Karl Marx: Critique of Political Economy


B. Theories of the Standard of Money

The fact that commodities are only nominally converted in the form of prices into gold and hence gold is only nominally transformed into money led to the doctrine of the nominal standard of money. Because only imaginary gold or silver, i.e., gold and silver merely as money of account, is used in the determination of prices, it was asserted that the terms pound, shilling, pence, thaler, franc, etc., denote ideal particles of value but not weights of gold or silver or any form of materialised labour. If, for example, the value of an ounce of silver were to rise, it would contain more of these particles and would therefore have to be divided or coined into a greater number of shillings. This doctrine, which arose at the close of the seventeenth century, was again advanced during the last commercial crisis in England and was even advocated by Members of Parliament in two special reports appended to the 1858 Report of the Select Committee on the Bank Acts. In England at the time of the accession of William III, the mint-price of an ounce of silver was 5s. 2d., that is 1/62 of an ounce of silver was called a penny and 12 of these pence were called a shilling. A bar of silver weighing say six ounces would, according to this standard, be coined into 31 coins which would be called shillings. But whereas the mint-price of an ounce of silver was 5s. 2d., its market-price rose to 6s. 3d., that is to say in order to buy an ounce of uncoined silver 6s. 3d. had to be handed over. How was it possible for the market-price of an ounce of silver to rise above its mint-price, if the mint-price was merely a name of account for fractions of an ounce of silver? The solution of this riddle was quite simple. Four million of the £5,600,000 of silver money in circulation at that time were worn out or clipped. A trial showed that £57,200 in silver coins, whose weight ought to have been 220,000 ounces, weighed only 141,000 ounces. The mint continued to coin silver pieces according to the same standard, but the lighter shillings which were actually in circulation represented smaller fractions of an ounce than their name denoted. A larger quantity of these reduced shillings had consequently to be paid for an ounce of uncoined silver on the market. When, because of the resulting difficulties, it was decided to recoin all the money, Lowndes, the Secretary to the Treasury, claimed that the value of an ounce of silver had risen and that in future accordingly 6s. 3d. would have to be struck from an ounce instead of 5s. 2d. as previously. He thus in effect asserted that, because the value of an ounce of silver had risen, the value of its aliquot parts had fallen. But his false theory was merely designed to make a correct practical measure more palatable. The government debts had been contracted in light shillings, were they to be repaid in coins of standard weight? Instead of saying pay back 4 ounces of silver for every 5 ounces you received nominally but which contained in fact only 4 ounces of silver, he said, on the contrary, pay back nominally 5 ounces but reduce their metal content to 4 ounces and call the amount you hitherto called 4/5 of a shilling a shilling. Lowndes’s action, therefore, was in reality based on the metal content, whereas in theory he stuck to the name of account. His opponents on the other hand, who simply clung to the name of account and therefore declared that a shilling of standard weight was identical with a shilling which was 25 to 50 per cent lighter, claimed to be adhering to the metal content. John Locke, who championed the new bourgeoisie in every way – he took the side of the manufacturers against the working classes and the paupers, the merchants against the old-fashioned usurers, the financial aristocracy against governments that were in debt; he even demonstrated in a separate work that the bourgeois way of thinking is the normal human way of thinking – took up Lowndes’s challenge. John Locke won the day and money borrowed in guineas containing 10 to 14 shillings was repaid in guineas of 20 shillings. [1] Sir James Steuart gives the following ironical summary of this operation:

"...the state gained considerably upon the score of taxes, as well as the creditors upon their capitals and interest; and the nation, which was the principal loser, was pleased, because their standard” (the standard of their own value) “was not debased.” [2]

Steuart believed that in the course of further development of commerce the nation would become wiser. But he was wrong. Some 120 years later the same quid pro quo was repeated.

Very fittingly it was Bishop Berkeley, the advocate of mystical idealism in English philosophy, who gave the doctrine of the nominal standard of money a theoretical twist, which the practical Secretary to the Treasury had omitted to do. Berkeley asks

"Whether the terms Crown, Livre, Pound Sterling, etc., are not to be considered as Exponents or Denominations of such Proportions?” (i.e., proportions of abstract value as such). “And whether Gold, Silver, and Paper are not Tickets or Counters for Reckoning, Recording and Transferring thereof?” (of the proportion of value). “Whether Power to command the Industry” (social labour) “of others be not real Wealth? And whether Money be not in Truth, Tickets or Tokens for conveying and recording such Power, and whether it be of great consequence what Materials the Tickets are made of?” [3]

In this passage, the author, on the one hand, confuses the measure of value with the standard of price, and on the other he confuses gold or silver as measure of value and as means of circulation. Because tokens can be substituted for precious metals in the sphere of circulation, Berkeley concludes that these tokens in their turn represent nothing, i.e., the abstract concept of value.

The theory of the nominal standard of money was so fully elaborated by Sir James Steuart, that his followers – they are not aware of being followers since they do not know him – can find neither a new expression nor even a new example. He writes:

"Money, which I call of account, is no more than an arbitrary scale of equal parts, invented for measuring the respective value of things vendible. Money of account, therefore, is quite a different thing from money-coin, which is price [Here, as in the works of seventeenth-century English economists, price is used in the sense of a concrete equivalent – note by Marx.] and might exist, although there was no such thing in the world as any substance which could become an adequate and proportional equivalent, for every commodity.... Money of account ... performs the same office with regard to the value of things, that degrees, minutes, seconds, etc., do with regard to angles, or as scales do to geographical maps, or to plans of any kind. In all these inventions, there is constantly some denomination taken for the unit.... The usefulness of all these inventions being solely confined to the marking of proportion. Just so the unit in money can have no invariable determinate proportion to any part of value, that is to say it cannot be fixed to any particular quantity of gold, silver, or any other commodity whatsoever. The unit once fixed, we can, by multiplying it, ascend to the greatest value.... The value of commodities, therefore, depending upon a general combination of circumstances relative to themselves and to the fancies of men, their value ought to be considered as changing only with respect to one another; consequently, anything which troubles or perplexes the ascertaining those changes of proportion by the means of a general, determinate and invariable scale, must be hurtful to trade.... Money ... is an ideal scale of equal parts. If it be demanded what ought to be the standard value of one part? I answer by putting another question: What is the standard length of a degree, a minute, a second? It has none ... but so soon as one part becomes determined by the nature of a scale, all the rest must follow in proportion. Of this kind of money ... we have two examples. The bank of Amsterdam presents us with the one, the coast of Angola with the other.” [4]

Steuart simply considers money as it appears in the sphere of circulation, i.e., as standard of price and as money of account. If different commodities are quoted at 15s., 20s. and 36s. respectively in a price list, then in a comparison of their value both the silver content of the shilling and its name are indeed quite irrelevant. Everything is now expressed in the numerical relations of 15, 20 and 36, and the numeral one has become the sole unit of measure. The purely abstract expression of a proportion is after all only the abstract numerical proportion. In order to be consistent, Steuart therefore had to abandon not only gold and silver but also their legal designations. But since he does not understand how the measure of value is transformed into the standard of price, he naturally thinks that the particular quantity of gold which serves as a unit of measure is, as a measure, related to values as such, and not to other quantities of gold. Because commodities appear to be magnitudes of the same denomination as a result of the conversion of their exchange-values into prices, Steuart denies the existence of the characteristic feature of the measure which reduces commodities to the same denomination, and since in this comparison of different quantities of gold the quantity of gold which serves as a standard is conventionally established, he denies that it must be established at all. Instead of calling a 360th part of a circle a degree, he might call a 180th part a degree; the right angle would then measure not 90 degrees but 45, and the measurements of acute and obtuse angles would change correspondingly. Nevertheless, the measure of the angle would remain firstly a qualitatively determined mathematical figure, the circle, and secondly a quantitatively determined section of the circle. As for Steuart’s economic examples one of these disproves his own assertions, the other proves nothing at all. The money of the Bank of Amsterdam was in fact only the name of account for Spanish doubloons, which retained their standard weight because they lay idle in the vaults of the bank, while the coins which busily circulated lost weight as a result of intensive friction with their environment. As for the African idealists, we must leave them to their fate until reliable accounts of travellers provide further information about them. [5] One might say that the French assignat – “National property, Assignment of 100 francs” – is nearly ideal money in Steuart’s sense. The use-value which the assignat was supposed to represent, i.e., confiscated land, was indeed specified, but the quantitative definition of the unit of measure had been omitted, and “franc” was therefore a meaningless word. How much or little land this franc represented depended on the outcome of public auctions. But in practice the assignat circulated as a token representing silver money, and its depreciation was consequently measured in terms of this silver standard.

The period when the Bank of England suspended cash payments was hardly more prolific of war bulletins than of monetary theories. The depreciation of bank-notes and the rise of the market-price of gold above its mint-price caused some defenders of the Bank to revive the doctrine of the ideal measure of money. Lord Castlereagh found the classically confused expression for this confused notion when he declared that the standard of money is “a sense of value in reference to currency as compared with commodities.” A few years after the Treaty of Paris when the situation permitted the resumption of cash payments, the problem which Lowndes had broached during the reign of William III arose again in practically the same form. A huge national debt and a mass of private debts, fixed obligations, etc., which had accumulated in the course of over 20 years, were incurred in depreciated bank-notes. Should they be repaid in bank-notes £4,672 10s. of which represented, not in name but in fact, 100 lbs. of 22-carat gold? Thomas Attwood, a Birmingham banker, acted like a resurrected Lowndes. He advocated that as many shillings should be returned to the creditors as they had nominally lent, but whereas according to the old monetary standard, say, 1/78 of an ounce of gold was known as a shilling, now perhaps 1/90 of an ounce should be called a shilling. Attwood’s supporters are known as the Birmingham school of “little shilling men". The quarrel about the ideal standard of money, which began in 1819, was still carried on in 1845 by Sir Robert Peel and Attwood, whose wisdom in so far as it concerns the function of money as a measure is fully summarised in the following quotation:

During “the recent discussion between Sir Robert Peel and the Birmingham Chamber of Commerce.... The Minister was quite satisfied with asking the question, ’What will your pound note represent?’ ....What is to be understood by the present standard of value? Is £3 17s. 10 1/2d. an ounce of gold, or is it only of the value of an ounce of gold? If £3 17s. 10 1/2d. be an ounce of gold, why not call things by their proper names, and, dropping the terms pounds, shillings and pence, say ounces, penny-weights and grains?... If we adopt the terms ounces, pennyweights and grains of gold, as our monetary system, we should pursue a direct system of barter.... But if gold be estimated as of the value of £3 17s. 10 1/2d. per ounce ... how is this ... that much difficulty has been experienced at different periods to check gold from rising to £5 4s. per ounce, and we now notice that gold is quoted at £3 17s. 9d. per ounce?... The expression pound has reference to value, but not a fixed standard value.... The term pound is the ideal unit.... Labour is the parent of cost and gives the relative value to gold or iron. Whatever denomination of words are used to express the daily or weekly labour of a man, such words express the cost of the commodity produced.” [6]

The hazy notion about the ideal measure of money fades away in the last words and its real mental content becomes clear. Pound, shilling, etc., the names of account of gold, are said to be names representing definite quantities of labour-time. Since labour-time is the substance and the inherent measure of value, the names thus indeed express the value relations themselves. In other words it is asserted that labour-time is the real standard of money. Here we leave the Birmingham school and merely note in passing that the doctrine of the ideal measure of money has gained new importance in connection with the controversy over the convertibility or non-convertibility of bank-notes. While the denomination of paper is based on gold or silver, the convertibility of the note, i.e., its exchangeability for gold or silver, remains an economic law regardless of what juridical law may say. For instance, a Prussian paper thaler, although legally inconvertible, would immediately depreciate if in everyday commerce it were worth less than a silver thaler, that is if it were not convertible in practice. The consistent advocates of inconvertible paper money in Britain, therefore, had recourse to the ideal standard of money. If the denominations of money, pound, shilling and so on, are names for a determinate amount of particles of value, of which sometimes more, sometimes less are either absorbed or lost by a commodity when it is exchanged for other commodities, then the value of an English £5 note, for instance, is just as little affected by its relation to gold as by its relation to iron and cotton. Since its designation would no longer equate the bank-note in theory to a determinate quantity of gold or of any other commodity, its very concept would preclude the demand for its convertibility, that is for its equation in practice with a determinate quantity of a specific thing.

John Gray was the first to set forth the theory that labour-time is the direct measure of money in a systematic way. [7] He proposes that a national central bank should ascertain through its branches the labour-time expended in the production of various commodities. In exchange for the commodity, the producer would receive an official certificate of its value, i.e., a receipt for as much labour-time as his commodity contains, [8] and this bank-note of one labour week, one labour day, one labour hour, etc., would serve at the same time as an order to the bank to hand over an equivalent in any of the other commodities stored in its warehouses. [9] This is the basic principle, which is scrupulously worked out in detail and modelled throughout on existing English institutions. Gray says that under this system

“to sell for money may be rendered, at all times, precisely as easy as it now is to buy with money, ... production would become the uniform and never-failing cause of demand.”

The precious metals would lose their “privileged” position in comparison with other commodities and

“take their proper place in the market beside butter and eggs, and cloth and calico, and then the value of the precious metals will concern us just as little ... as the value of the diamond.”

“Shall we retain our fictitious standard of value, gold, and thus keep the productive resources of the country in bondage? or, shall we resort to the natural standard of value, labour, and thereby set our productive resources free?"

Since labour-time is the intrinsic measure of value, why use another extraneous standard as well? Why is exchange-value transformed into price? Why is the value of all commodities computed in terms of an exclusive commodity, which thus becomes the adequate expression of exchange-value, i.e., money? This was the problem which Gray had to solve. But instead of solving it, he assumed that commodities could be directly compared with one another as products of social labour. But they are only comparable as the things they are. Commodities are the direct products of isolated independent individual kinds of labour, and through their alienation in the course of individual exchange they must prove that they are general social labour, in other words, on the basis of commodity production, labour becomes social labour only as a result of the universal alienation of individual kinds of labour. But as Gray presupposes that the labour-time contained in commodities is immediately social labour-time, he presupposes that it is communal labour-time or labour-time of directly associated individuals. In that case, it would indeed be impossible for a specific commodity, such as gold or silver, to confront other commodities as the incarnation of universal labour and exchange-value would not be turned into price; but neither would use-value be turned into exchange-value and the product into a commodity, and thus the very basis of bourgeois production would be abolished. But this is by no means what Gray had in mind – goods are to be produced as commodities but not exchanged as commodities. Gray entrusts the realisation of this pious wish to a national bank. On the one hand, society in the shape of the bank makes the individuals independent of the conditions of private exchange, and, on the other hand, it causes them to continue to produce on the basis of private exchange. Although Gray merely wants “to reform” the money evolved by commodity exchange, he is compelled by the intrinsic logic of the subject-matter to repudiate one condition of bourgeois production after another. Thus he turns capital into national capital, [10] and land into national property [11] and if his bank is examined carefully it will be seen that it not only receives commodities with one hand and issues certificates for labour supplied with the other, but that it directs production itself. In his last work, Lectures on Money, in which Gray seeks timidly to present his labour money as a purely bourgeois reform, he gets tangled up in even more flagrant absurdities.

Every commodity is immediately money; this is Gray’s thesis which he derives from his incomplete and hence incorrect analysis of commodities. The “organic” project of “labour money” and “national bank” and “warehouses” is merely a fantasy in which a dogma is made to appear as a law of universal validity. The dogma that a commodity is immediately money or that the particular labour of a private individual contained in it is immediately social labour, does not of course become true because a bank believes in it and conducts its operations in accordance with this dogma. On the contrary, bankruptcy would in such a case fulfil the function of practical criticism. The fact that labour money is a pseudo-economic term, which denotes the pious wish to get rid of money, and together with money to get rid of exchange-value, and with exchange-value to get rid of commodities, and with commodities to get rid of the bourgeois mode of production, – this fact, which remains concealed in Gray’s work and of which Gray himself was not aware, has been bluntly expressed by several British socialists, some of whom wrote earlier than Gray and others later. [12] But it was left to M. Proudhon and his school to declare seriously that the degradation of money and the exaltation of commodities was the essence of socialism and thereby to reduce socialism to an elementary misunderstanding of the inevitable correlation existing between commodities and money. [13]


1. Locke says inter alia: “...call that a Crown now, which before ... was but a part of a Crown ... wherein an equal quantity of Silver is always the same Value with an equal quantity of Silver.... For if the abating 1/20 of the quantity of Silver of any Coin does not lessen its Value, the abating 19/20 of the quantity of the Silver of any Coin will not abate its Value. And so ... a single Penny, being called a Crown, will buy as much Spice, or Silk, or any other Commodity, as a Crown-Piece, which contains [20 or] 60 times as much Silver.” All you can do is to raise “your Money, ... giving a less quantity of Silver the Stamp and Denomination of a greater", but “’tis Silver and not Names that pay Debts and purchase Commodities". “The raising being but giving of names at pleasure to aliquot parts of any piece, viz. that now the sixtieth part of an ounce still be called a penny, may be done with what increase you please.” In reply to Lowndes’s arguments, Locke declares that the rise of the market-price above the mint-price was not brought about by an increase in the value of silver, but by a decrease in the weight of coins. Seventy-seven clipped shillings did not weigh more than 62 shillings of standard weight. Finally Locke is quite correct in emphasising that, irrespective of the loss of silver suffered by the coins in circulation, a certain rise in the market-price of silver bullion over the mint-price might occur in England, because the export of silver bullion was permitted whereas that of silver coin was prohibited (see op. cit., pp. 54-116 passim). Locke takes good care to avoid the vital issue of the National Debt, just as he equally prudently refrains from discussing another ticklish economic problem, i.e., that according to the evidence of both the exchange rate and the ratio of silver bullion to silver coin, the depreciation of the money in circulation was by no means proportional to the amount of silver it lost. We shall return to this question in its general form in the section dealing with the medium of circulation. In A discourse Concerning Coining the New Money Lighter, in Answer to Mr. Locke’s Considerations, London, 1696, Nicholas Barbon vainly sought to entice Locke on to difficult ground.

2. Steuart, op. cit., Vol. II, p. 156.

3. The Querist, loc. cit. Incidentally, the section “Queries on Money” is rather witty. Among other things it contains the true observation that the development of the North American colonies “makes it plain as daylight, that gold and silver are not so necessary for the wealth of a nation, as the vulgar of all ranks imagine.”

4. Steuart, op. cit., Vol. II, pp. 102-07.

5. In connection with the last commercial crisis a certain faction in England ardently praised the ideal African money after moving its location on this occasion from the coast into the interior of Barbary. It was declared that because their bars constituted an ideal measure, the Berbers had no commercial and industrial crises. Would it not have been simpler to say that commerce and industry are the conditio sine qua non for commercial and industrial crises?

6. The Currency Question, the Gemini Letters, London, 1844, pp. 266-72 passim.

7. John Gray, The Social System. A Treatise on the Principle of Exchange, Edinburgh, 1831. Cf. the same author’s Lectures on the Nature and Use of Money, Edinburgh, 1848. After the February Revolution, Gray sent a memorandum to the French Provisional Government in which he explains that France did not need an “organisation of labour” but an “organisation of exchange,” the plan for which was fully worked out in the Monetary System he had invented. The worthy John had no inkling that sixteen years after the publication of The Social System, the ingenious Proudhon would be taking out a patent for the same invention.

8. Gray, The Social System, p. 63. “Money should be merely a receipt, an evidence that the holder of it has either contributed a certain value to the national stock of wealth, or that he has acquired a right to the said value from some one who has contributed to it."

9. “An estimated value being previously put upon produce, let it be lodged in a bank, and drawn out again whenever it is required, merely stipulating, by common consent, that he who lodges any kind of property in the National Bank, may take out of it an equal value of whatever it may contain, instead of being obliged to draw out the self-same thing that he put in.” Op. cit., pp. 67-68.

10. “The business of every nation ought to be conducted on a national capital” (John Gray, The Social System, p. 171).

11. “The land to be transformed into national property” (op. cit., p. 298.)

12. See, e.g., W. Thompson, “An Inquiry into the Distribution of Wealth, London, 1824; Bray, Labour’s Wrongs and Labour’s Remedy, Leeds, 1839.

13. Alfred Darimon, De la réforme des banques, Paris, 1856, can be regarded as a compendium of this melodramatic monetary theory.