to put it back into circulation, they must expect to have a greater amount  returned in future. Expressed differently, if they put value (as money) into circulation it must return as more value (in the form of more money), which requires the valorization process of production and labor (Marx 1867, chaps. 4–6). Crucially though, money capital and industrial capital have split: “[F]rom the standpoint of the circulation of money capital, processes of valorisation and realisation are mere inconveniences on the way to profit making. If interest-bearing capital could find a way to augment itself without passing through valorisation and realisation then it would do so” (Harvey 2018, 68). Money capital appears to outpace other forms of capital, but this must eventually involve labor and production to achieve new value. Financialization can serve to funnel existing value upwards to financial capitalists, but interest bearing money capital—i.e. creditors—will over time require value to be repaid, because “ debt is a claim on future value production that can be redeemed only through value production. If future value production is insufficient to redeem the debt then there is a crisis” (Harvey 2018, 80).

Yet, treating money as the universal equivalent commodity may itself be a problem, and helps us to see the strong political nature of money. For Karl Polanyi, there is an inherent problem with treating money as a commodity at all. Because commodities are defined (by Polanyi) as objects produced for consumption in the market, money (like land and labor) is not a true but “fictitious” commodity. Money does not come from production but is simply a “token of purchasing power” directly created by central banks (Polanyi 1944). The key problem with the fictitious money commodity for Polanyi was the havoc that would come from fluctuations in money prices affecting the prices of all other commodities (including the fictitious commodity of labor), which would inevitably lead to the destruction of enterprise (and society itself) during the period needed to re-reach equilibrium. “With money, the threat was to productive enterprise, the existence of which was imperiled by any fall in the price level caused by use of commodity money” (Polanyi 1944, 204). Because of this, central banks had to regulate the supply of money. So in a market system money had to be treated as a commodity with a price as a foundation, and it simultaneously had to be regulated to avoid destroying that system itself.

That Polanyi shows money is treated as a market commodity while being simultaneously manipulated by the policies of central banks, points to the political role of money. While gold was the expression of money (and thus value), this was highly problem prone, and instead had to be represented symbolically through paper currency. This placed money and value into two deeply connected but different systems (Harvey 2018, 62–63). Crucial to the money system is its expression in various forms and currencies. Since World War II, the US Dollar has been the dominant global currency; it has become an internationally secure store of value as the US “Treasury–Fed–Wall Street money market nexus” has become central to global finance (Panitch and Gindin 2012, 119). As a part of the Bretton Woods system emerging in 1944, the US dollar was pegged to gold. However, this peg was broken under the Nixon administration–because the US had been producing dollars in excess of its gold reserves–moving the world’s reserve currency into one with a floating exchange rate. This led the value of the Dollar to be determined by market demand (for both dollars and dollar-denominated securities), which led to increasingly complex opportunities for accumulation in foreign exchange markets (Sparke 2012, 148–65). Whether the dollar could be replaced as the world’s reserve currency (by the Euro or Chinese Renminbi) remains in the realm of speculation (Plender 2021). 

As more and more of the world’s debts were backed by the Dollar in the 20th century, the US’s ability to control inflation became a central priority of financiers globally (Panitch and Gindin 2012, 131). The most drastic management of this inflation was the Volcker Shock, when Federal Reserve chair Paul Volcker let interest rates rise dramatically, triggering a major reduction in the dollar supply and a subsequent increase in its value. Debtor nations were forced to reckon with how to pay debts denominated in dollars now worth significantly more money in their own currencies, and this helped coerce neoliberal policies into place via emergency loans to repay debts that came with neoliberal restructuring (Harvey 2007). Thus, currency is a part of money that is directly imposed by the state and is tightly bound to sovereignty (Lordon 2014, 10). It is, as such, inherently political. This has added weight when the obvious point is considered that, in capitalism, money is the means of subsistence–processes of primitive accumulation have divorced people from non-monetary means of subsistence and driven them into wage labor or informal but still monetized economies: “for in a decentralized economy with a division of labor, material reproduction passes through the gateway of money” (Lordon 2014, 7; see also Mohandesi and Teitelmen 2017). Thus, money, currency, and the power over it, carries deep and serious political implications. 

BIBLIOGRAPHY

Carter, Zachary D. The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. Random House, 2020. 

Harvey, David. A Brief History of Neoliberalism. Oxford: Oxford University Press, 2007. 

Harvey, David. Marx, Capital and the Madness of Economic Reason. New York: Oxford University Press, 2018.

Locke, John. Two Treatises of Government: A Critical Edition. Edited by Peter Laslett. Cambridge Texts in the History of Political Thought. Cambridge University Press, 1689.

Lordon, Frédéric. Willing Slaves of Capital: Spinoza and Marx on Desire. London: Verso, 2014.

Marx, Karl. Capital: A Critique of Political Economy. Edited by Ernest Mandel. Translated by Ben Fowkes. London: Penguin Books in association with New Left Review, 1867. 

Mohandesi, Salar, and Emma Teitelmen. “Without Reserves.” Chapter. In Social Reproduction Theory: Remapping Class, Recentering Oppression, 37–67. Edited by Tithi Bhattacharya. London: Pluto Press, 2017. 

Panitch, Leo, and Sam Gindin. The Making of Global Capitalism: The Political Economy of American Empire. London: Verso Books, 2012.

Plender, John. “The Demise of the Dollar? Reserve Currencies in the Era of ‘Going Big’.” Financial Times, May 25, 2021. https://www.ft.com/content/408d4065-f66d-4368-9095-c6a8743b0d01. 

Polanyi, Karl. The Great Transformation: The Political and Economic Origins of Our Time. Boston, MA: Beacon Press, 1944. 

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Edited by Edwin Cannan. Chicago: University of Chicago Press,  1776 [2010].

Sparke, Matthew. Introducing Globalization: Ties, Tensions, and Uneven Integration. Malden, MA: Wiley-Blackwell, 2012.

CRITICAL POLITICAL ECONOMY 

Posted on by


Mark Howard
Department of Politics, University of California, Santa Cruz

Critical political economy pertains to the negative and/or positive judgment of the public management of private resources, and in practice denotes two broad intentions: (1) a disciplinary approach to inquiry; and (2) an attitude towards (a) existing literature in the field of Political Economy, and (b) existing political economic practices.

The term critical political economy can be broken into its constituent parts to form a preliminary etymological definition of its subject matter. Starting in reverse order the term ‘economy’ is derived from the Greek composite of oikos, meaning ‘house’, and nemein, meaning ‘manage’, giving us an approximate definition of economy as ‘household management.’. The derivative form of this meaning in contemporary usage relates to the management of material resources at various levels and meanings of the term ‘household,’ though always generally denoting a private sphere of operation: the private sphere of actual households of individuals and families, of local and somewhat autonomous government jurisdictions such as municipalities, or of sovereign states interacting with an international market economy. In all cases there is the notion of managing ‘incomings’ (incomes, imports) and ‘outgoings’ (expenditures, exports) within a sphere of privation. The word ‘political’ is also derived from Greek, in this case polis, meaning ‘affairs of the cities’. Putting this into historical context, its origin derives from the Ancient Greek era of city-states, such as Athens and Sparta, and is therefore now also associated with matters of the state. Even when operating in a local context (e.g. municipal government), politics are generally subject to state jurisdiction of laws (e.g. the necessary compatibility of constitutional and state law), and sometimes extend to partial budgetary limitations. Affairs of the city are never without controversy, and the everyday meaning of politics today suggests something of a contest over who gets to determine the affairs of the city, and how they go about it. Politics thus comes to be associated with struggle played out in the public sphere; struggle over the social form of jurisdiction in question, be it a city, sovereign state, or other social entity of significant size. Putting this definition of ‘political’, together with ‘economy’ we arrive at something like the public struggle over management of private material resources. Though this may seem a counterintuitive definition when speaking of an entity such as a sovereign state government, which should be setting policies for both public and private management of state resources, it in fact still captures the meaning that a sovereign state has certain private material resources specific to that state that it wishes to manage in the public sphere of the international economy, for example in trade practices. The same principle of public and private applies at various levels of political and economic activity.

The term ‘critical’ in itself denotes a number of different meanings each of which may color the meaning of the composite term critical political economy. It may be linked with related terms such as criticism or critique, both of which suggest a judgment of sorts, but differ in the scope and aims of such judgment. Criticism tends to evoke the idea of negative assessment, of challenging the very substance of the subject matter in question without necessarily offering positive suggestions for improvement; it has both an everyday and a professional or scholarly context. Critique instead evokes a practice more open to both positive and negative assessments, and applies more to a scholarly context of systematic assessment and interrogation. 

The ambivalence of the term ‘critical’ is not in fact limited to a difficulty of etymological definition, but also points to an ambivalence in the actual usage of the term as it emerges as both a scholarly approach and attitude.

Speaking to the first of these two interpretations (scholarly approach), it is useful to draw on a distinction made by the international political economist Robert Cox (1981, 128-130) between problem solving theory and critical theory. Problem solving theory is an approach that takes the world as it finds it, and attempts to solve problems arising in discrete parts of the complex whole with the aim of smoothing out the functioning of the whole. In its unquestioning assumption of the whole as a given, it therefore constitutes a conservative approach that is either consciously or unconsciously value-laden—ideological, even—and serves to preserve, and perhaps even strengthen, the status quo. Conversely, critical theory is an approach that takes an outside perspective on the world and questions how it is that this world came about, and whether normative alternatives to that world should be considered. In contradistinction with problem solving theory, critical theory is directed at the whole rather than discrete parts of the whole, and is radical in that it seeks change as opposed to stasis. Critical theory subsumes problem solving theories within its own frame of analysis and renders them as distinct ideologies. For problem solving theory this detracts from the practicality of theoretical work, however, critical theory is not so much unconcerned with practical matters of the ‘real world’ as it is attempting to transcend the existing order and question its underlying (unquestioned) assumptions.

Benjamin Cohen (2016) makes reference to this distinction in specific relation to Political Economy, by criticizing the paucity of scholarship aimed at addressing international, or systemic, matters of monetary policy and management since the global financial crisis (GFC) of 2008-2009. His argument is that the shortage of academic work on this matter is a result of prevailing methodologies in the discipline, methodologies that focus on narrowly focused, segmented, quantitative work—‘hard science’ as it were (Cohen 2016, 3). This amounts to problem solving theory as defined by Cox. Critical Political Economists instead reject the otherwise hegemonic focus on segmented analysis, and focus on the progression of change and stasis within the system as a whole (Cohen 2016, 15), which in Cohen’s argument manifests as a focus on the neglected area of international monetary policy. This further relates to Cox’s definition of critical theory, in that Cohen points out the work in this domain has largely focused on power and crisis, both of which would point to ideological factors impacting Political Economic discourse and practice, as well as bringing a normative perspective into view in addressing how to deal with perennial crises that problem solving theorists of Political Economy otherwise treat as unquestioned and unavoidable, perpetual but transitory (i.e. cyclical) features of Political Economy.   

This critical theoretical approach is also brought into view in the work of figures such as Karl Marx (1976) who specifically situates his analysis as operating in with an historically distinctive moment, with a particularized (though lawful, in the sense of forming predictable patterns of observable behavior) social form that is, because historical, consequently vulnerable to change (Marx 1976, 126). Hence his critique of Capitalism looks beyond surface appearances of entities such as the commodity (cf. Marx 1976, 125) in order to determine how it is that this entity came about historically, and to render visible otherwise concealed assumptions that go unquestioned in traditional political economic analysis (cf. Marx 1976, 138). Indeed, one of the great qualities of Marx’s critique of Capital is that contains within it the problem solving theories of classical political economists such as Adam Smith and David Ricardo, and critique’s those theories on their own terms, revealing their (intentional or unintentional) ideological leanings, and tendency to support status quo practices. Max Tomba (2009) similarly points to the state violence of primitive accumulation (i.e. original possession of the means of production), and, instead of taking it as an unquestioned assumption about the origins of the modern economy (and therefore irrelevant for contemporary political economic analysis), treats it as an ongoing and permanent process of disaccumulation (Tomba 2009, 55). This has implications not merely for scholarly theorizing about Political Economy, but also for real political action related to economic affairs in contemporary society. Such analysis draws our attention to injustices embedded within the dominant mode of political economy and challenges us to develop a normative framework that looks beyond such injustice.

The second interpretation of the term critical political economy above, was broken into two subforms relating to attitude. The first of these related to a critical attitude towards existing literature in the field. It has already been noted that Marx’s analysis critiques the classical political economists on their own terms, and therefore shows that this interpretation of critical political economy is linked to the critical theoretical approach. Marx, for instance, postulates that the value of commodities is independent of the labor process, in an apparent refutation of John Locke’s notion of value being a mix of human labor with nature (Marx 1976, 126). Such an attitude becomes apparent in more general terms as well. Smith, for instance, in postulating the origins and benefits of productivity of machinery, offers an anecdote in which a child automates part of the labor process with the outcome of creating for himself additional leisure (liberty) time (Smith 1776, 17). Marx’s response is to immediately recognize that the time freed up to automation would not immediately be given to leisure, but would instead be diverted to other work tasks so as to compound the productivity gains given by innovation. Marx refers to this as ‘relative surplus-value (Marx 1976, 429-438). Another example is Cohen’s (2016, 6) criticism of scholars who apply monolithic analytical terms–e.g. “all voters”–in their analyses. The problem with such a move, he argues, is that the theoretical convenience of using such an analytical device (‘all voters’) obscures the messy reality in which money in politics has a significant effect on skewing voting preferences through advertising, campaign funding, and so on.

The second critical political economic treatment of attitude relates to existing practices. Of course, this is already linked to that which has already been discussed both in terms of the approach of critical theory, and by derivation, in the attitude of political economic literature criticism. However, it extends to practices that may be observed and not necessarily theoretically documented. Smith, in his discussion of productivity, notes three specializations deriving from the division of labor: dexterity, task consistency, and machinery (Smith 1776, 14-17). While these results are perhaps true in practice, what Smith fails to note is that dexterity as a result of performing one sole operation leads to drudgery, task consistency leads to the unbroken intensity of labor in the workhouse (and later factory), and machinery leads to mass unemployment. Another practice that may be criticized is the trend towards private sector management of finance and monetary governance, demonstrated by the contemporary influence of US bond-rating agencies in being able to determine which economic actors are deemed creditworthy and of economic worth in doing business with (Cohen 2016, 11). Leaving such matters to private institutions which may be influenced by private, partisan interests leaves the practice open to critical analysis in that it may serve the needs of an elite few rather than the public. The lists could go on and on.

The various meanings of critical political economy discussed above overlap with each other to the extent that it becomes difficult to clearly demarcate or distinguish the content of these definitions in any strict way. What they all specifically share, however, is a commitment to challenging the status quo, and contesting descriptive and normative assumptions about how the economy should be organized. At the beginning it was noted that ‘Politics’ denotes something approximating a contest over the determination of social form. If this is true, we may ultimately say that in the end critical political economy constitutes a genuinely Political Economy.

(See Capital, Feminist Economics, Neoliberalism, Neocolonialism, Fetishism, Urban Political Economy)

Bibliography

Cohen, Benjamin. “The IPE of money revisited.” Review of International Political Economy, 24, no. 4 (2017): 657-680.

Cox, Robert W. “Social forces, states and world orders: beyond international relations theory.” Millennium, 10, no. 2 (1981): 126-155.

Marx, Karl. Capital, Modern Library. New York, NY, 1906.

Smith, Adam. The Wealth of Nations. New York: Bantam Dell, 2003 [1776].

Tomba, Massimiliano. “Historical temporalities of capital: An anti-historicist perspective.” Historical Materialism, 17, no. 4 (2009): 44-65.