Economics for Social Democrats–but Not for the Working Class, Part Two: Critique of the Social Democrat Jim Stanford’s Theory of Money, Part One

Introduction

In an earlier post, I indicated that Jim Stanford’s view concerning the creation of jobs reflects a social-democratic or social reformist position (see Economics for Social Democrats–but Not for the Working Class, Part One: Critique of Jim Stanford’s One-Sided View of Job Creation in a Capitalist Society). In this post and subsequent posts, I will begin to look in more depth at Mr. Stanford’s economic views. It is all the more necessary since the main title of his major book is Economics for Everyone. His book is most definitely not for everyone since, although it appears to be for the working class, it ultimately opposes their interest as a class to struggle for the abolition of capitalism. Furthermore, despite the subtitle of his book, A Short Guide to the Economics of Capitalism, it certainly does not express the nature of capitalist society adequately. 

For example, Mr. Stanford’s definition of money has little to recommend it since it fails to explain to workers how money (and hence prices) confers upon employers the power to direct workers’ lives. Marx’s theory of money, by contrast, is designed to do just that.

The following necessarily involves a theory of money, and it is not easy.

Stanford’s Inadequate Definition of Money Has a Historical Antecedent

Let us look at one of Mr. Stanford’s references to money (related to prices) in his book. Page 189:

Very broadly, money is anything that allows its holder to purchase other goods and services. In other words, money is purchasing power.

Mr. Stanford’s identification of money with “purchasing power,” interestingly enough, already had been expressed by a nineteenth-century author, Samuel Bailey, whose theory Karl Marx criticized. From Elena Lange (2021), Value without Fetish Uno Kōzō’s Theory of ‘Pure Capitalism’ in Light of Marx’s Critique of Political Economy, pages 225-226:

… this position echoes Bailey’s identification of money with ‘power of purchase.’  [Quoting Bailey] ‘If the value of an object is its power of purchasing, there must be something to purchase. Value denotes, consequently, nothing positive or intrinsic, but merely the relation in which two objects stand to each other as exchangeable commodities’. Although we will return to this, Marx’s critique of the notion of money as ‘power of purchase’ presents a useful summary of the previous discussion, namely the inability of a formal, functionalist and nominalist theory of money to explain money’s function of general social exchangeability, or, which is the same, the measure of value. ‘Power of purchasing’
hence does not explain the logical significance of money, but presents a tautology. It is well worth quoting the passage at length: [from Marx]

[Bailey’s] entire wisdom is, in fact, contained in this passage. ‘If value is nothing but power of purchasing’ (a very fine definition since ‘purchasing’ presupposes not only value, but the representation of value as ‘money’), ‘it denotes’, etc. However let us first clear away from Bailey’s proposition the absurdities which have been smuggled in. ‘PURCHASING’ means transforming money into commodities. Money already presupposes VALUE and the development OF VALUE. Consequently, out with the expression ‘PURCHASING’ first of all. Otherwise we are explaining
VALUE by VALUE. Accurately expressed it would read as follows: ‘If the value of an object is the relation in which it exchanges with other objects, value denotes, consequently’ (viz., in consequence of the ‘if’) nothing, but merely the relation in which two objects stand to each other as exchangeable objects’ (I.e., [pp.] 4–5). Nobody will contest this tautology. What follows from it, by the way, is that the ‘VALUE’ OF AN OBJECT ‘DENOTES NOTHING’. For example, 1lb. of COFFEE = 4 lbs of COTTON. What is then the value of 1lb. of COFFEE? 4 lbs of COTTON. And of 4 lbs of COTTON? 1lb. of COFFEE. Since the value of 1lb. of coffee is 4 lbs of COTTON, and, on the other hand, the value of 4 lbs of COTTON = 1lb. of COFFEE, then it is clear that the value of 1lb. of COFFEE= 1lb. of COFFEE (since 4 lbs of COTTON = 1lb. of COFFEE), a = b, b = a, HENCE a = a. What arises from this explanation is, therefore, that the value of a use value = a [certain] quantity of the same use value.

The problem with Bailey’s and Stanford’s characterization of money is that nowhere do they explain why a specific thing called money has this power to purchase at all, and how this power to purchase is different from (and yet related to) other things that are on the market (call them commodities–products of labour that are produced for sale). Other commodities do not have “purchasing power” directly–whereas money does. Why is that? Is there a connection with the purchasing power of money and the lack of purchasing power of all other commodities? 

If money is the power to purchase, then what it purchases, by implication, is not money and lacks purchasing power. Hence, money has a monopoly of power over purchasing, and all other commodities lack this direct power of purchasing.

At one pole, there is money, with its monopoly power of purchasing commodities directly, and at the other pole are commodities that lack this power of direct purchasing power. What explains this situation? Mr. Stanford does not address the issue since he is undoubtedly unaware of the problem. For him, the purchasing power of money is simply given rather than something to be explained. 

[As an aside, this definition is obviously inadequate even from the point of view of workers’ everyday experience. For instance, I use my Royal Bank Westjet Master Card to purchase almost everything (in order to accumulate Westjet dollars to be used to see my daughter, Francesca. 

Although my credit card has purchasing power and thus falls under Stanford’s definition of money, obviously the day of reckoning will arise if I do not transfer my deposit funds to pay off my credit card. From this point of view, the deposit funds are money, but not my credit card.)

Stanford’s Distortion of Marx’s Labour Theory of Value Related to Ignoring Marx’s Theory of the Commodity, Value Form, Money and Prices 

This lack of an explanation of the unique monopoly power of money goes hand in hand with a distortion of Karl Marx’s theory of value and commodities. Mr. Stanford reduces Marx’s theory to the so-called theory that labour in general, and only labour, produces value. From his book (2008) Economics for Everyone: A Short Guide to the Economics of Capitalism, page 54:

An economic underpinning for this fightback was provided by Karl Marx. Like the classical economists, he focused on the dynamic evolution of capitalism as a system, and the turbulent relationships between different classes. He argued that the payment of profit on private investments did not reflect any particular economic function, but was only a social relationship. Profit represented a new, more subtle form of EXPLOITATION: an indirect, effective way of capturing economic surplus from those (the workers) who truly do the work. Marx tried (unsuccessfully) to explain how prices in capitalism (which include the payment of profit) could still be based on the underlying labour values of different commodities. [my emphasis] 

Mr. Stanford’s evident distortion of Marx’s theory comes out even more clearly from the following passage (page 71): 

For simplicity, the classical economists adopted a labour theory of value. In this theory, the prices of producible commodities reflect the total amount of labour required to produce them (including both direct labour and the indirect labour required to produce machines and raw materials used in production – a complication we’ll discuss in the next chapter). Marx realized this simplified theory was wrong: prices under capitalism must also reflect the payment of profit. But he was politically committed to explaining prices on the basis of their “underlying” labour values, so he undertook a complicated (and ultimately unsuccessful) attempt to explain prices on the basis of labour values  [my emphasis]. Neoclassical economists, responding to Marx, tried to provide an intellectual and moral justification for the fact that profits are paid on capital investments by attempting to show that capital itself is actually productive. These efforts, too, were unsuccessful.

In the end, the relevance of this long controversy is not entirely clear. Productive human effort (“work,” broadly defined) is clearly the only way to transform the things we harvest from our natural environment into useful goods and services. In this sense, work is the source of all value added. For society as a whole, just as for that lazy teenager, if we don’t work, we don’t eat. Nothing else – not alien landings, not divine intervention, and not some mystical property of “capital” – is genuinely productive. Under capitalism, profits are paid on capital investments. These profits reflect a social institution called “private ownership,” not any real productive activity or function. (In fact, as we’ll see, it’s not even possible to clearly measure capital, let alone to prove that it is productive.) Because of this institution of private ownership of capital, profits are reflected in the prices of various goods and services (and hence also in GDP).

We can accept that human work is the sole driving force of production while simultaneously recognizing that prices (and things that depend on prices, like GDP) depend on other factors, too – namely, under capitalism, profit.

There are a couple of points worthy of notice in this passage. Firstly, Mr. Stanford’s view that labour is a primary but not exclusive determinant of value (and price–for him there is really no difference between them since he reduces money to purchasing power) is somewhat similar to David Ricardo’s nineteenth century theoretical position, which held a 90 percent labour theory of value, so to speak since Ricardo argued that it was labour mainly but not exclusively that formed the value (and price) of commodities. . Ricardo (1821/2004)  wrote in his On the Principles of Political Economy and Taxation (page 30):

SECTION IV

The principle that the quantity of labour bestowed on the production of commodities regulates their relative value, considerably modified by the employment of machinery and other fixed and
durable capital.

In the former section we have supposed the implements and weapons necessary to kill the deer and salmon, to be equally durable, and to be the result of the same quantity of labour, and we have seen that the variations in the relative value of deer and salmon depended solely on the varying quantities of labour necessary to obtain them,—but in every state of society, the tools, implements, buildings, and machinery employed in different trades may be of various degrees of durability, and may require different portions of labour to produce them. The proportions, too, in which the capital that is to support labour, and the capital that is invested in tools, machinery and buildings, may be variously combined. This difference in the degree of durability of fixed capital, and this variety in the proportions in which the two sorts of capital may be combined, introduce another cause, besides the greater or less quantity of labour necessary to produce commodities, for the variations in their relative value—this cause is the rise or fall in the value of labour.

Secondly, like many reformists (as well as some self-proclaimed Marxists), Mr. Stanford identifies Marx’s labour theory of value as either identical to or merely a variant of Ricardo’s labour theory of value. Ricardo identified labour as such or general labour (which was performed in prehistoric times, in ancient Greece, in feudal Europe, etc.) as the main determinant of the value of commodities. Labour as such is what Mr. Stanford calls “human work is the sole driving force of production.”  Mr. Stanford implies that this is supposedly Marx’s position. Such a view is a complete distortion of Marx’s theory–since it lacks any relation to Marx’s theory of commodities, value, use value, money (and hence prices).

It should be pointed out immediately that Ricardo had a labour theory of value but failed to connect his labour theory of value to the existence of money and its monopoly power of immediate purchasing power. The same applies to Mr. Stanford’s own reference to the purchasing power of money, on the one hand, and his attempt to partially dissociate prices from labour on the other (we cannot even talk of “value” in relation to Stanford’s theory since for him there is really only prices). 

If money is purchasing power, or the capacity to immediately be exchangeable with other commodities (with the other commodities lacking this power), then a theory should be able to explain how and why and through what means money has this power. From Capital: A Critique of Political Economy. Volume 1:  page 186: 

The difficulty lies not in comprehending that money is a commodity, but in discovering how, why and by what means a commodity becomes money.

In terms of the structure of the first two chapters of volume one of Capital, Samezo Kuruma (2018), in his Marx’s Theory of the Genesis of Money How, Why, and Through What is a Commodity Money? has this to say (pages 54-55): 

Marx analyses the how of money in the theory of the value form, and the why of money in the theory of the fetish character, whereas in the theory of the exchange process he examines the question of through what. …  Marx’s indication of these three difficulties clearly suggests that he managed to brilliantly overcome them, but no hint is provided as to where this is carried out. My view is that Marx answered the questions of how, why, and through what, respectively, in Section Three [of chapter one of Volume 1 of Capital], Section Four [of chapter one of Volume 1 of Capital], and Chapter Two [of Volume 1 of Capital]. So the three problems in the sentence are listed in the order that Marx solves them in Capital.

Incidentally, Marx does not pose these three problems as a sort of logical schema or in some frivolous manner; they are realistic problems. Without solving each, an adequate understanding of money is not possible. Indeed, earlier political economy slipped into a variety of errors by failing to solve those problems.

Marx’s explanation of the purchasing power of money lies, on the one hand, in the specific nature of the labour that results in the existence of money as a monopoly power–abstract labour or general human labour or universal labour without distinction. This general social labour, unlike earlier societies, does not find its expression in the immediate results of the production process (the process of producing our lives as human beings).

The reference to the immediate results of a labour process that does not result in a social product directly means that it can only be expressed indirectly or through a process of mediation–the exchange process. Contrary to Stanford’s characterization of Marx’s theory of value, the kind of labour is therefore historically specific and not some general social labour that exists and acts as or functions exclusively as social labour regardless of  the kind of society. Stanford, however, presents Marx’s labour theory of value as just that: as ahistorical. 

Abstract labour is a kind of negative labour–it is not social labour as workers work concretely or materially, and it is this labour which produces the value of a commodity, say beer, and not the labour which produces the beer as beer concretely.

On the other hand, a definite kind of labour, concrete labour, produces a definite kind of  use value, say beer. But the result of this concrete labour, since it is linked to abstract labour, is a commodity that is not yet social in its concrete form of beer. A further process–the exchange process–is required to convert the beer into a form where it can function as “purchasing power”–by being able to be converted into any form of commodity–money. 

At one pole is the commodity, beer, which lacks “purchasing power,” and at the other pole is money, which monopolizes purchasing power. 

I will elaborate on this in the next section.

Mr. Stanford, therefore, does not have a theory of money that links money to a specific kind of production. His theory of money as purchasing power, like Bailey’s theory, is an exchange theory of money. Marx, on the other hand, had a production theory of money that referred to a specific kind of society. That theory, however, cannot be characterized as merely a labour theory of value; Marx in fact had a dual or twofold theory of labour.

Marx’s Dual or Twofold Theory of Labour and Commodities

This labour that is connected to the monopoly purchasing power of money is not general labour that human beings have performed throughout history, but labour that is organized in a specific way–as I pointed out in one of my published articles, Dewey’s Materialist Philosophy of Education: A Resource for Critical Pedagogues? In pages 259-288, The European Legacy, Volume 11, Issue 3, pages 274-275: 

Marx provided a systematic logical critique of present capitalist society (the contextual basis for the functioning of schools), on the basis of a dual theory of use or a dual theory of labour. It is this theory which provides the ground for his analysis and critique of capital as well as his subsequent account of the history of the emergence of capital. It is an understanding of capital logically via the twin concepts of concrete and abstract labour, and their further development, which constitutes his critique; an understanding of the coming into being of capital presupposes this logical determination.

Marx relied on Aristotle’s distinction between the use of shoes as shoes and the use of shoes as a means for obtaining another commodity (as a means of exchange):

Take for example, a shoe—there is its wear as a shoe and there is its use as an article of exchange; for both are ways of using a shoe, inasmuch as even he that exchanges a shoe for money or food with the customer that wants a shoe uses it as a shoe, though not for the use peculiar to a shoe, since shoes have not come into existence for the purpose of exchange.

Both are uses of shoes, but they are not the same kind of use. Marx expanded the idea of the dual use of things to include labour in capitalist society. Labour in capitalist society has a dual use which constitutes a contradictory dynamic that develops the material production process, while also tending to undermine the material production process through crises. Marx evidently considered that a dual theory of the use of things or a dual theory of labour was central for a critical understanding of capitalist society:

[London], August 24, 1867
The best points in my book are: 1) the two-fold character of labour, according to whether it is expressed in use value or exchange value. (All understanding of the facts depends upon this.) It is emphasised immediately, in the first chapter.

Marx reiterated the importance of the two-fold character of labour for his critique of capitalist society a few months later:

[London], January 8, 1868

It is strange that the fellow [Eugen Duhring] does not sense the three fundamentally
new elements of the book:
. . . 2) That the economists, without exception, have missed the simple point that if the commodity has a double character—use value and exchange value—then the labour represented by the commodity must also have a two-fold character, while the mere analysis of labour as such, as in Smith, Ricardo, etc., is bound to come up everywhere against inexplicable problems. This is, in fact, the whole secret of the critical conception.

It is Marx’s argument that social labour, in the form of abstract human labour, has distinctive characteristics which oppose it to human labour as concrete labour. It is only through being connected to other labours indirectly that it becomes social labour. The concrete labour that is performed has no direct connection to the labour of other people. To put it another way, the material process of life and the social process of life, which form a unity in the case of human beings, since human beings are both material and social beings, is sundered in capitalist society.

This situation can also be expressed in terms of parts and wholes. Each capitalist unit is a part of the total division of labour. However, this part is quite curious. It is a part that does not function as a part qualitatively while human labour is being expended. The labour being performed is not social labour, connected to other human labour and determinate needs. It needs to become a part only after the micro-production process is at an end, if it is to count as a part of the whole.

Since concrete labour is not social labour as it is being performed, and since the latter is not expressed immediately in concrete use-values, the possibility arises that the amount of concrete labour does not translate into the same amount of social labour. This possible non-identity has major implications for the structure of human life: a dynamic quantitative process is built into production. The quantity of labour required to produce output becomes a concern because the mere expenditure of concrete human labour does not necessarily suffice to meet standards set by the general level of productivity in a particular industry. If those standards are not met, the capitalist firm cannot in the long run reproduce itself. For the capitalist firm to survive, an external pressure is brought to bear on producers to meet that standard. The peculiar character of the part of a whole in capitalist production is thus that the quality of functioning as part of total social labour is transformed into a purely quantitative form. The specific quality of social labour in capitalist society is the priority of its quantity over its concrete quality, or abstract labour over concrete labour.

There is further evidence that Marx considered the twofold character of labour to be of major importance. Ironically, Marx explicitly underlines its importance by providing a separate heading for it in the first chapter and emphasizing its importance for his critique of political economy (Capital, Volume 1: pages 131-132):  

2. THE DUAL CHARACTER OF THE LABOUR EMBODIED IN COMMODITIES

Initially the commodity appeared to us as an object with a dual character, possessing both use-value and exchange-value. Later on it was seen that labour, too, has a dual character: in so far as it finds its expression in value, it no longer possesses the same characteristics as when it is the creator of use-values. I was the first to point out and examine critically this twofold nature of the labour contained in commodities. As this point is crucial to an understanding of political economy, it requires further elucidation.

This dual character of labour produces a commodity–a contradictory unity of use value and value, and this is linked to the nature of money.

The Dual or Twofold Character of Labour and Commodities, on the One Hand, and the Nature of Money (or the Form of Value) on the Other: Or How a Commodity Becomes Money 

Marx’s dual theory of labour is related to Marx’s dual theory of commodities. Commodities have two essential aspects to them: they are both use values and values, and concrete labour produces use values whereas abstract labour produces the value of the commodity. 

This nature of commodities as involving two essential aspects is not, however, immediately expressed in the commodities themselves. It is only concrete labour that is expressed in the use value of the commodity as the specific kind of labour that produces the specific kind of commodity, such as beer. The concrete labour which we performed in the Calgary brewery where I worked, for example, resulted in the concrete beer as beer. Simultaneously, the social nature of the labour performed, as forming part of the total labour of society within a division of labour, is not social labour in its immediate form as beer.

Since a social process emerged that resulted in the performance of labour that is not immediately social in nature (a negative process, if you like), another process is required to express the social nature of the labour performed–a process of exchange. 

From Capital, Volume 1, page 165:

Objects of utility become commodities only because they are the products of the labour of private individuals who work independently of each other. The sum total of the labour of all these private individuals forms the aggregate labour of society. Since the producers do not come into social contact until they exchange the products of their labour, the specific social characteristics of their private labours appear only within this exchange. In other words, the labour of the private individual manifests itself as an element of the total labour of society only through the relations which the act of exchange establishes between the products, and, through their mediation, between the producers. 

Since the concrete labour performed is not social labour directly but only indirectly, its social nature can only be expressed indirectly–through another, different commodity, in the use value of another commodity. However, merely expressing one commodity, say beer, in another commodity, say in steel, would not express the general social nature of the labour that produces value. To express adequately abstract labour and value, it is necessary that the internal opposition between the concrete labour and concrete use value, on the one hand, of the commodity be completely contrasted with abstract labour and value on the other in an external form–ultimately in money as the unique commodity that has the monopoly power of being able to purchase any commodity. This monopoly power of money necessarily excludes such power attaching to the other commodities. Capital, Volume 1, page 161:

Finally, the last form, C [practically, the money form], gives to the world of commodities a general social relative form of value, because, and in so far as, all commodities except one are thereby excluded from the equivalent form. A single commodity, the linen, therefore has the form of direct exchangeability with all other commodities, in other words it has a directly social form because, and in so far as, no other commodity is in this situation. 26

26. It is by no means self-evident that the form of direct and universal exchangeability is an antagonistic form, as inseparable from its opposite, the form of non-direct exchangeability, as the positivity of one pole of a magnet is from the negativity of the other pole. This has allowed the illusion to arise that all commodities can simultaneously be imprinted with the stamp of direct exchangeability, in the same way that it might be imagined that all Catholics can be popes. It is, of course, highly desirable in the eyes of the petty bourgeois, who views the production of commodities as the absolute summit of human freedom and individual independence, that the inconveniences resulting from the impossibility of exchanging commodities directly, which are inherent in this form, should be removed.

Money is the form of value–the expression of value, or the expression of the general nature of the labour that is not directly social. The internal opposition of abstract labour and concrete labour, and value and use value, finds expression through the external opposition of all commodities on the one side expressing their value in one commodity–money.

Stanford’s definition of money as “purchasing power” simply fails to address “how, why and through what means” something can serve as money or purchasing power of commodities. 

Obviously, not all social labour is expressed in this form; when I cooked for my daughter, my cooking was social in nature but it did not assume a form different from the concrete result. In a capitalist society, by contrast, the social nature of labour assumes–and must assume–a form external to the concrete use value produced by concrete labour. 

Political Implications of the Monopoly of the Purchasing Power of Money

The connection between a specific character of social labour and money has political implications since such a connection expresses a kind of society that necessarily escapes the control of the workers and in fact leads, ultimately, to the control over them of their own products. 

Elena Lange(2019) has addressed this issue by noting that Marx’s theory is a theory of fetishism and not just a labour theory of value in her article “The Transformation Problem as a Problem of Fetishism,” pages 51-70, in Filosofski Vestnik, Volume 40, issue Number 3, page 52: 

To treat Marx’s theory as purely an economic theory without any political implications, of course, is useful for both academics–and for the class of employers. 

For Marx, lacking in the classics, and strangely ignored in Marx‘s modern interpreters, the distinction between abstract and concrete labour is the crucial critical heuristic to clear the path to a thoroughgoing critique of the capitalist relations of production and its inverted self-representations. This distinction is directly reflected in the formulation of the labour theory of value, by determining the social substance of value as abstract-general human labour and distinguishing it from concrete labour as manifested in the commodity’s use-value.  This conceptualisation equally allowed Marx to pierce the problem of form and content – the problem of fetishism.

Mr. Stanford, by assuming as a fact the direct purchasing power of money rather than explaining it, misses the connection between the monopoly of the purchasing power of money and the lack of social power of all other commodities–including workers (after all, there is a market for workers, is there not?). 

The nature and implications of this connection between the production of commodities (a contradictory unity of use value and value) via abstract and concrete labour, the expression of the value of a commodity in money and the fetishism of commodities will be addressed in another post in this series, however. The next post in this series will look at how the exchange process escapes the control of the participants in the exchange process 

Conclusion

Mr. Stanford’s definition of money as purchasing power is definitely an inadequate definition of the nature of money since it excludes the conditions for something to be money: concrete labour cannot be directly social labour. His interpretation of Marx’s so-called labour theory of value is also definitely inadequate since it excludes any consideration of the dual nature of labour and commodities in a capitalist society; in effect, he treats Marx’s theory to be a variant of Ricardo’s ahistorical theory of all labour throughout history somehow producing (exchange) value. Ricardo’s labour theory of value has little connection with the necessity for money to arise, on the one hand, and the monopoly nature of money (and the simultaneous exclusion of other commodities) on the other.   

Mr. Stanford’s definition of money as “purchasing power” has also a parallel in Ricardo’s theory in that both fail to connect their theory of money to capitalist production. 

Stanford’s view, similar to Ricardo’s view, that somehow labour is more or less the primary cause of the quantitative price of commodities but not the exclusive cause once “capital” (meaning machinery and other means of production that last longer than one year) fails to engage in any inquiry into the peculiar kind of labour (really a kind of organizing social labour) that needs to be expressed in something other than the immediate use value (such as beer) which is produced. 

 His reduction of Marx’s theory to Ricardo’s theory leaves Mr. Stanford’s theory of money without any connection to the purchasing power that money has–a power that ultimately is exercised over the working class. The twofold or dual nature of labour necessarily involves the expression of the nature of abstract labour as value in the form of money, which excludes all other commodities from being money; purchasing power on one side necessarily involves a lack of such a power on the other side. 

Mr. Stanford’s economics for everyone–is it really for the working class? 

The connection between a specific character of social labour and money has political implications since such a connection expresses a kind of society that necessarily escapes the control of the workers and in fact leads, ultimately, to the control over them of their own products. That connection will be explored in another post.