01 February 2019

The Social Theory of Money

Revisiting Karl Marx’s and Georg Simmel’s Perspectives on Money and Society

Yanu Prasetyo

There are various ways to approach the history of money. Generally, some scholars would start with primitive money, then the first use of coinage, banking, credit and gold or silver standards, and finally on to inconvertible money and plastic money (Furnham & Michael Argyle, 1998:13). In the psychoanalytic literature, they begin with the premise that money has emotional meaning that varies from person to person according of life experience. The meaning of money is in dynamic flux and evolving over time (Hallowell & Grace, 1991:15). Unlike psychology, anthropology has long been interested and concerned in the economic aspects of social relations, including barter, the market, distribution of goods and wealth, ownership, and property. Anthropologists look at money which is used in reciprocal and redistributive transactions regarding personal roles and social context of what occurs.

Sociologist are also interested in monetary and economic ideologies. Karl Marx, for instance, claimed that money transformed real human and natural faculties into more abstract representations. Thus, money appeared as disruptive power for individual and for social bonds. Money has capabilities to changed fidelity into infidelity, love into hate, hate into love, virtue into vice, vice into virtue, servant into master, stupidity into intelligence and intelligence into stupidity (Furnham & Michael Argyle, 1998:21). He regards money as destructive or corrosive of the sacred (Walsh and Lynch, 2008:145). In fact, money is also different from other social goods because its more fungible, remarkably mobile, and highly transferable, connecting people over great distance and multiple time zones. For this reason, it is more difficult to personalize money than other objects (Zelizer, 1994:214)

Karl Marx: Commodity and The Circulation of Money
What does Marx mean by money? This is the primary question of this section. Marx accorded money a relatively simple and neutral role in the valuation process. The value of money, according to Marx, is determined by precisely the same factors which set the normal exchange value of all other commodities. A value of something was determined by the amount of labor required to produce it. Price, then, is the monetary expression of exchange value. The monetization of economic process not only masks the true social character of production but obscures the fact that labor alone creates economic value (Balinky, 1970:65).
Marx follows Adam Smith in regarding value as the property of exchangeability of commodities. In a society where exchange is common, products come to have a dual character as use values and as values. They have two powers: first, to satisfy human needs and wants; and second, to exchange for other products. This second power can be thought of quantitatively, as an amount of exchangeability or command over other commodities (Foley, 1983). Marx’s theory of money is therefore in the first place a commodity theory of money. A given commodity can play the role of universal medium of exchange, as well as fulfil all the other functions of money, precisely because it is a commodity. It follows that strong upheavals in the ‘intrinsic’ value of the money-commodity will cause strong upheavals in the general price level.
In Marx’s theory of money, (market) prices are nothing but the expression of the value of commodities in the value of the money commodity chosen as a monetary standard. If £1 sterling = 1/10 ounce of gold, the formula ‘the price of 10 quarters of wheat is £1’ means that 10 quarters of wheat have been produced in the same socially necessary labor times as 1/10 ounce of gold. A strong decrease in the average productivity of labor in gold mining will lead to a general depression of the average price level, all other things remaining equal. Likewise, a sudden and radical increase in the average productivity of labor in gold mining, through the discovery of new rich gold fields or through the application of new revolutionary technology, will lead to a general increase in the price level of all other commodities.
The general price level will move in medium and long-term periods according to the relation between the fluctuations of the productivity of labor in agriculture and industry on the one hand, and the fluctuations of the productivity of labor on the other. Marx therefore criticized as inconsistent Ricardo’s quantity theory. But for exactly the same reason of a consistent application of the labor theory of value, the quantity of money in circulation enters Marx’s economic analysis when he deals with the phenomenon of paper money.
As gold has an intrinsic value, like all other commodities, there can be no ‘gold inflation’, as little as there can be a ‘steel inflation’. An abstraction made of short-term price fluctuations caused by fluctuations between supply and demand, a persistent decline of the value of gold can only be the result of a persistent increase in the average productivity of labor in gold mining and not of an ‘excess’ of circulation in gold. If the demand for gold falls consistently, this can only indirectly trigger a decline in the value of gold through causing the closure of the least productive old mines. But in the case of the money-commodity, such overproduction can hardly occur, given the special function of gold of serving as a universal reserve fund, nationally and internationally. For this reason, the concept of the ‘price of gold’ is meaningless.
Paper money, banks notes, are a money sign representing a given quantity of the money-commodity. Starting from the above-mentioned example, a banknote of £1 represents 1/10 ounce of gold. This is an objective ‘fact of life’, which no government or monetary authority can arbitrarily alter. It follows that any emission of paper money in excess of that given proportion will automatically lead to an increase in the general price level, always other things remaining equal. If £1 suddenly represents only 1/20 ounce of gold, because paper money circulation has doubled without a significant increase in the total labor time spent in the economy, then the price level will tend to double too. This does not mean that in the case of paper money, Marx himself has become an advocate of a quantity theory of money. While there are obvious analogies between his theory of paper money and the quantity theory, the main difference is the rejection by Marx of any mechanical automatism between the quantity of paper money emitted on the one hand, and the general dynamic of the economy (including on the price level) on the other.
In Marx’s explanation of the movement of the capitalist economy in its totality, the formula ceteris paribus is meaningless. Insufficient emission of paper money never occurs in a vacuum. It always occurs at a given stage of the business cycle, and in a given phase of the longer-term historical evolution of capitalism. It is thereby always combined with given ups and downs of the rate of profit, of productivity of labor, of output, of market conditions (overproduction or insufficient production). Only in connection with these other fluctuations can the effect of paper money ‘inflation’ or ‘deflation’ be judged, including the effect on the general price level.
Thus we can see that Marx’s theory provides an endogenous theory of money in these three senses: (1) the necessity of money is derived from the necessity to represent the abstract labor contained in commodities objectively; (2) the exchange-value of money is derived from the labor-time required to produce the money commodity and other commodities (as a specific case of the labor theory of value); and (3) the quantity of money in circulation is derived from the sum of prices. It has been shown, on the basis of consistent textual evidence, that Marx explicitly maintained the concept of money as a commodity in the analysis of capitalism in the most advanced stage of its development (Germer, 2005:33).

Georg Simmel: The Philosophy of Money

Georg Simmel published The Philosophy of Money in 1900. In looking at money as a metaphor for modern human social existence, Simmel seems overwhelmed by the power and meaning of money in our society. The Philosophy of Money is a hybrid work of philosophy and sociology. He focuses on the psychological and sociological effects of money as a cultural determinant. He is fascinated by the implications of the introduction of a universally measure of value that has no intrinsic value of its own. The main themes of his books are the following: [1] Money as a structural metaphor for human existence, [2] The dual nature of the word “value,” moral and monetary, [3] The physicalization, universalization, and commodification of value (through money or otherwise), [4] The effects of valuation and commensurability on human relations.
Simmel’s treatment of “value” as crucial cognitive category in life, despite being something that each of us has comparatively little control over. Money is simply; “a material or an example for the presentation of relations that exist between the most superficial, ‘realistic’ and fortuitous phenomena and the most idealized powers of existence, the most profound currents of individual life and history. The significance and purpose of the whole undertaking is simply to derive from the surface level of economic affairs a guideline that leads to the ultimate values and things of importance in all that is human” (Simmel, 1990). Money is something that we all know.
We assign value to a human life, an animal, a romantic relationship, a friendship, to food, to sex–but by instinct and by the initial circumstances of human culture. Quantifying the values and exchanging between them is something that either rarely comes up. Value is not given to us by nature. It is human-generated in the messiest manner imaginable. For Simmel, it is only with the introduction of neutral, intrinsically valueless currency that allows such negotiations to be made. Money is the mediating force that makes incommensurate systems of value commensurable. Since money is free of the bias and specificity of one or another system of value, we simply translate our values into quantified monetary figures and we have now built an exchange between the two value systems.
Since the basic characteristic of all knowable existence, the interdependence and interaction of everything, the essential quality of money now becomes comprehensible. For the value of things, interpreted as their economic interaction, has its purest expression and embodiment in money. Only money, in terms of its pure concept, has attained this final stage as the pure form of exchangeability. It embodies that element or function of things, by virtue of which they are economic. It does not comprehend their totality, but it does comprehend the totality of money. Unlike Marx, Simmel does not see the benefits and deficiencies of modern economies to be separable from each other or from modern life itself. Everything in life is part of a great system that participates in both sides of every extreme.
The approach that Simmel takes to the study of society in the Philosophy of Money is one that many economists will find congenial (Laidler & Rowe, 1980). In the Preface to his study on money, Simmel claims that he wants to adjust historical materialism by looking at economic processes as the result of deeper presuppositions, while preserving the explanatory model of the influence of economic life upon culture. He rejects Karl Marx's version of the Labor Theory of Value in favor of a not always clearly formulated Marginal Utility approach and a central feature of his analysis of society is a conception of human as a rational agent who carefully matches means to ends (individualistic approach). The important point of Simmel's theory is that he analyzes a complex of social phenomena that are of interest to economists and in a way that they should find stimulating.
The Philosophy of Money is concerned not just with the means of exchange, store of value, and unit of account of the money and banking textbook but more generally with the market economy of which the monetary system forms an integral part, and the relationship between the institutions of that market economy and such matters as justice, liberty, and the nature of human as a social being. Simmel begins with exchange as one of the most primitive forms of human socialization. Exchange ". . . is a sociological phenomenon sui generis, an original form and function of social life" (Simmel, 1990). Exchange by barter is so inconvenient that out of it there naturally develops "a class of merchants" (specialists in exchange) and the institution of money.
Immediately, when money enters the picture, exchange ceases to be a simple relationship between two individuals. In Simmel's view, the monetary system is the unintended product of social evolution. The development of money as a social institution resembles the growth of a moral code or a legal system. Although, as a matter of historical fact, money may have its origin in the use of intrinsically valuable material as a means of exchange, it does not derive its value from any physical property of the material that might be used to represent it at any specific time and place. Simmel notes that in practice money is likely to consist of some intrinsically valuable commodity with that convertibility carrying a government guarantee, but he argues that this is incidental to its nature.
In Simmel’s theory, the economic power and trust are concepts that point to a purely sociological explanation of money. Money plays the role of a social nexus between strangers, but it also epitomizes alienated social relations (Bryan and Michael Rafferty, 2007). The relations between people appearing as the relations between things. Here the emphasis is on two issues: the social power that attaches to money and the trust that lies implicit within financial relations. The more "trust" members of society have in its institutions in general and money in particular, the more the extension of the money using market economy is promoted, with profound and largely beneficial consequences for human.
Hence it is a human quality that becomes more highly developed as the money-using market economy grows. Justice and individual freedom are also inextricably bound up with the development of the monetary economy. Simmel's analysis of the relationship between the development of the money using market economy and the growth of freedom is in many respects similar to much that is to be found in the writings of modern neo-conservatives. Moreover, Simmel leaves his readers under no illusion that economic freedom is in any way sufficient to guarantee political freedom.
Simmel regards market mechanisms underpinned by a monetary system as a desirable way of organizing economic and social life, but he points to two interlinked consequences of this form of social organization, which threaten its survival. The receipt of wages in money exposes the worker to "uncertainty and irregularity. At the same time the growth of rationalism that goes along with the growth of the money economy, in combination with the complete heartlessness of money which is reflected in our social culture. Though Simmel stopped far short of predicting that the uncertainty inherent in the market economy and the attractiveness of socialist ideas would inevitably combine to destroy the individualistic social order based on markets and money, he undoubtedly regarded that social order as a fragile one whose survival was far from assured. Hence his fear of price level fluctuations in general and of inflation in particular: uncertainty about the price level undermines trust in the monetary order.

In the Economic and Philosophical Manuscripts of 1844, Marx (1978) devotes a chapter to ‘The Power of Money in Bourgeois Society’. He argues that money represents the abstract relationships of private property that have become detached from human relations of exchange. Money is the epitome of man’s alienation. Money is the ultimate good, since it can buy all other goods, but it transforms the real powers of man and nature into alien abstractions reified in relations of exchange. In ‘On the Jewish Question’, the alienating force of money, Marx attributes particularly to the (Jewish) culture of materialism: ‘Money is the jealous god of Israel, beside which no other god may exist’ (1978: 50).
Money is also considered in connection to capital labor relations. The accumulation of the means of production and the transformation of money into capital cause it to become an independent force that determines the mode of production. Marx argues, money becomes increasingly detached from the social relations that paradoxically have initially given rise to the formation of those relationships; ‘The capitalist, it seems, therefore, buys their [the workers’] labor with money. They sell him their labor for money’ (1978: 204). Thus, money reflects and reifies social relations, and these relations become external to, and independent from, the people that engage in them.
In the chapter on ‘Commodities and Money’ (1978: 302–29), Marx argues that to become a commodity, a good must be transferable into any other one, and money is the medium that enables this transfer of commodities. The next chapter discusses the importance of the transformation of money into capital through the transformation of money into commodities and back into money. The change from money to capital, however, does not occur in money itself. Instead, a special commodity must exist whose consumption is an embodiment of labor and a creation of value. Marx’s theory unveiled that a commodity has exchange-value only because it stands in a relation to human labor and production.
Similar to Marx’s theory of value, money is intimately tied up with labor and a concept of value based on labor and the labor products. According to Marx, money is itself a commodity but one that in abstract form also represents the value of other commodities. Money is not just a medium of exchange, but also a means of domination. As a universal measure for value, money symbolizes the capitalist mode of production and its social relations of exploitation. This is the basis of Marx’s labor-theory of value, the creation of surplus value, and the expropriation of the worker. Marx explains that the contradictions of capitalism is clear where the division of labor, the accumulation of capital, the opposition between bourgeoisie and proletariat, and the inherently contradictory mode of capitalist production are the central elements that account for industrialized society. The study of money to Marx makes more sense of his analysis on capitalism.
For Simmel, money is the reification of the pure relationship between things as expressed in their economic motion (Laidler and Rowe, 1980). Money creates an objectivity that stands over against individuals as a natural entity. Since money itself is an omnipresent means, the various elements of our existence are thus placed in an all-embracing teleological nexus in which no element is either the first or the last. Furthermore, since money measures all objects with merciless objectivity, and since its standard of value so measured determines their relationship, a web of objective and personal aspects of life emerges which is similar to the natural cosmos with its continuous cohesion and strict causality. This web is held together by the all-pervasive money-value, just as nature is held together by energy that gives life to everything (Simmel 1990: 453).
This objectivity of human interaction finds its highest or lowest expression in purely monetary economic interests. It is also manifested in the intellectualization and functionalization of relationships. After drawing a series of parallels between intellectualization, rationalization, the law, and that calculating exactness of modern life. Simmel offers us a critique: “the calculating intellectuality embodied in these forms may in its turn derive from them some of its energy through which intellectuality controls modern life. All these relationships are brought into focus by the negative example of those type of thinkers who are most strongly opposed to the economic interpretation of human affairs: Goethe, Carlyle and Nietzsche on the one hand are fundamentally anti-intellectual and on the other completely reject that mathematically exact interpretation of nature which we recognize as the theoretical counterpart to the institution of money” (Simmel 1990:446)
For this reason, Simmel’s view of the role of money in society is identical to Marx’s. For Marx money infinitely intensifies labor’s dependency on capital and “mystifies” all economic relationships. In contrast, Simmel’s goal in The Philosophy of Money is precisely to explain this mystification. Simmel’s relation to Marx in the study of money thus comprises both similarities and differences in approach. However, there are some of the themes in Marx’s work reappear in some form in Simmel’s study. First, there is the evolutionary sketch of money from simple barter to the more complex and more complete existence of money as paper money. In addition, both Simmel and Marx use religious analogies to denote the impersonal nature of money, and this theme of impersonalization through money is apparent in the writings of both authors. Although Marx’s Grundrisse were not yet discovered during Simmel’s life, he unwittingly reconstructed some of the classical Marxist themes of objectification and alienation (Turner, 1986: 101–3). Second, Money is seen by both Simmel and Marx as the purest form of reification; it is the technically most perfected medium of modern economic exchange that transforms all quality into quantity, alienates people from their true existence, and fragments their personalities into formal properties. On the other hand, Simmel’s approach is in several respects antagonistic to Marx’s throughout The Philosophy of Money.
The main difference in their respective approaches is that Marx holds the capitalist mode of production responsible for the contradictions of modern society, while for Simmel it is the money economy as such that is the cause of the impersonalization of social relations. Marx’s theory is primarily concerned with the capitalist sphere of production and the relation between money, labor and capital, while Simmel concentrates on the distribution and circulation of goods, which are held to constitute a value-creating sphere of exchange. Seeking to move deeper than historical materialism to reach at the psychological and metaphysical meanings of the concrete historical manifestations of economic forms, Simmel’s Philosophy of Money is a fundamental critique of Marx’s political economy. While in Marx’s work money has different functions (as a measure of value, a medium of exchange and a means of accumulating wealth), it was always of central concern to Marx that money embodied abstract labor and that the value of money was determined by the conditions of production’ (Turner, 1986: 109).
Opposing most critically this economization of money, Simmel locates money resolutely in the broad realm of human experience. In Simmel, money is only loosely tied to its material basis and instead represents a sociological phenomenon, a form of human interaction. Therefore, also, exchange is for him a crucial form of sociation, whereas the economy is only one special form of exchange (Frisby, 1985: 59–60). Whereas Marx’s theory of value is based on the productive relations of the human subject with nature through labor, Simmel presents a relativist theory of value that posits that the value of things rests on a subjective judgment, on valuation. Therefore, those goods that are difficult to obtain for the individual who wants them – within certain limits of feasibility – will be the most valuable (Sassatelli, 2000).
The differences between Simmel’s and Marx’s are manifested in their respective value theories. Marx’s analysis is more optimistic, since capitalism will one day undermine itself. Simmel’s analysis instead points to the role of money as a world of its own, driven by the nature of human life, which cannot just be overthrown. Conversely, along with the growth of money as a pure symbol, Simmel defines freedom in relation to the possession of money as providing the means to engage in social interactions. For Marx, this potential of increased freedom and individualization is far more problematic (the freedom of some can only be maintained by the unfreedom of many others). Underlying these differences in approach, Simmel’s discontent with socialist ideology can be discerned. To Simmel, socialism cannot eradicate all distinctions between people, at least not without destroying their freedom (Deflem, 2003)

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