Money Circulation

The following article is from The Great Soviet Encyclopedia (1979). It might be outdated or ideologically biased.

Money Circulation


the process of the continuous movement of money as a medium of circulation and payment. This process takes place within the framework of the monetary system of every country. The circulation process breaks through the individual and local boundaries of the direct exchange of products, bringing about the development of “a whole network of social relations . . . entirely beyond the control of the actors” (K. Marx; see K. Marx and F. En-gels, Soch., 2nd ed., vol. 23, p. 123). Therefore, under the conditions of simple commodity production, the metamorphosis C—M—C (Commodity—Money—Commodity) itself contains the possibility of a gap between the actions of buying and of selling, C—M and M—C (selling without buying), that is, the possibility of creating an over-production crisis.

On the basis of simple money circulation, the circulation of money as capital is developed according to the formula M—C—M. Under capitalism, money circulation promotes not only the process of the exchange of ordinary goods but also the exchange of a special commodity—labor power—for consumer goods (essential for the workers’ existence) as a condition for its extended reproduction. This sphere of money circulation is in fact the one that imparts a specifically capitalist character to the process of money circulation.

In the field of money circulation a number of economic laws are in effect: the law of quantity of money needed for circulation (Qn) is defined by Marx’ well-known formula:

(ibid., p. 130). The law of the real (exchange) value of currencies states that at a given quantity Qn this value is inversely proportional to the quantity of token money in circulation. The law of bank notes in circulation states that the terms under which the bank notes are issued inherently include conditions of their flow back to the bank of issue. Marx considered that the law Qn has a universal significance; that is, it is in effect in all social structures in which commodity production and money circulation exist. This applies to other laws governing the money circulation as well.

Under the socialist economic system, money circulation basically serves the process of the planned distribution of consumer goods according to labor through the mechanism of trade (state and cooperative) as well as the process of commodity circulation between socialist enterprises; that is, it acquires qualitatively new content. Under socialism, the formula M—C—M expresses a planned process, regulated by the state, whereby socialist enterprises create net income and realize it through the mechanism of wholesale and retail trade. The whole complex of relations expressed by commodity and money circulation under socialism is controlled by the “actors” and organizations of the state representing them, whereas in the presocialist economy the money turnover is not subject to any “attempt to check, measure, and compute. . . . Money starts its circuit from an endless multitude of points.…It would be even less correct to depict the circulation of money as a movement which radiates from one center to all points of the periphery and returns from all the peripheral points to the same center” (K. Marx, ibid., vol. 13, p. 85). In socialist society an organized commodity turnover creates the necessary conditions for the centralization of monetary flows: here, the money circulation in fact represents such a movement radiating from one center to all points on the periphery and returning from all these points to the same center. The planning of monetary flows in the USSR national economy has been organized on this basis.

The laws of money circulation remain in force under the socialist economy, where they are used in the interest of the entire society in the process of national economic planning. This constitutes the fundamental difference in their operation under socialism and under social formations that preceded socialism. The planning of monetary flows and the national control of the implementation of plans for the entire country and for individual republics, oblasts, and raions represent the specific form in which the laws of money circulation operate under socialism. The laws of money circulation are closely linked to all the other economic laws of socialism and play an important role in ensuring their normal operation. For example, only if money is stable in value can the growth of real wages of office and production workers and the money income of kolkhoz workers be effectively guaranteed, and such a growth is the prerequisite to an effective system of material incentives for achieving increased productivity of labor, continuous productive growth, and socialist accumulation. At the same time, it is necessary to take into account the requirements of the law of distribution according to labor to ensure proportionality between production growth and the growth of the wage funds because the dynamics of commodity volume and quantity of money in circulation depend on this proportionality.


The Great Soviet Encyclopedia, 3rd Edition (1970-1979). © 2010 The Gale Group, Inc. All rights reserved.
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