As the now-deceased rapper Notorious BIG once said, “Mo money, mo problems.” Karl Marx would agree. In Chapter 3 of Capital, “Money, or the Circulation of Commodities,” we learn that once  a barter system is superseded by a system of exchange based on money, society is in the grip of an ungovernable force that is prone to crises.

Notorious BIG. Was he a closet Marxist?

Money presents a whole host of problems, many of which are elucidated in this chapter.

What is money?

As with my readings of chapters 1 and 2, I am referring extensively to David Harvey’s lectures on Capital available in streaming video. Harvey starts his discussion of Chapter 3 with a basic question. What is money? By the time this question was answered, I had understood why it is better to have $1 million in hard cash as opposed to, say, $1 million in the form of  commodities: be they soya beans, Batman comics, or Russian prostitutes.

What’s so special about the filthy lucre?

As Marx explains, money (which he equates with gold for the purpose of his discussion) has two purposes. 1) it is the measure of the value of commodities. 2) it is the means of circulation of commodities.

In the former, money expresses the value of a commodity as a price. The couch that I purchased on rue Saint Hubert last spring was on sale for the price of $260. (Was it actually worth $260 given that it subsequently broke?) Of course, prices like $260 don’t affix themselves to couches by chance. Marx observes that “The guardian of the commodities must… lend them his tongue, or hang a ticket on them, in order to communicate their prices to the outside world” (189).

Determining whether the guardian or owner of a commodity has chosen a price that expresses value appropriately is the job of the market. Alas, I am just one person, and so I cannot dictate that my couch should actually have been priced at under ten bucks. However, in a market made up of many people, the prices of commodities are obviously going to find socially acceptable levels – usually…

Marx clarifies that pricing is a “purely ideal act” – i.e. it occurs strictly in the mind. And so the money attached to a price is “imaginary.” It does not become real until the commodity is actually exchanged for money. Everything preceding that is hypothetical.

So while I could go on e-Bay and ask for $1 million for lint harvested from my navel, the $1 million will remain imaginary until an actual purchase is made. Convincing people to exchange money for a commodity is not always easy.

Sales and purchases on the market are rendered possible by money’s circulation function. To realize a sale of the sumptuous, shapely lint from my navel, there must be money circulating so that one very lucky individual can pony up the $1 million and buy it. As David Harvey puts it, money is the “lubricant” of the system.

How much lubricant – money – does the system need? Argh – here we get into mathematical territory (never my favourite place to be). But never fear – it turns out that the amount of money required in a system of commodity circulation can be expressed as quite a simple formula:


Whoa! What the #*^*@ is velocity? And why the heck do we need a reserve fund? My head was spinning with these questions. Marx doesn’t make life easy. Fortunately, Professor Harvey flies in like a superhero to save dunderheads like me from a lifetime of ignorance.

It turns out the first part of the formula is straight forward. Let’s take a simple country like Canada. How much money should be in Canada’s system of commodity circulation? For a start, it should be sufficient to cover the sum total of  prices of all the commodities for sale in Canada. Temporality is an important factor here. Obviously, the number and prices of commodities are not always the same and not all commodities are sold at the same time. Sometimes Canada experiences a dip in the total price of its commodities (in a recession, for example). In which case, less money is required. But temporality assumes a different dimension when we consider velocity.

Velocity describes the speed at which commodities are being exchanged. Let’s imagine a very simple system of exchange: it’s between Banchi and me and my neighbour James. Let’s say it’s a somewhat frenetic velocity of exchange. I sell Banchi a can of Friskies for $1. After this transaction, I have $1 and Banchi has a can of yummy food. Then she sells me a dead moth. I now give her the $1 back in exchange for the moth. Banchi then goes downstairs and buys a cigarette from James. Now James has the $1 and Banchi has a cigarette. James then decides he would really like my dead moth in order to press it and hang on his wall. So he comes by to give me $1 for it.

Pretty amazing to contemplate that only $1 dollar was sufficient to cover the exchange of a can of Friskies, a dead moth, and a cigarette. Everyone managed to part with a commodity that they didn’t need/want and obtain a commodity that they did need/want. If, by contrast, there were a slow velocity of exchange in my local market; say I bought a dead moth for $1 from Banchi, hung it on the wall and then decided to stop exchanging for the day, a problem might well emerge. If Banchi or James hoped to buy any further commodities, more money would need to enter the system, because I’m sitting on the only available $1. So the general rule with velocity appears to be that the higher it is, the less actual money is required. This is why credit cards are encouraged. They speed up exchange, while sparing us the need to have large volumes of real money to cover all the purchases made on any given day.

In the formula, everything pretty much now makes sense except the RESERVE FUND. What the heck is that? It would appear that a reserve fund is something that is in the control of the State. Let’s say Canada, for the sake of argument. It’s a pile of money that is outside of the usual system of exchange that enables the government to somewhat regulate the economy. If there is a banner commodity production year – literally oodles of iPods and TVs and yachts and beef steaks crowding the market – why then, the Canadian government will release money from its reserve fund so that people can buy all these wonderful commodities. The government wants commodities to find buyers, see? That’s how wealth is generated! Similarly, at those times when there is too much money on the market and not enough commodities to spend it on, the government can withdraw money from circulation and return it to the reserve fund.

Money problems

But I have jumped ahead. Money measures value by virtue of taking a form in which all other commodities can be measured – i.e. a couch = $260. It turned out that gold (and also silver) proved to be the easiest forms for money to take, because these metals could be divided by weight in order to express a value. Hence, literally one pound of silver became one pound, the unit of currency for the United Kingdom. However, as Marx points out, the origins of these names — pound, dollar, franc — quickly lost relevance. Nevertheless, it is still important to Marx that dollars and pounds etc. stay related to the metals that they represent. So that even when money changes form and we’re no longer trading literal pieces of gold in ounces and pounds, but rather, tokens or symbols that represent the same, gold or silver are still agreed to be the underlying supports of the currency’s value. Hence, we can start using paper money, just so long as we agree that $1 is redeemable for a certain unit of gold, which is held by the government in a vault somewhere.

Complicating things further is the fact that long after Marx wrote this, the world mostly abandoned the custom of storing gold as a support to its paper money. Since 1973, the direct relation between our money and precious metals has been broken.

Another important point is made by Marx about money versus price. “…The possibility that the price may diverge from the magnitude of value is inherent in the price form itself” he writes (p196). To stretch the same point further, he notes on the next page, “[the price] may harbour a qualitative contradiction, with the result that price ceases altogether to express value…”

These are crucial points. Price is not always indicative of value is the bottom line. I might slap a price of $1 million on a turd, but whether the turd is really going to have a $1 million real value is up to debate. If I polished the turd would it help? Still debatable. I expected Marx to say here, “Aha, this contradiction in capitalism is part of what’s so rotten about the system!” But in fact, he says the opposite. He says it is not a “defect” that there is an incongruity between price and value; indeed, “it makes this form the adequate one for a mode of production whose laws can only assert themselves as blindly operating averages between constant irregularities” (p196).

From C-C to C-M-C to M-C-M

With a better handle on money as a measure of value, Marx goes on to flesh out money as a means of circulation. Harvey helps draw a chronology here that is enormously useful. He backtracks right to the original system, discussed in Chapter 1, of commodity-commodity (C-C) exchange. This is essentially a barter system, whereby I trade something I don’t need for something I do need (a cat for a bicycle, for example).

Once money enters the equation, a more sophisticated pattern of exchange is possible: Commodity-Money-Commodity (C-M-C). This was illustrated with my whole dead moth, cigarettes, Friskies example. Now here we have to pause.  Marx breaks down the C-M-C scenario into its constituent parts, arguing that they are not exactly the same. C-M means that a commodity is exchanged for money. M-C means that money is exchanged for a commodity. The former is a sale, the latter is a purchase.

Marx takes issue with previous political economists who had asserted that because every purchase is a sale and every sale is a purchase it therefore follows that the system of exchange maintains an equilibrium. He is disagreeing here with Say’s Law. According to Marx, the system does not always have equilibrium, because C-M and M-C are very different forms of exchange. The power is all on the side of the M-C exchange. Why? Because money is the universal equivalent; it can be exchanged for anything and everything. Hence there are all sorts of reasons why C-M might not be followed naturally by M-C. The supposed equilibrium can easily be thrown off by sellers simply hoarding their money and thus taking money out of general circulation.

This is where Marx finds the makings of a monetary crisis. And he was far from alone in worrying about general crises of capitalism. Malthus and, much later, Keynes, also were perplexed by the system’s propensity to fail.

The final step in the evolution of the system of circulation is the acknowledgment of a further form of exchange called M-C-M. That is to say, Money-Commodity-Money. In this system, money is not simply what is exchanged for a commodity. Money is instead focussed on the acquisition of more money. Money is directed toward a commodity for the purpose of converting that commodity to a return of additional money. Hence, I take $5 to the Kahnawake reserve and buy a pack of cigarettes; I return to a Montreal school yard where they’ll easily retail for $10.

Child smoker. A sitting duck for an unscrupulous capitalist.

I’ve just made a big old profit! And enabled an illegal smoker. Score!

The commodification of everything

Harvey talks about how money enables private individuals to appropriate social power, which is one of the chief reasons why the lust for money in a capitalist economy is limitless. This is why commodification is also limitless. To anyone who argues that certain things are sacred and beyond commodification, David Harvey points out that the Catholic Church, by selling indulgences, already commodified Heaven. Back in the medieval age, you literally could buy your way into God’s kingdom.

And so it goes. You can commodify human organs, the sex act, and ideas…

For the purpose of social power, then, money is best as money. Harvey asks why would you even want to transform all your money into use-values? He cites Imelda Marcos and her giant shoe collection. Is a collection of 3,000 shoes a good way of ensuring social power? Not really. What use-value is one person supposed to get out of 3,000 shoes? You’d be hard pressed to wear each pair at least once over the course of a lifetime.

And so the commodification of everything proceeds apace because capitalists realize that money is power and more money is more power. Meanwhile, us Marxists sit on the sidelines and grumble that mo money is mo problems. Can’t we all just get along? As it turns out, we can’t.

We are under siege from big money-grubbing thugs

The capitalists’ tireless and limitless accumulation of money — and when Marx says limitless, he means it, he means infinite — puts their social class into a collision with others who don’t share their privileges or worldview. It puts them into conflict  with other humans, as well as with animals and with the environment itself. So while BP attempted to extract as much oil worldwide as possible, it also attempted to minimize its expenditures on safety measures. Within the logic of capitalism, BP played by the rules exactly as they are spelled out. Capital accumulation is BP’s business — not protecting coastline, birds, or fishermen. As Chris Hedges argues here, BP and similar companies are headed by sociopaths who, unless caught, are quite content to maim, kill, and destroy everything that stands in their way of getting another dollar.

That’s money!