Karl Marx's THE POVERTY OF PHILOSOPHY Answer to the "Philosophy of Poverty" by M. Proudhon chapter 1 A SCIENTIFIC DISCOVERY 3. APPLICATION OF THE LAW OF THE PROPORTIONALITY OF VALUE A) Money "Gold and silver were the first commodities to have their value constituted." [I 69] Thus, gold and silver are the first applications of "value constituted" ... by M. Proudhon. And as M. Proudhon constitutes the value of products determining it by th e comparative amount of labor embodied in them, the only thing he had to do was to prove that variations in the value of gold and silver are always explained by variations in the labor time taken to produce theM. M. Proudhon has no intention of doing so. He speaks of gold and silver not as commodities, but as money. His only logic, if logic it be, consists in juggling with the capacity of gold and silver to be used as money for the benefit of all the commodities which have the property of being evaluated by labor time. Decidedly there is more naivete than malice in this jugglery. A useful product, once it has been evaluated by the labor time needed to produce it, is always acceptable in exchange; witness, cries M. Proudhon, gold and silver, which exist in my desired conditions of "exchangeability"! Gold and silver, then, are value which has reached a state of constitution: they are the incorporation of M. Proudhon's idea. He could not have been happier in his choice of an example. Gold and silver, apart from their capacity of being commodities, evaluated like other commodities, in labor time, have also the capacity of being the universal agents of exchange, of being money. By now considering gold and silver as an application of "value constituted" by labor time, nothing is easier than to prove that all commodities whose value is constituted by labor time will always be exchangeable, will be money. A very simple question occurs to M. Proudhon. Why have gold and silver the privilege of typifying "constituted value"? "The special function which usage has devolved upon the precious metal, that of serving as a medium for trade, is purely conventional, and any other commodity could, less conveniently perhaps, but just as reliably, fulfil this function. Economists recognize this, and cite more than one example. What then is the reason for this universal preference for metals as money? And what is the explanation of this specialization of the function of money -- which has no analogy in political economy?... Is it possible to reconstruct the series from which money seems to have broken away, and hence to trace it back to its true principle?" [I 68-69] Straight away, by formulating the question in these terms, M. Proudhon has presupposed the existence of _money_. The first question he should have asked himself was, why, in exchanges as they are actually constituted, it has been necessary to individualize exchangeable value, so to speak, by the creation of a special agent of exchange. Money is not a thing, it is a social relation. Why is the money relation a production relation like any other economic relation, such as the division of labor, etc.? If M. Proudhon had properly taken account of this relation, he would not have seen in money an exception, an element detached from a series unknown or needing reconstruction. He would have realized, on the contrary, that this relation is a link, and, as such, closely connected with a whole chain of other economic relations; that this relation corresponds to a definite mode of production neither more nor less than does individual exchange. What does he do? He starts off by detaching money from the actual mode of production as a whole, and then makes it the first member of an imaginary series, of a series to be reconstructed. Once the necessity for a specific agency of exchange, that is, for money, has been recognized, all that remains to be explained is why this particular function has developed upon gold and silver rather than upon any commodity. This is a secondary question, which is explained not by the chain of production relations, but by the specific qualities inherent in gold and silver as substances. If all this has made economists for once "go outside the domains of their own science, to dabble in physics, mechanics, history and so on", as M. Proudhon reproaches them with doing, they have merely done what they were compelled to do. The question was no longer within the domain of political economy. "What no economist," says M. Proudhon, "has either seen or understood is the economic reason which has determined, in favor of the precious metals, the favor they enjoy." [I 69] This economic reason which nobody -- with good ground indeed -- has seen of understood, M. Proudhon has seen, understood and bequeathed to posterity. "What nobody else has noticed is that, of all commodities, gold and silver were the first to have their value attain constitution. In the patriarchal period, gold and silver were still bartered and exchanged in ingots but even then they showed a visible tendency to become dominant and received a marked degree of preference. Little by little the sovereigns took possession of them and affixed their seal to them: and of this sovereign consecration was born money, that is, the commodity par excellence. which, notwithstanding all the shocks of commerce, retains a definite proportional value and makes itself accepted for all payments.... "The distinguishing character of gold and silver is due, I repeat, to the fact that, thanks to their metallic properties, to the difficulties of their production, and above all to the intervention of state authority, they early won stability and authenticity as commodities." To say that, of all commodities, gold and silver were the first to have their value constituted, is to say, after all that has gone before, that gold and silver were the first to attain the status of money. This is M. Proudhon's great revelation, this is the truth that none had discovered before him. If, by these words, M. Proudhon means that of all commodities, gold and silver are the ones whose time of production was known the earliest, this would be yet another of the suppositions with which he is so ready to regale his readers. If we wished to harp on this patriarchal erudition, we would inform M. Proudhon that it was the time needed to produce objects of prime necessity, such as iron, etc., which was the first to be known. We shall spare him Adam Smith's classic bow. But, after all that, how can M. Proudhon go on talking about the constitution of a value, since a value is never constituted by itself? It is constituted, not by the time needed to produce it by itself, but in relation to the quota of each and every other product which can be created in the same time. Thus the constitution of the value of gold and silver presupposes an already completed constitution of a number of other products. It is then not the commodity that has attained, in gold and silver, the status of "constituted value", it is M. Proudhon's "constituted value" that has attained, in gold and silver, the status of money. Let us now make a closer examination of these "economic reasons" which, according to M. Proudhon, have bestowed upon gold and silver the advantage of being raised to the status of money sooner than other products, thanks to their having passed through the constitutive phase of value. These economic reasons are: the "visible tendency to become dominant", the "marked preferences" even in the "patriarchal period", and other circumlocutions about the actual fact -- which increase the difficulty, since they multiply the fact by multiplying the incidents which M. Proudhon brings in to explain the fact. M. Proudhon has not yet exhausted all the so-called economic reasons. Here is one of sovereign, irresistible force: "Money is born of sovereign consecration: the sovereigns take possession of gold and silver and affix their seal to them." [I 69] Thus, the whim of sovereigns is for M. Proudhon the highest reason in political economy. Truly, one must be destitute of all historical knowledge not to know that it is the sovereigns who in all ages have been subject to economic conditions, but they have never dictated laws to theM. Legislation, whether political or civil, never does more than proclaim, express in words, the will of economic relations. Was it the sovereign who took possession of gold and silver to make them the universal agents of exchange by affixing his seal to them? Or was it not, rather, these universal agents of exchange which took possession of the sovereign and forced him to affix his seal to them and thus give them a political consecration? The impress which was and is still given to money is not that of its value but of its weight. The stability and authenticity M. Proudhon speaks of apply only to the standard of the money ; and this standard indicates how much metallic matter there is in a coined piece of money. "The sole intrinsic value of a silver mark," says Voltaire, with his habitual good sense, "is a mark of silver, half a pound weighing eight ounces. The weight and the standard alone form this intrinsic value." (Voltaire, _Systeme de Law_) [ Marx quotes a chapter from Voltaire's _Historie de parlement_. It is entitled "France in the Period of the Regency and Law's System". ] But the question: how much is an ounce of gold or silver worth, remains nonetheless. If a cashmere from the _Grand Colbert_ stores bore the trademark pure wool, this trade mark would not tell you the value of the cashmere. There would still remain the question: how much is wool worth? "Philip I, King of France," says M. Proudhon, "mixes with Charlemagne's gold pound a third of alloy, imagining that, having the monopoly of the manufacture of money, he could do what is done by every manufacture of money, he could do what is done by every tradesman who has the the monopoly of a product. What was actually this debasement of the currency from which Philip and his successors have been so much blamed? It was perfectly sound reasoning from the point of view of commercial practice, but very unsound economic science, viz., to suppose that, as supply and demand regulate value, it is possible, either by producing an artificial scarcity or by monopolizing manufacture, to increase the estimation and consequently the value of things; and that this is true of gold and silver as of corn, wine, oil or tobacco. But Philip's fraud was no sooner suspected than his money was reduced to its true value, and he himself lost what he had thought to gain from his subjects. The same thing has happened as a result of every similar attempt." [I 70-71] It has been probed times without number that, if a prince takes into his head to debase the currency, it is he who loses. What he gains once at the first issue he loses every time the falsified coinage returns to him in the form of taxes, etc. But Philip and his successors were able to protect themselves more or less against this loss, for, once the debased coinage was put into circulation, they hastened to order a general re-minting of money on the old footing. And besides, if Philip I had really reasoned like M. Proudhon, he would not have reasoned well "from the commercial point of view". Neither Philip I nor M. Proudhon displays any mercantile genius in imagining that it is possible to alter the value of gold as well as that of every other commodity merely because their value is determined by the relation between supply and demand. If King Philip had decreed that one quarter of wheat was in future to be called two quarters of wheat, he would have been a swindler. He would have deceived all the rentiers, all the people who were entitled to receive 100 quarters of wheat. He would have been the cause of all these people receiving only 50 quarters of wheat; he would have had to pay only 50. But in commerce 100 such quarters would never have been worth more than 50. By changing the name we do not change the thing. The quantity of wheat, whither supplied or demanded, will be neither decreased nor increased by this mere change of name. Thus, the relation between supply and demand being just the same in spite of this change of name, the price of wheat will undergo no real change. When we speak of the supply and demand of things, we do not speak of the supply and demand of the name of things. Philip I was not a maker of gold and silver, as M. Proudhon says; he was a maker of names for coins. Pass off your French cashmeres as Asiatic cashmeres, and you may deceive a buyer or two; but once the fraud becomes known, your so-called Asiatic cashmeres will drop to the price of French cashmeres. When he put a false label on gold and silver, King Philip could deceive only so long as the fraud was not known. Like any other shopkeeper, he deceived his customers by a false description of his wares, which could not last for long. He was bound sooner or later to suffer the rigour of commercial laws. Is this what M. Proudhon wanted to prove? No. According to him, it is from the sovereign and not from commerce that money gets its value. And what has he really proved? That commerce is more sovereign than the sovereign. Let the sovereign decree that one mark shall in future be two marks, commerce will keep on saying that these two marks are worth no more than one mark was formerly. But, for all that, the question of value determined by the quantity of labor has not been advanced a step. It still remains to be decided whether the value of these two marks (which have become what one mark was once) is determined by the cost of production or by the law of supply and demand. M. Proudhon continues: "It should even be borne in mind that if, instead of debasing the currency, it had been in the king's power to double its bulk, the exchange value of gold and silver would immediately have dropped by half, always from reasons of proportion and equilibrium." [I 71] If this opinion, which M. Proudhon shares with the other economists, is valid, it argues in favor of the latter's doctrine of supply and demand, and in no way in favor of M. Proudhon's proportionality. For, whatever the quantity of labor embodied in the doubled bulk of gold and silver, its value would have dropped by half, the demand having remained the same and the supply having doubled. Or can it be, by any chance, that the "law of proportionality" would have become confused this time with the so much disdained law of supply and demand? This true proportion of M. Proudhon's is indeed so elastic, is capable of so many variations, combination and permutations, that it might well coincide for once with the relation between supply and demand. To make "every commodity acceptable in exchange, if not in practice then at least by right", on the basis of the role of gold and silver is, then, to misunderstand this role. Gold and silver are acceptable by right only because they are acceptable in practice; and they are acceptable in practice because the present organization of production needs a universal medium of exchange. Right is only the official recognition of fact. We have seen that the example of money as an application of value which has attained constitution was chosen by M. Proudhon only to smuggle through his whole doctrine of exchangeability, that is to say, to prove that every commodity assessed by its cost of production must attain the status of money. All this would be very fine, were it not for the awkward fact that precisely gold and silver, as money, are of all commodities the only ones not determined by their cost of production; and this is so true that in circulation they can be replaced by paper. So long as there is a certain proportion observed between the requirements of circulation and the amount of money issued, be it paper, gold, platinum, or copper money, there can be no question of a proportion to be observed between the intrinsic value (cost of production) and the nominal value of money. Doubtless, in international trade, money is determined, like any other commodity, by labor time. But it is also true that gold and silver in international trade are means of exchange as products and not as money. In other words, they lose this characteristic of "stability and authenticity", of "sovereign consecration", which, for M. Proudhon, forms their specific characteristic. Ricardo understood the truth so well that, after basing his whole system on value determined by labor time, and after saying: "Gold and silver, like all other commodities, are valuable only in proportion to the quantity of labor necessary to produce them, and bring them to market", he adds, nevertheless, that the value of _money_ is not determined by the labor time its substance embodies, but by the law of supply and demand only. "Though it [paper money] has no intrinsic value, yet, by limiting its quantity, its value in exchange is as great as an equal denomination of coin, or of bullion in that coin. On the same principle, too, namely, by limitation of its quantity, a debased coin would circulate at the value it should bear, if it were of the legal weight and fineness, and not at the value of the quantity of metal which it actually contained. In the history of the British coinage, we find, accordingly, that the currency was never deprec- iated in the same proportion that it was debased; the rea- son of which was, that it never was increased in quantity, in proportion to its diminished intrinsic value." (Ricardo, loc. cit. [pp.206-07]) This is what J. B. Say observes on this passage of Ricardo's: "This example should suffice, I think, to convince the author that the basis of all value is not the amount of labor needed to make a commodity, but the need felt for that commodity, balanced by its scarcity." [ The reference is to Say's note on the French edition of Ricardo's book, Vol.II, pp.206-07. ] Thus money, which for Ricardo is no longer a value determined by labor time, and which J. B. Say therefore takes as an example to convince Ricardo that the other values could not be determined by labor time either, this money, I say, taken by J. B. Say as an example of a value determined exclusively by supply and demand, becomes for M. Proudhon the example par excellence of the application of value constituted... by labor time. To conclude, if money is not a value "constituted" by labor time, it is all the less likely that it could have anything in common with M. Proudhon's true "proportion". Gold and silver are always exchangeable, because they have the special function of serving as the universal agent of exchange, and in no wise because they exist in a quantity proportional to the sum total of wealth; or, to put it still better, they are always proportional because, alone of all commodities, they serve as money, the universal agent of exchange, whatever their quantity in relation to the sum total of wealth. "A circulation can never be so abundant as to overflow; for by diminishing its value, in the same proportion you will increase its quantity, and by increasing its value, diminish its quantity." (Ricardo [II 205]) "What an imbroglio this political economy is!" cries M. Proudhon. [I 72] "Cursed gold!" cries a Communist flippantly (through the mouth of M. Proudhon). You might as well say: Cursed wheat, cursed vines, cursed sheep! -- for "just like gold and silver, every commercial value must attain its strictly exact determination." [I 73] The idea of making sheep and vines attain the status of money is not new. In France, it belongs to the age of Louis XIV. At that period, money having begun to establish its omnipotence, the depreciation of all other commodities was being complained of, and the time when "every commercial value" might attain its strictly exact determination, the status of money, was being eagerly invoked. Even in the writings of Boisguillebert, one of the oldest of French economists, we find: "Money, then, by the arrival of innumerable competitors in the form of commodities themselves, re-established in their true values, will be thrust back again within its natural limits." (Economistes financiers du dix-huitieme siecle_, Daire edition, p.422) One sees that the first illusions of the bourgeoisie are also their last. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ transcribed by zodiac@io.org report errors to that address