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.