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Many ancient communities, for instance, took cattle as their standard of value but used more manageable objects as means of payment. Exchange involving the use of money is a great improvement over barter, since it permits elaborate specialization and provides generalized purchasing power that the participants in the exchange may use in the future. The growth of monetary institutions has largely paralleled that of trade and industry; today almost all economic activity is concerned with the making and spending of money incomes.
From the earliest times precious metals have had wide monetary use, owing to convenience of handling, durability, divisibility, and the high intrinsic value commonly attached to them. Whether an article is to be regarded as money does not, however, depend on its value as a commodity, except where intrinsic worth is necessary to make it generally acceptable in exchange. The relation between the face value of an object used as money and its commodity value has actually become increasingly remote (see coin).
Paper currency first appeared about 300 years ago; it was usually backed by some “standard” commodity of intrinsic value into which it could be freely converted on demand, but even during the early development of currency, issuance of inconvertible paper money, also called fiat money, was not infrequent (see, for example, Law, John). The world's first durable plastic currency was introduced by Australia in a special issue in 1988 and in a regular issue in 1992. Plastic bills are more resistant to counterfeiting than paper, and a number of countries now issue plastic currency. In the 21st cent. the use of debit cards, credit cards, and smartphone apps to make electronic payments has increasingly supplanted currency in both retail and personal transactions.
The importance of money has been variously interpreted. While the advocates of mercantilism tended to identify money with wealth, the classical economists, e.g., John Stuart Mill, usually considered money as a veil obscuring real economic phenomena. Since the mid-20th cent., a group known as the monetarists has given increasing attention to the role of money in determining national income and economic fluctuations.
The Monetary System of the United States
The monetary system of the United States was based on bimetallism during most of the 19th cent. A full gold standard was in effect from 1900 to 1933, providing for free coinage of gold and full convertibility of currency into gold coin; the volume of money in circulation was closely related to the gold supply. The passage of the Gold Reserve Act of 1934, which put the country on a modified gold standard, presaged the end of the gold-based monetary system in domestic exchange. Under this system, the dollar was legally defined as having a certain, fixed value in gold. While gold was still thought to be important for maintenance of confidence in the dollar, its connection with the actual use of money was at best vague. The 1934 act stipulated that gold could not be used as a medium of domestic exchange. Subsequently, a number of measures de-emphasized the dollar's dependence on gold, and since the early 1970s, practically all U.S. currency, paper or coin, has been essentially fiat money.
Under the Legal Tender Act of 1933, all American coin and paper money in circulation is legal tender, i.e., under the law it must be accepted at face value by creditors in payment of any debt, public or private. Most of the currency circulating in the United States consists of Federal Reserve notes, which are issued in denominations ranging from $1 to $100 by the Federal Reserve System, are guaranteed by the U.S. government, and are secured by government securities and eligible commercial paper. A small fraction of the currency supply is made up of the various types of coin, none of which has a commodity value equal to its face value. Finally, an even smaller part of the circulating currency is composed of bills that are no longer issued, such as silver certificates, which were redeemable in silver until 1967, and bills in denominations between $500 and $100,000, which have not been issued since 1969. Starting in 1996, the Federal Reserve undertook the redesign of all paper bills, chiefly to deter a new wave of counterfeiting that uses computer technology; further changes, including colors in addition to green, were introduced in 2003. Today, however, currency and coin are less widely used as a means of payment than checks, debit cards, credit cards, and computer and smartphone electronic-payment apps; demand deposits (checking accounts) are, therefore, generally considered part of the money supply. Certain assets, sometimes called near-monies, are similar to money in that they can usually be readily converted into cash without loss; they include, for example, time deposits and very short-term obligations of the federal government. Funds that are frequently transferred from country to country for maximum advantage are called hot monies. The technical definition of the nation's aggregate money supply includes three measures of money: M-1, the sum of all currency and demand deposits held by consumers and businesses; M-2 is M-1 plus all savings accounts, time deposits (e.g., certificates of deposit), and smaller money-market accounts; M-3 is M-2 plus large-denomination time deposits held by corporations and financial institutions and money-market funds held by financial institutions. See also banking; on the regulation of the supply, availability, and cost of money, see Federal Reserve System and interest.
See J. M. Keynes, General Theory of Employment, Interest, and Money (1936); J. Niehans, The Theory of Money (1980); J. Wheatley, An Essay on the Theory of Money and Principles of Commerce (1983); A. Schwartz, Money in Historical Perspective (1987); J. Hicks, A Market Theory of Money (1989); C. Rogers, Money, Interest and Capital (1989); J. Goodwin, Greenback (2002); N. Ferguson, The Ascent of Money (2008).
moneyany commodity or token generally acceptable as a medium of exchange, and in terms of which other goods and services may be priced. Originally the physical material used as money usually had an inherent usefulness as well as being a symbolic medium (e.g. gold). In modern societies money takes many forms, including paper and also machine-held records.
Absent in BARTER ECONOMIES, in which goods are exchanged directly, money can be seen as an important human invention (see also EVOLUTIONARY UNIVERSAL). As a ‘symbolic medium for resources’ (Parsons, 1963), money underlines the ‘generalized instrumentality’ of resources as against their more particular uses. Money, together with the development of MARKETS for resources, is immensely significant historically, for the following reasons:
- as a store of purchasing power or VALUE;
- as a unit of account or record; as a measurement of the relative value of goods and services whether or not these are actually to be sold;
- as money capital, the money used to finance production;
- as a source of credit.
For MARX in particular, and for the CLASSICAL ECONOMISTS generally money played an indispensable role in the rise of CAPITALISM AND CAPITALIST MODE OF PRODUCTION. However, a number of its characteristics were also recognized as bringing problems. These arise from the storage and hoarding of money, and from situations in which goods cannot be sold for money, or credit obtained; one reason for ECONOMIC CRISES. For Marx, such crises have less to do with the characteristics of money as such, than with the character of CAPITALISM (see CRISES OF CAPITALISM; see also INFLATION, MONETARISM).
In a classic work, The Philosophy of Money SIMMEL points to the fact that the transition to a money economy has far-reaching consequences beyond its role in the development of the economy. Not least, there is the general impetus it gave to rational calculation and a rationalistic world outlook, including scientific measurement. A further consequence was an increase in impersonal social relationships.
In the work of Parsons, analogies between the concept of money and the concept of POWER are also suggested. Thus political power can be seen as a generalized resource which can be used in many ways.
a special commodity, the universal equivalent (equal value) or universal-equivalent form of value for all other commodities. The specific feature of the money commodity is that it expresses the value of any other commodity and serves as a universal instrument of exchange.
Money in simple commodity production and under capitalism. The earliest form of exchange, in which one commodity was bartered directly for another, already contained an embryonic form of money. In this exchange relationship, commodity A expresses its exchange value in the use value of commodity B. In this exchange relationship the latter commodity acts as an equivalent for commodity A and acquires an equivalent form of value. Its first characteristic is that the use value of commodity B becomes a form for manifesting its opposite—value (exchange value). From this follows its second characteristic: the concrete labor expended to produce commodity B becomes a form for manifestation of its opposite—abstract human labor. Thus the social relationship between commodity owners is already expressed here, and their labor appears as social labor. From this there follows the third characteristic of the equivalent form: the private labor spent to produce commodity B serves as a direct form for manifesting its opposite—social labor.
As exchange develops, each commodity receives a series of expressions of its value in the use value of the other commodities for which it is exchanged. The elementary form of value is converted into the total or expanded form of value; in this case direct exchange of products still exists because each product is an equivalent for another. As commodity production grows and social labor is differentiated, the most frequently exchanged commodity becomes the medium of exchange for other commodities. Thus there is a spontaneous transition from the expanded form of value to the general one, in which, unlike the two preceding forms, the process of exchange is mediated by a universal equivalent. The functions of such an equivalent are gradually monopolized by one particular commodity, becoming associated with its natural form. Such a commodity becomes money, and the general form of value becomes monetary. From this time onward the characteristics of the equivalent form are embodied in money only.
In precapitalist social formations various commodities played the role of universal equivalent. Depending on local natural and economic conditions, animal skins, shells, grain, and everyday objects became money. Livestock was common as an equivalent. Therefore livestock and money had the same name among ancient people (for example, in Latin pecus means livestock and pecunia means coin). As exchange continued to develop, metals began to be used as money; by their nature, they performed the function of a monetary commodity best since they were uniform and could be divided arbitrarily. Precious metals (gold and silver) have a high value in small quantities, are transportable, and are not subject to deterioration—oxidation. Under capitalism, therefore, gold and silver (and in the current age gold almost exclusively), finally established a monopoly as the monetary commodity on a world scale.
The essence of money is manifested in its functions. The first function of money, that of a measure of value, is the expression of the value of all other commodities. The expression of the value of a commodity in money is its price. Directly linked with the function of the measure of value is the scale of prices, the legally fixed weight of the quantity of metal adopted as the country’s monetary unit and serving to measure the prices of commodities. With the stable value of gold the prices of commodities change depending on the quantity of gold; this is the basis of the scale of prices in law and in fact. If the gold content of the monetary unit is decreased, then the prices of all commodities, which are expressed in it, should rise. The more stable the scale of prices, the better money performs its function as the measure of value.
The prices of particular commodities and of all commodities together are established in the market by innumerable acts of buying and selling commodities. Therefore, the process of price formation, the functioning of money as the measure of value, is inseparably linked with the real exchange process in which money operates as the means of circulation. At first the function of the means of circulation was performed by gold in ingots. In order to avoid the necessity of weighing the gold during every act of exchange, some merchants (and subsequently also states) began to give the gold ingots a fixed, standard form and put an appropriate stamp on them. Gold and silver as money received the form of coins. In circulation coins gradually lose weight. But in the market they continue to be accepted in exchange in accordance with their original nominal weight; that is, they function as full-value coins. Their payment and purchasing power remains unchanged. In this way the circulation of money separates the real metal content in a coin from its nominal content. In connection with this the state itself began to issue silver and copper tokens of less than full value as substitutes for full-value gold coins. This practice later, provided a basis for issuing purely nominal tokens of value— paper money as a replacement for metallic coins (of full value or less than full value). The possibility of replacing the monetary commodity with symbols of value (coins of less than full value and paper money) arises from the function of money as a means of circulation; however, monetary tokens have legal payment power only within individual states.
Generalizing his analysis of the first two functions, K. Marx gives a concrete definition of money: “The commodity that functions as a measure of value and, either in its own person or through a representative, as the medium of circulation is money” (K. Marx and F. Engels, Soch., 2nd ed., vol. 23, p. 140).
The other functions of money follow from the functions of measure of value and means of circulation. If the producer of a commodity has sold his commodity and has not converted the money received into another commodity, then he accumulates it; that is, he takes it out of the circulation sphere. The money becomes a hoard. Commodity owners accumulate social labor, embodied in the universal equivalent form, as a hoard. Only full-value money can perform the function of accumulation. Gold is the principal such type of money, but metallic and paper money also serve if their real (exchange) value corresponds to their nominal value. The fictitious nature of accumulation of the latter is revealed when they are devalued. The function of money as a means of payment arises from the process of commodity circulation in which payment for a commodity is made not at the moment of sale but rather at a certain time afterward. Money as a means of payment has an extraordinarily broad sphere of functioning in the payment of wages, in the repaying of all kinds of financial obligations, and in all those cases where money does not act as a transitory mediator of commodity movement (Commodity—Money—Commodity, C—M—C), but rather carries out independent movements, passing (during payment for a commodity) from one owner to another. The appearance of a special form of money—credit money—is linked with this monetary function which, just like the function of means of circulation, can also be performed by nominal tokens of value. The producer of a commodity who has sold his commodity on credit and received a debt obligation, a promissory note, from the buyer may then in his turn use this note in place of money to pay for a commodity purchased from a third person. Special drafts issued by banks appeared on the basis of this turnover in promissory notes. This is the highest form of credit money. It has come to be called the banknote and is today the dominant form of monetary token.
The development of commodity-money relationships beyond national borders and the formation of a world market gave rise to a new function, the function of worldwide money. In the world market money sheds its “national uniforms” (coins and paper money) and appears in the form of ingots of precious metals. Various credit means of payment expressed in national currencies (such as US dollars and English pounds sterling) and international credit means of payment, such as Special Drawing Rights (SDK’s), based on an agreement among member countries of the International Monetary Fund, function in world economic turnover on this basis. But the final means of settling accounts for the payment balances of the capitalist countries continues to be gold, the world money. In world turnover, money functions as the universal means of pament and universal purchasing means, with the means of payment predominating because world trade is large-scale wholesale trade, trade in which commodities are either sold on credit or in which the buyer advances money beforehand to pay for the commodity. In world turnover, money also functions as a universally recognized embodiment of social wealth that easily migrates from one country to another in the form of the universal equivalent, gold. Each country needs a certain gold reserve for its own international payments. Therefore, the money accumulated within individual countries in the form of hoards serves as a reserve fund of world money for the particular countries.
Money fetishism (worship of money, deification of money) follows from the characteristics of the equivalent form of value and the functions of money as described above. Money serves commodity production; in the last analysis, the movement of money is conditioned by the movement of commodities, whereas the movement of commodities is conditioned by the production process. Money and ordinary commodities are the two poles of the commodity world forming a unified whole. At the same time the internal contradiction between the commodity as value and as use value finds external expression in the contradiction between the commodity and money, and this manifests itself with particular force during crises caused by overproduction of goods. The possibility of such crises arises from the function of money as a means of circulation, from disruption of the metamorphosis C—M—C, where C—M (sale) is not followed by M—C (purchase) and therefore many producers (sellers) cannot dispose of their commodities. In addition, crises may also arise in connection with the development of money’s function as a means of payment. With a developed credit system each commodity producer is linked to others by a system of debt obligations. If times for payment of the debt are violated in some links of the chain, the positions of many other commodity producers will be affected. This may lead to massive failures to pay debt obligations, that is, bankruptcy. Then the overproduction crisis assumes the form of a universal monetary or credit crisis.
Historically and logically money precedes capital, which arises from the spontaneous movement of money on the basis of its functions. In precapitalist formations money had limited application as a means to exploitation of labor because in-kind relations predominated in the slaveholding and feudal societies and surplus product was appropriated directly in physical form by slaveholders and feudal barons. The spontaneous development of the market and of all the functions of money helped to undermine ancient and feudal property, break down simple commodity production, and develop capitalist production. Under capitalist conditions the simple functions of money become the functions of capital. Facilitating all phases and aspects of the process of expanded capitalist reproduction, money appears in the form of monetary capital, which, together with productive and commodity capital, is an essential form of the circulation of industrial capital. Thus, all the functions of money under capitalism express the antagonistic contradictions inherent in this mode of production.
Money under socialism. Having taken over the monetary system of the capitalist state, the state of the working class uses its mechanism and all the functions of money in the interests of building socialism. During the transitional period from capitalism to socialism, with the existence of various social structures, money was also used by capitalist elements, and in the sphere of small-scale commodity production the spontaneous functioning of money made it possible for capitalist relations to occur and develop. But even during the years of socialist reconstruction of the national economy, as capitalist elements were squeezed out, agriculture was collectivized, and the level of national economic planning was raised, the commodity-money form was adapted to the conditions and requirements of planned national economic management and became an organic element of the socialist system of production.
The necessity of commodity production under socialism also means that money is necessary for the socialist economy. Money in the socialist society has a specific nature, one that differs substantially from money in both capitalist and small-scale commodity production, because under socialism money expresses planned and consciously organized economic relations based on socialist collectivization of the means of production. The very foundations of money fetishism are undermined in a socialist society because of the fundamental change in the way money functions and money’s role and place in the national economy.
As the equivalent of all commodities, money under socialism is the universal form for keeping track of expenditures of social labor, carrying on production planning and organization, and distributing national product in accordance with the economic laws of socialism.
As a result of the sale of the goods produced on an organized market (which is crucially important in the socialist economy), the individual and collective labor of the workers of particular enterprises, as concrete labor creating various use values, receives in money its final recognition as a definite part of aggregate social labor. The contradiction between the commodity and money, that is, between the use value (concrete labor) and value (abstract labor) manifests itself under socialism in the everyday practice of planning and socialist economic management, for example, in the possibility that particular enterprises will fulfill and overfulfill the plan for production and sale of output while failing to fulfill the plan for assortment and quality of output, which may cause overstocking of particular products. This contradiction is overcome as the system of socialist economic management is improved.
Money under socialism shows its specific features in all the functions typical of it, which become the functions of planned management of the entire national economy and of each individual enterprise. Thus, using money as the measure of value makes it possible to organize comprehensive and detailed accounting of enterprise expenditures, that is, to determine the prime cost of the goods produced and the profitability of their production and, on this basis, to establish planned prices for the goods that reflect their value. Together with money and the monetary system, socialist society also inherited that special commodity which has historically won the position of universal equivalent: gold. Each socialist country has a definite, legally fixed gold content in its monetary unit (such as the Soviet ruble, the Czech koruna, and the Bulgarian lev), which is the measure of value and official standard of price in each of these countries.
In the socialist economy the sphere of circulation includes both the movement (circulation) of means of production among sectors and enterprises and the distribution of consumption goods among the toiling masses. But money as a means of circulation facilitates primarily the circulation of consumer goods (retail commodity turnover), because during the sale of means of production the supplier receives money by noncash transactions either before or after the purchaser receives the commodity. Moreover, these monetary charges are carried out in credit form through a bank, where money functions as the means of payment.
The selling of social product in the socialist economy assumes the planning, on the one hand, of commodity prices and the volume of commodity supply in monetary terms and, on the other, of the purchasing power of the population and socialist enterprises (that is, demand). The problem posed here is ensuring coordination of the volume and price level of commodity resources with the monetary income of the population that is used to purchase goods.
In its function as a means of payment, money is used to repay financial obligations that arise as the result of selling goods and rendering mutual services by socialist enterprises and also in connection with the need to repay all other payment obligations. These obligations are primarily labor-related: wages of production and clerical workers, the guaranteed monthly wages of kolkhoz members, and pensions, social insurance grants, stipends, and so on. The process of labor and its results are monitored by means of bank control of wage payments, for the individual production or clerical worker and for the enterprise as a whole. Socialist enterprises and the population have their own financial obligations to the state budget, and these are paid in cash or noncash payments. Most of these financial obligations are anticipated by the national economic plan. Through this function of money, fulfillment of the national economic plan is organized and monitored in the center and local areas, and planned distribution and redistribution of national income is carried on through the state budget; within the framework of particular national economic sectors it is carried on by central financial agencies of the ministries and departments. The importance of money’s functions as the means of circulation and payment has been increased, and state influence on the development of social production through the monetary mechanism has been strengthened as a result of the introduction of the volume of output sold (that is, paid for by purchases), profit, and profitability in place of gross output as the primary index of the results of enterprise activity; the introduction (where it is possible and advisable) of direct links between industrial enterprises which produce consumer goods and commercial organizations; the expansion of wholesale trade in the means of production; and other measures of the economic reform.
Under socialism money as the universal equivalent (gold) performs its functions as means of circulation and payment within the framework of individual countries entirely in the form of substitutes—tokens of value (bank notes and treasury notes). Under socialism, bank notes and treasury notes also act as a means of accumulation, a function that assumes that money savings can be used as a payment and purchasing medium at any moment without obstruction. These notes, in the form of money in the bank accounts of enterprises, economic bodies, various public organizations, and the state budget and in the form of the savings of the toiling masses deposited in savings banks and invested in state bonds, also perform the function of accumulation. By virtue of the credit system, money accumulated by the toiling masses reenters the circulation process; the state uses the capital from the population to supply credit to the national economy and other public needs. In this way it becomes possible to carry out expansion of the scale of production as envisioned by the national economic plan without issuing additional money. The function of a means of accumulation plays a very important part in the process of extended socialist reproduction, which is carried on by converting centralized and decentralized monetary savings into new productive assets (fixed and working) and into funds for wages. The volumes of these accounts are determined by national economic plans.
Under conditions of a currency monopoly all accounts between socialist countries and capitalist countries are settled in the currency of the appropriate country or by generally acceptable reserve (“key”) currency and credit means of payment. Where the socialist country does not have such means of payment or the receiver country does not wish to accept them, the remainder of the payment is repaid in gold. In settlement of accounts among countries of the world socialist system, money is used to record expenditures for the production of particular types of output in various countries and for carrying out equivalent exchange of the products of labor among them. Without such a use of money, the economically efficient coordination of the national economic plans of particular countries and the specialization and planned cooperation of production within the framework of the world socialist economic system would be impossible. For simplicity and convenience in accounts between states, the gold content of the monetary unit of one of the socialist countries (the Soviet ruble, 0,987412 grams of gold) is used by mutual agreement as the measure of value and standard of prices for the world socialist market. The transferable ruble is used in multilateral accounts among members of the Council for Mutual Economic Assistance (COMECON). In accounts of the agreeing countries transferable rubles express a definite amount of value equal to the gold content of the ruble indicated above and corresponding to the amount of reserve currency and all other currencies. The transferable ruble, which is based on the planned economic integration of the Comecon member countries, is the collective socialist currency. Planned organization of mutual economic relations among the Comecon member countries creates conditions for ensuring stability of gold content of the collective currency (transferable ruble) and a realistic exchange rate over the long run. As it assumes a stronger role this currency will be used in transactions with third countries as well as among Comecon member countries and may assume a place among the other currencies which are used in international accounts, a place appropriate to the role and significance of the Comecon member countries in the world economy.
The socialist countries have state reserves of gold and foreign currency. The gold reserve has a twofold significance for these countries; along with commodity resources it serves as security for the monetary notes put in circulation and as a reserve fund of world money through which a negative balance of payments can be covered. On the basis of international cooperation the gold and currency reserves of some socialist countries can be used to cover the negative balance of payments of other countries by granting them credit in gold or in the necessary currency.
Thus, the socialist economic system creates conditions for and necessitates conscious and planned control of the functions of money and of all the many billions of monetary transactions both within particular countries and on an international scale. Here can be seen the fundamental difference in the role of money and the advantages of monetary circulation of the socialist economic system in comparison with the capitalist system.
Z. V. ATLAS
Capitalist theories of money. Capitalist theories of money express the views of capitalist economists concerning the essence of money, monetary functions, and the laws of monetary circulation; these theories contain in themselves the primary demands made of monetary and currency policy by the capitalists. The principal capitalist theories of money—the metal, nominal, and quantity theories, which arose in the 16th to 18th centuries—have been modified with the development of capitalism.
The metal theory of money developed in the age of the primitive accumulation of capital and played a definitely progressive role in the struggle against coin deterioration (decrease in the weight of the metal). In its most complete form it was developed by the mercantilists (T. Mun, D. North, and others in England; J. F. Melon and A. Montchrestien in France), who advanced a doctrine of full-value metallic money as the wealth of a nation. In their thinking, a stable metallic currency was one of the essential conditions for the economic development of capitalist society. The error of the advocates of the metal theory lay in equating money with goods and in the failure to understand that monetary circulation is different from commodity exchange and that money is a special commodity which serves as a universal equivalent. Representatives of the metal theory denied the possibility of replacing full-value metal money with tokens in domestic circulation.
As capitalist production developed, capitalist economists faced new problems: it became necessary to develop credit money for domestic circulation. The theory of money as wealth left the stage. The critics of mercantilism denied the commodity nature of money and developed the nominalist theory of money. Its representatives (J. Bellers, N. Barbon, and G. Berkeley in England) argued that money is just a conventional token that has nothing in common with commodities; the only important thing, they said, is the designation of the monetary unit, the metallic content being insignificant. The nominalists concentrated their attention on analyzing the functions of money as a means of circulation and means of payment, areas in which it was possible to replace metallic money with paper. The main error of the advocates of the nominalist theory was to deny the commodity nature of money. In fact money is not a conventional token but a specific commodity. As K. Marx stressed, the idea of money as a conventional token results from failing to understand the function of money as the measure of value and confusing the measure of value and the scale of prices.
In the early 20th century a renovated nominalist theory of money arose in Germany. Its most prominent representative, G. F. Knapp, declared that money was a “creature of the legal order,” a creation of the state. He recognized only one monetary function, the function of means of payment. In Knapp’s theory money .is unrelated to metal; it is, as he put it, “chartal” (from the Latin charta, “paper”) in nature, that is, conventional tokens to which the state gives payment power. In his thinking, the evolution of means of payment leads to a replacement of the very simple form of metallic money with a more refined form: paper money. In developing the theory that the substantive value of money is insignificant, Knapp and his followers were in practice striving to dethrone gold in order to introduce paper money into circulation and to free gold from circulation, in order to turn it into a hoard that could be used in case of war and in controlling currency exchange rates. Knapp’s state theory of money is scientifically unsound. The state can set the scale of prices in legislation, but it is not able to establish the value of money, which forms under the influence of the objective laws of commodity-money circulation.
The most recent form of nominalism, from the period of the general crisis of capitalism, links the negation of gold and defense of paper money with the tasks of state-monopoly intervention in the economy. Thus, for example, current nominalists see the main weakness of the gold standard in the fact that its automatism makes the volume of monetary circulation and the volume of production dependent on the production of gold, whereas the transition to paper money creates a possibility of more flexible control of both monetary circulation and the economy as a whole. During the currency crisis of the 1960’s and 1970’s, the modern nominalists, searching for ways to overcome a shortage of gold and currency reserves, tried to prove the advantages of paper money for international accounts also. The argument for “paper gold” grew extraordinarily intense in connection with the weakening of the dollar and the pound sterling, the so-called reserve or key currencies. In the autumn of 1967 a decision was adopted to set up a substitute for universal money in the form of the so-called Special Drawing Rights, currency surrogates issued by the International Monetary Fund (IMF). In fact it is not possible to use “paper gold” to wipe out the chronic balance of payments crisis of the leading imperialist states, above all of the United States, the causes of which are rooted in the increasing unevenness of capitalist development and in the arms race.
The other extensive group of representatives of capitalist monetary theories deals with the influence of the quantity of money on the level of commodity prices. The dominant theory on this question is the quantity theory of money. Its early representatives were Montesquieu in France and D. Hume in England. In the 20th century it was developed by J. M. Keynes in Great Britain, I. Fisher in the United States, and G. Cassel in Switzerland. The quantity theory of money establishes a direct relationship between growth in the amount of money in circulation and growth in commodity prices. The devaluation of precious metals and rise in commodity prices which occurred from the 16th century to the 18th served as the historical basis for the appearance of this theory.
Marx gave a devastating criticism of the quantity theory of money. He pointed out that advocates of this theory do not understand that precious metals, like other commodities, have intrinsic value: these theoreticians present matters as if “commodities are without a price, and money without a value, when they first enter into circulation, and that, once in circulation, an aliquot part of the medley of commodities is exchanged for an aliquot part of the heap of precious metal” (K. Marx and F. Engels, Soch., 2nd ed., vol. 23, p. 134). Marx stressed that the representatives of the quantity theory did not understand the functions of money as a measure of value and a means of accumulation.
The current quantity theory of money is developing in conditions of paper money circulation and is directed to substantiating state-monopoly intervention in the economy. The notion, typical of capitalist political economy, that the sphere of circulation is primary inspires capitalist economists to search this sphere for methods of influencing prices, wage levels, and the condition of economic activity. The most widespread variation of the current quantitative theory of money is the theory of “surplus demand,” according to which an increase in prices is elicited by a rise in demand for consumer goods. The father of this theory is considered to be J. M. Keynes, who asserted that the prices for particular groups of commodities move unevenly and that the prices of consumer goods rise more rapidly as a smaller share of national income goes into savings. The theory of “surplus demand” is called forth by the militarization of the economies of imperialist states, because the military sectors develop at the cost of reducing civilian production and, therefore, also demand. Keynes suggested various ways to wipe out “surplus demand” as a method of overcoming inflation: freezing wages, making savings compulsory, and raising taxes on the toiling masses. But all forms of eliminating “surplus demand” fail to lead to any reduction in the amount of money at all; they are merely ways to pump money into the state treasury for military expenditures. After World War II the imperialist states carried out monetary reforms under the banner of fighting “surplus demand.” These reforms envisioned only a partial exchange of new money for old money and placing money not subject to immediate exchange in so-called blocked accounts.
Closely associated with the theory of “surplus demand” is the theory of the “inflationary spiral of wages and prices,” according to which an increase in wages inevitably leads to a rise in commodity prices which, in its turn, encourages growth in wages which again calls forth a rise in commodity prices, and so on. Apologists of this theory completely ignore the fact that inflation leads to a decrease in real wages and that under inflationary conditions nominal wages always lag behind the rise in commodity prices. As in other cases the arguments of capitalist theoreticians are intended to camouflage the significance of military expenditures as the main factor in inflation and to prove, at the same time, the necessity of a constant attack on wages. The class orientation of capitalist theories of money and the economic policies which follow from them are seen graphically in the fact that freezing wages, enforcing compulsory savings, and increasing the tax burden are combined with a policy of giving enormous government orders to monopolies and offering capitalists extensive subsidies and favorable tax conditions.
A new variation of the quantitative theory of money was developed in the 1950’s by M. Friedman (United States). He argued that all attempts at state intervention in the sphere of monetary circulation are fruitless and harmful. In the early 1970’s these ideas were supported by the administration of R. Nixon.
A. B. EIDEL’NANT
REFERENCESMoney under capitalism
Marx, K. “K kritike politicheskoi ekonomii.” In K. Marx and F. Engels, Soch., 2nd ed., vol. 13.
Marx, K. Kapital (vol. 1), ibid., vol. 23, chs. 1-3; Kapital (vol. 2), ibid., vol. 24, chs. 1, 2, 4, 18, 20; Kapital (vol. 3), ibid., vol. 25, part 1, ch. 19, sec. 5.
Lenin, V. I. “Ekonomicheskoe soderzhanie narodnichestva i kritika egovknigeg. Struve.”Poln. sobr. soch., 5th ed., vol. 1, chs. 2, 4. Lenin, V. I. “Razvitie kapitalizma v Rossii.” Ibid., vol. 3, ch. 2. Sviatlovskii, V. Proiskhozhdenie deneg i denezhnykh znakov. Moscow-Petrograd, 1923.
Kozlov, G. A. Teoriia deneg i denezhnoe obrashchenie. Moscow, 1946.
Krotkov, V. T. Ocherki po denezhnomu obrashcheniiu i kreditu inostrannykh gosudarstv. Moscow, 1947.
Mikhalevskii, F. I. Zoloto v sisteme kapitalizma posle vtoroi mirovoi voiny. Moscow, 1952.
Bregel’, E. la. Denezhnoe obrashchenie i kredit kapitalisticheskikh gosudarstv, 2nd ed. Moscow, 1955.
Atlas, Z. V. Zakony denezhnogo obrashcheniia. Moscow, 1957. Eidel’nant, A. B. Burzhuaznye teorii deneg, kredita i finansov v period obshchego krizisa kapitalizma. Moscow, 1958. Trakhtenberg, I. A. Denezhnoe obrashchenie i kredit pri kapitalizme. Moscow, 1962.
Vlasenko, V. E. Teorii deneg v Rossii. Kiev, 1963.
Bortnik, M. Iu. Denezhnoe obrashchenie i kredit kapitalisticheskikh stran. Moscow, 1967.
Borisov, S. M. Zoloto v ekonomike sovremennogo kapitalizma. Moscow, 1968.
Valiutnyi spravochnik [2nd ed.]. Moscow, 1970.
Kritika sovremennykh burzhuaznykh teorii finansov, deneg i kredita: Sbornik. Moscow, 1970.
Money under socialism
Lenin, V. I. “Doklad na I Vserossiiskom s”ezde predstavitelei finansovykh otdelov Sovetov, 18 maia 1918 g.” Poln. sobr. soch., 5th ed., vol. 36.
Lenin, V. I. “Proekt programmy RKP(b).” Ibid., vol. 38.
Lenin, V. I. “O znachenii zolota teper’ i posle polnoi pobedy sotsializma.” Ibid., vol. 44.
Lenin, V. I. “Doklad i zakliuchitel’noe slovo na VII Moskovskoi gubpartkonferentsii.” Ibid., vol 44.
Mikhalevskii, F. I. K metodologii izucheniia nashego denezhnogo obrashcheniia. Moscow, 1930.
Strumilin, S. G. Na planovom fronte (1920-1930 gg.). Moscow, 1958. Chapters 1-7.
Batyrev, V. Denezhnoe obrashchenie v SSSR. Moscow, 1959.
Kronrod, la. A. Den’gi v sotsialisticheskom obshchestve, 2nd ed. Moscow, 1960.
Aizenberg, I. P. Valiutnaia sistema SSSR. Moscow, 1962.
Konnik, I. I. Den’gi v period stroitel stva kommunisticheskogo obshchestva. Moscow, 1966.
Atlas, Z. V. Sotsialisticheskaia denezhnaia sistema. Moscow, 1969.
Denezhnoe obrashchenie i kredit v SSSR, 2nd ed. Edited by V. S. Gerashchenko. Moscow, 1970.
What does it mean when you dream about money?
Money in a dream is usually an extension of one’s self-worth and self-esteem—a positive sign if abundance and accumulation is experienced; and a negative one if losses occur in the dream, suggesting one’s inner resources may be depleted. Investing energy in oneself, one’s career, or one’s family is sometimes indicated by this symbol.
digital coins(1) See cryptocurrency.
(2) An earlier form of electronic traveler's check. Called "e-money" and "e-cash," the idea was to set up an account with a bank or to download digital coins from a bank into the user's computer. Either the coins or the transactions that debit the account were transmitted to the merchant for payment, and all transactions were encrypted.
Many believed that digital coins would fuel an online industry of micropayments allowing customers to pay in smaller increments; for example, five cents a lookup or 10 cents per download. However, the digital coin concept never took off. Today's blockchain architectures are the real manifestation of digital coins. See First Virtual, Open Market and smart card.
digital money(1) Except for cash, gold and silver, all money is digital. See virtual currency and cryptocurrency.
(2) With regard to e-commerce, PayPal and traditional credit cards are the primary form of digital money transfer. Web browsers and Web servers encrypt connections between user and online merchant (see TLS). In the 2010s, mobile payment systems also emerged as a major form of digital money. See Web payment service and mobile payment service.
digital wallet(1) An application that holds a user's crypto or fiat currency. See crypto wallet and CBDC.
(2) A smartphone app for making financial transactions in a retail store. See smartphone wallet, Bitcoin wallet and mobile payment service.
(3) A desktop app for making credit card purchases on a website that eliminates entering credit card numbers. The data either reside in the cloud or are encrypted in the user's computer, and the wallet's digital certificate identifies the cardholder. Digital wallets may also store insurance and loyalty cards, drivers' licenses, ID cards and site passwords. Some apps let users enter additional data.
To make ordering painless, large e-commerce sites such as Amazon.com have for years stored their customers' credit card data on their own servers. See smartphone wallet, mobile payment service, Web payment service, eWallet, identity metasystem, information card, digital coins and Bitcoin wallet.
|This earlier digital wallet saved the user's name, address and credit card data. When placing an order online, it filled in the forms. (Image courtesy of EntryPoint, Inc.)|
|An eWallet Card|
|Available for many years on all popular platforms, Ilium Software's eWallet stores all pertinent information for each credit card entered by the user. See eWallet. (Image courtesy of Ilium Software, Inc., www.iliumsoft.com)|