Daniel Gaido

Introduction to
Karl Kautsky:

Gold, Paper Currency and Commodity

Kautsky’s article Gold, Paper Currency and Commodity, which we publish here in English for the first time, is a criticism of the theory of money developed by the Austro-Marxist Rudolf Hilferding, the author of the famous work Finance Capital: A Study of the Latest Phase of Capitalist Development (1910). [1] This article was recommended by Lenin in his 1914 entry on Marx and Marxism for the Russian encyclopedia Granat, later republished separately with the title Karl Marx: A Brief Biographical Sketch with an Exposition of Marxism. This is what Lenin wrote: “For the further development of Marx’s economic views as applied to recent phenomena in economic life see Hilferding’s Finance Capital (outstanding inaccuracies in the author’s views on the theory of value have been corrected by Kautsky in Gold, Papier und Ware, Die Neue Zeit, Vol.30 No.1 (1912), pp.837-47 and 886-93).” [2] Lenin returned to this subject two years later, in a brief reference included in the first chapter of his famous book on imperialism. He pointed out that the two major works on that subject were the English economist J.A. Hobson’s Imperialism: A Study and Hilferding’s Finance Capital. About the latter he said: “In spite of the mistake the author makes on the theory of money, and in spite of a certain inclination on his part to reconcile Marxism with opportunism, this work gives a very valuable theoretical analysis of ‘the latest phase of capitalist development,’ as the subtitle runs.” [3] In his Notebooks on Imperialism he drew up a list of four “Hilferding’s shortcomings,” the first being again his “theoretical error concerning money.” [4] He pointed out that “according to Hilferding, money enters into exchange without value,” and found this view “incorrect.” Lenin passed the same judgment on Hilferding’s observation that “ever since Tooke the quantity theory (of money) has been quite rightly regarded as fallacious,” adding: “Hilferding is wrong here, see Die Neue Zeit, 1912, 30th year, Vol.1.” [5] This is again a reference to the current article by Kautsky.

Kautsky first stated his misgivings about Hilferding’s theory of money in his laudatory review of Finance Capital, which he praised as “a continuation of Marx’s Capital.” [6] He highlighted Hilferding’s introduction into Marxist economic literature of new theoretical concepts, such as the founders’ profit accruing to individual capitalists turning their enterprises into joint-stock companies (which explains their eagerness to turn to the stock exchange) and finance capital (capital in money form at the disposal of the banks, which is made use of by the industrialists and thus actually converted into industrial capital). However, Kautsky added, “now and then Hilferding not only goes ahead of Marx, but deviates from him.” He remarked that this only happened on special questions, on which Hilferding also said mostly “remarkable and true things,” with one notable exception:

There is only one point where I cannot follow Hilferding: in his conception that the money commodity (gold or silver) could be replaced by paper not only as a means of circulation, but also as a measure of value. According to him, the real measure of value is not metal money, but the total value of the commodities in circulation (the velocity of circulation remaining the same), which he calls the “socially necessary circulation value.”

Hilferding probably rejects the opinion that irredeemable paper-money as such could be a measure of value. He rightly ridicules Wilhelm Lexis, who defends that opinion in his Allgemeine Volkswirtschaftslehre. But he does not improve matters by twisting the relationship between money and commodities, turning the existing mass of commodities into a measure of value, as well as into the creator of value in paper money, in order to make this paper money, thus provided with a certain value, a measure of the values of the commodities. He declares:

Naturally, commodities would be [under iredeemable paper currency] expressed in money terms or ‘measured’ in money [not gold!], as they were before [the suspension of metallic coinage]. And as before, money appears as a ‘measure of value.’ But the magnitude of its value is no longer determined by the value of its constituent commodity, i.e. by the value of gold, silver, or paper. Instead, its ‘value’ is really determined by the total value of the commodities in circulation (assuming the velocity of circulation to be constant). The real measure of value is not money. On the contrary, the ‘rate of exchange’ of money is determined by what I would call the socially necessary circulation value.” [7]

This, evidently, can mean nothing more than this: that the real measure of value of the commodities is not money, but on the contrary, the real measure of value of money is the commodities.

If the value of money could be determined in that way by the “socially necessary circulation value,” that would mean the negation of the law of value for the money-commodity; it would be saying that the value of the latter is not determined by the socially necessary labour time needed for its own production. The universal applicability of the law of value would be broken through, and that would be all the more astonishing in this case, because it would happen precisely to the money-commodity, “the commodity whose bodily form is also the immediate social incarnation of human labour in the abstract.” [8]

There is no necessity for that Marxist suicide. The phenomena which appeared during the last decades after the cessation of the free coinage of silver in different countries, and on which Hilferding bases this idea, can be adequately explained in other ways. I will, however, abstain from expressing myself in detail about that. It would involve a great expenditure of effort in subtleties, which would perhaps be wasted, as Hilferding’s usually very clear method of explanation becomes at times very obscure regarding this particular point, so that I am not always certain of having understood his words in the sense in which he meant them.

But, above all, any long treatise on Hilferding’s theory of money is superfluous for the present, because it has no effect in his work, either theoretically or practically.

After he took the trouble, from pages 32 to 56, to construct the pure paper currency, he suddenly came to the following result:

A pure paper currency of this kind cannot meet the demands imposed on a medium of circulation for any extended period of time. Since its value is determined by the value of the circulating commodities, constantly subject to fluctuations, the value of money would also fluctuate constantly. Money would not be a measure of the value of commodities; on the contrary, its own value would be measured by the current requirements of circulation, that is to say, by the value of commodities, assuming a constant velocity of circulation. A pure paper currency is, therefore, impossible as a permanent institution, because it would subject circulation to constant disturbances.[9]

That is only saying in other words that the replacement of the money-commodity as a measure of value by the socially necessary circulation-value is nothing but an academic whim. But, as such, it plays no more part in the course of the book. One can calmly reject it, and yet admit everything that Hilferding goes on to build up on his examination of the different functions of money as means of circulation, measure of value, and means of payment.

It will therefore suffice if, to satisfy my conscience, I simply state my misgivings as to Hilferding’s theory of the socially necessary circulation value as a measure of the value of money without elaborating upon it. [10]

Thus was the question laid to rest by Kautsky. Shortly thereafter, a debate on the Marxist theory of money broke out in the pages of Die Neue Zeit between Eugen Varga, Rudolf Hilferding, Otto Bauer and J. van Gelderen, which forced Kautsky to state in a more detailed way the grounds for his theoretical divergences with Hilferding.

The exchange opened with a study called Gold Production and the High Cost of Living by the Hungarian economist Eugen Varga. The documents of the debate are:

  1. Eugen Varga, Goldproduktion und Teuerung, Die Neue Zeit, Vol.30 No.1 (17 November 1911), pp.212-20, 557-63.
  2. J. van Gelderen, Goldproduktion und Preisbewegung, Die Neue Zeit, Vol.30 No.1 (1912), pp.660-64.
  3. Rudolf Hilferding, Geld und Ware, Die Neue Zeit, Vol.30 No.1 (1912), pp.773-82. Reprinted in Cora Stephan (ed.), Zwischen den Stühlen: oder über die Unvereinbarkeit von Theorie und Praxis: Schriften Rudolf Hilferdings 1904-1940, Berlin: J.H.W. Dietz, 1982, pp.43-54.
  4. Karl Kautsky, Gold, Papier und Ware, Die Neue Zeit, Vol.30 No.1 (1912) p.837-47 and 886-93.
  5. Otto Bauer, Goldproduktion und Teuerung, Die Neue Zeit, Vol.30, No.2 (1912), pp.4-14, 49-53, 246-247, reprinted in Werkausgabe, Bd.7, Wien: Europaverlag, 1979, pp.984-1003.
  6. J. Spectator (M. Nakhimson), Zur Frage der Goldproduktion und Teuerung, Die Neue Zeit, Vol.30 No.2 (12 July 1912), pp.550-553.
  7. Eugen Varga, Goldproduktion und Teuerung, Die Neue Zeit, Vol.31 No.1, Nr.16 (1913), pp.557-63.

Russian translations of the main documents were published in 1923 by the Moscow Institute for Economic Studies. [11] Bauer and Kautsky both published in 1913 essays on the high cost of living, which have been translated to French and English. [12] On Hilferding and Kautsky’s theories of money see in German the books by Kyung-Mi Kim and Wilfried Gottschalch and the essays by Cora Stephan and Alfred Braunthal. [13]

The basic idea of Kautsky’s article is that bullion, and particularly gold, is the only possible measure of value, and that a metallic basis is therefore required for currency. The argument must have seemed compelling at the time of the gold standard that prevailed before the First World War, which broke out only two years after this article was written. It seems much less obvious today, especially since the collapse of the dollar-gold link in 1973, but that should be determined by experts in the history of the international monetary system. Probably Lenin was drawn to other aspects of Kautsky’s analysis, such as his attempt to vindicate the validity of the labour theory of value for the theory of money and his criticism of Hilferding’s overoptimistic views on the possibility of regulating commodity circulation through the central banks without abolishing the anarchy of commodity production. If that is the case their warnings were prescient, because Hilferding’s abandonment of a revolutionary perspective during the First World War coincided with his endorsement of the possibility of achieving an “organised capitalism” in 1915 [14] – a rather idyllic scenario that was shattered by the outbreak of the Great Depression on October 29, 1929.


1. Rudolf Hilferding, Finance Capital: A Study of the Latest Phase of Capitalist Development, London: Routledge and Kegan Paul, [1910] 1981.

2. Lenin, Karl Marx: A Brief Biographical Sketch With an Exposition of Marxism; Bibliography, first published in 1915 in the Granat Encyclopaedia, Seventh Edition, Vol.28, in Lenin, Collected Works, Moscow: Progress Publishers, 1974, Vol.21, pp.43-91.

3. Lenin, Imperialism, the Highest Stage of Capitalism, Preface to the French and German eds.

4. Lenin, Notebooks on Imperialism, in Collected Works, Vol.39, Notebook “β” (“Beta”): On the Question of Imperialism

5. Lenin, Notebooks on Imperialism, in Collected Works, Vol.39, Notebook “θ” (“Thetaᰵ): Hilferding, Finance Capital: The Recent Phase in the Development of Capitalism.

6. Kautsky, Finanzkapital und Krisen (Rudolf Hilferding, Das Finanzkapital), Die Neue Zeit, Vol.29 No.1 (1911), p.764-72.

7. Hilferding, Op. Cit., p.47.

8. Marx, Op. Cit., Chapter Three: Money, or the Circulation of Commodities, Section 3: Money, C. Universal Money, CW 35, p.153; Penguin: 1, p.241.

9. Hilferding, Op. Cit., pp.56-57.

10. Kautsky, Finanzkapital und Krisen (Rudolf Hilferding, Das Finanzkapital), Die Neue Zeit, Vol.29 No.1 (1911), pp.771-72. The last sentence actually reads “Hilferding’s theory of the socially necessary circulation value as a measure of the value of commodities,” but that is almost certainly a misprint.

11. N.K.F. [Narodnyi komissariat finansov], Institut ekonomicheskikh issledovanii, Den’gi i denezhnoe obrashchenie v osveshchenii marksizma: sbornik statei O. Bauera, E. Vargi, R. Gil’ferdinga, K. Kautskogo, i dr. [Otto Bauer; Eugen Varga; Rudolf Hilferding; Karl Kautsky; J.v.G. (van Gelderen)], Moskva: Finansovo-ekonomicheskoe biuro N.K.F., 1923. Pod red. K.F. Shmelev i A.B. Shtern.

12. Otto Bauer, Die Teuerung, Der Kampf, Vol.7 (Oktober 1913 bis Dezember 1914), pp.443-61. French version: La cherté de la vie, in Georges Haupt (ed.), Le congrès manqué: l’internationale à la veille de la première guerre mondiale, Paris: Maspero, 1965, pp.161-91. Kautsky, Die Wandlungen der Goldproduktion und der wechselnde Charakter der Teuerung, Ergänzungshefte zur Neuen Zeit, Nr.16, Stuttgart: J.H.W. Dietz, 1913. English version: The High Cost of Living: Changes in Gold-Production and the Rise in Prices, Chicago: C.H. Kerr, 1914.

13. Kyung-Mi Kim, Hilferding und Marx: Geld- und Kredittheorie in Rudolf Hilferdings Das Finanzkapital und im Marxschen Kapital, Köln: PapyRossa, 1999; Wilfried Gottschalch, Strukturveränderungen der Gesellschaft und politisches Handeln in der Lehre von Rudolf Hilferding, Berlin: Duncker & Humbolt, 1962; Cora Stephan, Geld- und Staatstheorie in Hilferding’s Finanzkapital: Zum Verhältnis von ökonomischer Theorie und politischer Strategie, in H.-G. Backhaus et al., Gesellschaft: Beiträge zur Marxschen Theorie, Frankfurt am Main: Suhrkamp, 1974, pp.111-54, and Alfred Braunthal, Kautsky als Geldtheoretiker, in Otto Jenssen (ed.), Der lebendige Marxismus: Festgabe zum 70. Geburtstage von Karl Kautsky, Jena: Thüringer Verlagsanstalt, 1924, pp.121-44.

14. Hilferding, Arbeitsgemeinschaft der Klassen?, Der Kampf, Vol.VIII No.10 (October 1915), pp.322-29, reprinted in Cora Stephan (ed.), Zwischen den Stühlen oder über die Unvereinbarkeit von Theorie und Praxis. Schriften Rudolf Hilferdings 1904 bis 1940, Berlin: Dietz, 1982, pp.63-76

Last updated on: 3.2.2009