Universal equivalent and finance capital
In Capital. A Critique of Political Economy (1867-94), Karl Marx distinguished himself from the classics in the way he integrated monetary theory into value theory. Smith defined money as a commodity, with an intrinsic value, which is used as a means of circulation to avoid the inconveniency of the lack of a double coincidence of wants.
However, Smith commented that the exchange of a beaver for gold does not give rise to the circulation of two incomes as it does in the barter of a beaver for a deer, but only one income. He therefore emphasised that the “great wheel of circulation is altogether different from the goods which are circulated by means of it” (Smith 1776 [1976]: 289) and that it forms no part of the revenue of the society. However, he saves himself the bother of further inquiry into this topic and argues in favour of banknotes, which have negligible production cost, unlike coins. Thornton does not link money with commodities, but with credit. Ricardo, for his part, associates the value of money with seigniorage. Marx emphasises money has a value as a commodity.According to Marx, prices of commodities are not accounting prices, but money prices. If a table is worth £2, this means that it is worth 2 sovereigns, that is, two times 7.322 grams of fine gold. £1 and a sovereign are names given to a quantity of gold. In fact, the price of the table is 14.644 grams of gold. Now, if the value of the table is expressed in gold, it is because gold is analogous to the table. Like the table, gold is a commodity that possesses an exchange value; the table and the two sovereigns have the same exchange value. Money is the commodity that officiates as a universal equivalent, that is, the exchange values of all the commodities are expressed in the commodity money. Whereas both market prices and natural prices are real prices according to Smith, the market price is a quantity of money for Marx.
Aristotle’s influence is obvious when Marx distinguishes between two forms of circulation of money. In the first form, C-M-C (Commodity-Money-Commodity), money assumes the measure of value and the circulation of commodities; it “is in the end converted into a commodity, that serves as a use-value; it is spent once and for all” (Marx 1867 [1961]: 148). In the second form M-C-M', money is advanced and flows back to its point of departure. However, the reflux occurs together with an increment, a surplus value. Here, money circulates as interest-bearing capital. The surplus value is produced by labour power, but it belongs to the capitalist, who owns the money that allows labour power to be bought. This possibility for the capitalist to make surplus value may be transferred to the entrepreneur through credit. For Marx, a loan for interest is a very special kind of exchange between a money-capitalist and a functioning capitalist; through lending, interest-bearing capital becomes a commodity, whose price is the interest rate.
The interest rate is a very special kind of revenue and “there is no such thing as a natural rate of interest in the sense in which economists speak of a natural rate of profit and a natural rate of wages” (Marx 1894 [1962]: 355). The interest rates prevailing on the credit and financial markets do not deviate from any natural level, but are determined by the competition between lenders and borrowers; competition that shifts according to economic circumstances. Hence, during the upward phase of the cycle, commercial credit liquidity is high and clearing is easy, therefore entrepreneurs do not need bank credit to obtain means of payment; the interest rate is low. On the contrary, when a goods market crisis occurs, commercial credit becomes less liquid, the demand for means of payment increases, as does the interest rate. Influenced by the Banking School, Marx defined the banknote as “nothing but a draft upon a banker, payable at any time to the bearer, and given by the banker in place of private drafts” (ibid.: 395).
He berated Overstone, calling him a “logician of usury” (ibid.: 314), but did not adhere to the real bills doctrine. In the event of a market glut, when the salto mortale of the commodities falls short, the bills lose their value, even if they had been issued to finance real production and transactions. The commercial crisis causes a money and banking crisis, a crisis “of the convertibility of bills of exchange into money” (ibid.: 478).Apart from commercial credit, long-term investment is financed by the issue of shares. Again, there is no natural value. Prices are determined by the level, regularity and stability of the dividends, the capitalisation rate, speculation and all sorts of swindles, and the liquidity of markets. In his Finance Capital (1910), Rudolph Hilferding emphasised the intermediation function of banks in the process of issuing shares. After underlining that the regularity of dividends influences the risk premium of the capitalisation rates of the shares, he shows that the gap existing between the profit rate and the capitalisation rate brings about a leverage effect on the value of shares. The result is a financial profit, called “promoter’s profit”, a percentage of which is captured by banks. Thus, the banks acquire part of the capital of companies, which gives rise to “finance capital”, that is, the oligopolistic merger between industrial, commercial and banking capital. “Finance capital” puts an end to the conflict between lenders and borrowers and to the anarchy of the markets, thereby stabilising capitalism.