Other Functions of Money

January 27, 2020

Money is the measure of value and the medium of circulation. Gold (or silver) is therefore money.

A. Hoarding

Buying and selling leads to the continuous circulation of money.

But as soon as buying and selling stops, money stops circulating.

At one time, money must be attracted in order to act as circulating coin.

At another, circulating coin must be repelled in order to act again as more or less stagnant money.

Marx’ Solution 1= Gigantic bank reserves

In order for the mass of money, actually current, to constantly circulate commodities, there must be a quantity of gold and silver in a country greater than the quantity required to function as coin.

This is done by hoard of gold and silver. These reserves serve as conduits for the supply or withdrawal of money to or from the circulation, which in this way never overflows its banks.

B. Debt Payment

In the simple circulation of commodities, a given value always has two shapes=

  • as a commodity
  • as money

The manufacture and sale of commodities requires some time for the money to come in as revenue.

Some commodities require a longer time, some a shorter time for production.

Commodity-owner 1 may therefore be ready to sell, before No. 2 is ready to buy.

On the other hand, a house is sold for a definite period. The buyer buys and uses the house before he pays for it.

The purchaser buys a commodity with future money and becomes a debtor. Money here gets a new function as the means of debt payment.

But the opposition between debtor and creditor is less pleasant than buyer and seller.

The class-struggles took the form of=

  • plebeian debtors Rome who were ruined and displaced by slaves
  • feudal debtors in the middle ages who lost their political and economic power

In debt, money functions as=

  • a measure of value in the determination of the price of the commodity sold
  • an ideal means of purchase

Although existing only in the promise of the buyer to pay, it causes the commodity to change hands.

Marx’ Trade Financing

As debt (installment) payment for a commodity, money enters the circulation, but only after the commodity has left circulation.

  • The seller turned his commodity into money to satisfy some want.
  • The hoarder did the same to keep his commodity in money.
  • The debtor did the same to be able to pay.


If he does not pay, his goods will be sold by the sheriff.

The money-form of commodities is therefore now the aim of a sale.

The seller’s commodity circulates again.

Its new buyer converts money back into commodities.

The obligations due within a given period, represent the sum of the prices of the commodities, the sale of which gave rise to those obligations.

The quantity of gold necessary to realise this sum, depends, in the first instance, on the rapidity of currency of the means of debt payment. That quantity is conditioned by two circumstances=

  1. The relations between debtors and creditors form a sort of chain, in such a way that A, when he receives money from his debtor B, straightway hands it over to C his creditor, and so on;

  2. The length of the intervals between the different due-days of the obligations.

The continuous chain of payments is essentially different from that interlacing of the series of metamorphoses which we considered on a former page.

The fact that a number of sales take place simultaneously, and side by side, limits the extent to which coin can be replaced by the rapidity of currency.

On the other hand, this fact is a new lever in economising the means of payment. In proportion as payments are concentrated at one spot, special institutions and methods are developed for their liquidation. Such in the middle ages were the virements at Lyons.

The debts due to A from B, to B from C, to C from A, and so on, have only to be confronted with each other, in order to annul each other to a certain extent like positive and negative quantities.

There thus remains only a single balance to pay.

The greater the amount of the payments concentrated, the less is this balance relatively to that amount, and the less is the mass of the means of payment in circulation.

Marx’ Explanation for Financial Crisis

Money as debt payment implies a contradiction without a terminus medius.

  • Money functions as a measure of value when debt payments balance each other.
  • Money functions as the representation of labor during actual debt payments.

This contradiction comes to a head during monetary crises. These occur only where the ever-lengthening chain of payments, and an artificial system of settling them, has been fully developed.

Whenever there is a general disturbance of this mechanism, money becomes suddenly transformed from its ideal shape into hard cash.

  • Profane commodities can no longer replace it.
  • The use-value of commodities becomes valueless
  • Their value vanishes in the presence of its own independent form.

On the eve of the crisis, the bourgeois, with the self-sufficiency from intoxicating prosperity, declares money to be a vain imagination and that commodities alone are money. But now the cry is everywhere= money alone is a commodity!

In a crisis, the antithesis between commodities and their money-form becomes heightened into an absolute contradiction.

Hence, in such events, the form under which money appears is of no importance. The money famine continues, whether payments have to be made in gold or in credit money such as bank-notes.

The total money current = sum of the prices to be realised + sum of the payments falling due - the payments that balance each other - the number of circuits in which the same coin is used for circulation and for debt payment

Hence, even when prices, rapidity of currency, and the extent of the economy in payments, are given, the quantity of money current and the mass of commodities circulating no longer correspond.

Money that represents commodities long withdrawn from circulation, continues to be current.

Commodities circulate, whose equivalent in money will not appear on the scene till some future day.

Moreover, the debts contracted each day, and the payments falling due on the same day, are quite incommensurable quantities.

Credit-money springs directly out of the function of money as a means of payment.

When the production of commodities has sufficiently extended itself, money begins to serve as the means of payment beyond the sphere of the circulation of commodities.

In every country, certain days of the year become by habit recognised settling days for various large and recurrent payments. These dates depend, apart from other revolutions in the wheel of reproduction, on conditions closely connected with the seasons.

They also regulate the dates for payments that have no direct connexion with the circulation of commodities such as taxes, rents, and so on. The quantity of money requisite to make the payments, falling due on those dates all over the country, causes periodical, though merely superficial, perturbations in the economy of the medium of payment.

From the law of the rapidity of currency of the means of payment, it follows that the quantity of the means of payment required for all periodical payments, whatever their source, is in inverse proportion to the length of their periods.

Money as a medium of payment makes it necessary to accumulate money against the fixed payment dates.

Hoarding declines, with the progress of civil society, while the formation of payment reserves grows.

C. Universal Money

When money leaves the home-sphere of circulation, its metal content serves as universal money.

Countries in which the bourgeois form of production is developed to a certain extent, limit the hoards concentrated in the strong rooms of the banks to the minimum required for the proper performance of their peculiar functions.

Whenever these hoards are strikingly above their average level, it is, with some exceptions, an indication of stagnation in the circulation of commodities, of an interruption in the even flow of their metamorphoses.