Aug 19, 2010

A Rise in Gold Price and Marx's Theory of Money

Last week saw the gold price skyrocketing over $1,250 per ounce, the highest price ever. Since the collapse of the Bretton Woods system, the connection between money and gold has officially disappeared. However, the demand for gold as a storage of value continued to exist; especially so in times of crisis. And we have observed the price of gold soaring during the last couple of years marked by consecutive blows of financial crisis and sovereign crisis with tumbling euro and stagnating dollar. Does this lend support to Marx's commodity money theory, as presented in the first three chapters, to any meaningful extent?

As is well known, there are largely two responses within Marxian camp to Schumpeterian critique of Marx's money theory as metallist and thus outdated:

1) To dismiss the current sovereign money regime as a superficial, temporary and unstable phenomenon (e.g. Claus Germer 1999, Anitra Nelson, John Weeks 2012).

2) To reject the traditional Marxian commodity money theory and modify Marx in a very similar way with Post Keynesian Chartalism and hence in this approach an emphasis is given to the combination of money theory and state theory (Duncan Foley's 1983, 1987 pieces are the most prominent examples).

3) To argue that within Marx's theory, it is not a logical necessity that money needs to have intrinsic value despite Marx's assertion; non-commodity - e.g. fiat money anchored on state power or credit money backed by issuer's creditworthiness - can possibly function as money. Consequently, the post gold exchange regime does not pose a threat to Marx's theory (e.g. Michael Williams 2000, Fred Moseley 2010 etc.).

One of the important theoretical concerns in this debate is whether money itself necessarily has to have an intrinsic value or not within Marx's theoretical system. I think the recent soaring of gold price gives us some insights to this question in relation to the stability of the value of money. First, an institutional environment, where valueless non-commodity performs essential functions of money such as measure of value and storage of value, cannot avoid experiencing a disruption in the value of money now and then, especially in times of crisis. Second, if the circulation of non-commodity money relies upon the state whose credibility depends on its military and financial power and thus is subject to fluctuation, then something like the recent rise in the demand for gold at the expense of government-printed money or government bond may be repeated in a much more violent way anytime in the future.

Jun 15 2010

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