[2007SP:613]

Presubmission of Term Paper 403: Presubmission of Essay about Chapter Three, Section 2.b: The Flow of Money

[613] Leftyjace, Aytch, Adam, DCotardo, and Ames: Early Term Paper Submission. Hans, we hope this submission is in time for you to provide some private feedback. We had some confusion on our part as to how soon we could submit it to you, and then had a hard time tracking down the pseudonyms of those that had participated in discussions. If you can provide us some feedback, that would be great. If not, we completely understand and will certainly be making changes and revisions of our own before submitting on Tuesday. Thanks!

Our group's first impression of Section 3.2.b, “The Circulation of Money”, was quite frankly one of confusion. We all initially were at a loss in trying to understand what Marx was trying to teach us about the flow or circulation of money. After repetitive reading and contemplation, conjoined with discussion as a group, we were able to reach a basic understanding of the text.

When Marx first discusses his formula for the “metabolism for the products of labor” as C-M-C, he notes that the movement of commodities is basically a circular movement. Our group quickly grasped this concept - indeed, it was relatively straightforward. There was, however, some initial confusion when Marx explained the processes that take place to facilitate these transactions. “That this one-sided form of motion of the money arises out of the two-sided form of motion of the commodity is a circumstance which is hidden from view” is a quote from the section our group first discussed. We asked ourselves: How is it that the motion of money is one-sided and yet the motion of commodities is two-sided?

Hans: Each movement of M is simultaneously C-M for the seller and M-C for the buyer; i.e., any given piece of money does not alternate through the two phases as every given commodity does. This is why the movement of money is one-sided.

[613] Leftyjace, Aytch, Adam, DCotardo, and Ames: As a group we understood that according to the formula, it starts and ends with the commodity. But does the money not continue on just as a commodity would?

Hans: The commodity is exactly not continuing. After going through C-M-C, the second C falls out of circulation into consumption. On the other hand, money always continues.

[613] Leftyjace, Aytch, Adam, DCotardo, and Ames: One of the arguments that was presented during our group discussion was that money, in fact, serves as just a facilitator of the transaction. What would happen to the equation if you were a person who used commodities to get money? Does the equation change from C-M-C to C-M because you are not turning around and using that money to get another commodity? Marx argues that if a “seller sticks fast to his money” then he is not allowing the exchange to go full circle. Is this the case in our example? If money is the intended “end”, then have you not gone full circle?

Through discussion it became obvious this logic does not hold, and this is affirmed by Marx's logic presented in the text. A person will never have a final end to gain just “money”. Why? Because money is the means to an end. Even if an individual holds on to money for some time, taking it out of circulation, the money will eventually get spent on a commodity. The purpose of money does not change simply because it is not used. Removing the money out of circulation just delays the inevitable. Its purpose as the form of value is to be exchanged for another commodity with necessary use-value.

Hans: Marx is very well aware that a person may have the final end to gain just "money". He is discussing this in the movement M-C-M in chapter Four. But M-C-M is the derived movement, the original movement is C-M-C.

[613] Leftyjace, Aytch, Adam, DCotardo, and Ames: Later on in the section,

Hans: Now you are making a big jump. At the beginning of the section, Marx discussed qualitatively the difference between the circulation of commodities and the flow of money generated by it. After this, he turns to the question of the quantity of money in circulation.

[613] Leftyjace, Aytch, Adam, DCotardo, and Ames: Marx gives examples of money exchanging hands for commodities. First he gives the example of multiple transactions taking place that are completely separate and unattached. This is the example of 4 transactions, each using a money amount of 2 pounds. Through this section he introduced the velocity of money in circulation, demonstrating this by the “chain” that connected 4 transactions together, accomplishing the duty of 8 pounds worth of money, but because of time differential the same 2 pounds is used in each of the transactions.

Our group had much discussion concerning the concept of the velocity of money in circulation. Some argued that the example was a lesson in the supply of money - that in order for society to continually expand and satisfy the needs of the people the money supply needed to be large enough. Other argued that exchanges actually negate the formula that Marx showed in the beginning, C-M-C. It was also argued that the transactions will continue, yet, there was no evidence that the formula came full circle in the manner Marx intended.

Hans: What you are discussing next are issues that are not specific for section 2b, but that have to do with the labor theory of value in general. Perhaps my [586] may be useful here.

[613] Leftyjace, Aytch, Adam, DCotardo, and Ames: Another point brought up in discussion was the effect of “socially necessary labor time”. How does this apply to the flow of money? If we are using money as a facilitator for the exchange of commodities, and the “yard stick” by which we measure the value of said commodities, then the idea of “socially necessary labor time” falls right into place within this argument. How do we decide, as consumers, what we are willing to pay or exchange for what we want? Is it not true that prices will change as society changes? Other influencing factors on the flow and circulation of money include those that determine prices - income, scarcity of materials, weather, personal preferences, and such other subjective factors. One example discussed in particular was that of a brand name hand bag. Even though the purpose of the brand name handbag is the same as all other hand bags, the level of labor and the difference in materials used in the production of a brand name handbag give us a difference in price over an inferior good. If we have an increased income, we would pay more for something that has quite possibly the same use-value as an inferior good. This could, in turn, change the scope of the transaction effected by the C-M-C formula.

Overall, our impression of the section is that, though logical in presentation, it is not necessarily easy to grasp. In the end, after much contemplation, we believe that we as a group were able to understand the concepts presented: that the value, the essence of the commodity, is transformed through the exchange following the course of Marx's C-M-C formula; that money is the facilitator of this exchange; that the velocity of money in circulation is a factor to be taken into consideration; that the value of the money commodity itself is a determining factor in the amount of money in circulation; and that there are various parallel and inverted relationships between prices, the quantity of money, the number of commodities in circulation, and the velocity of money in circulation.

Hans: Here it is important to state that the causality does not go from quantity of money to the price level but it goes from the price level to the quantity of money. Marx was not a quantity theorist, and in his last paragraph he explicitly denounces the quantity theory as an illusion.