The most important point to emerge from Marx's theory of money is the idea that money is a form of value. The difficulty with this idea is that we are more familiar with money itself than with value in other forms. But value does appear in forms other than money. For example, the balance sheet of a capitalist firm estimates the value of goods in process and of fixed capital which has not yet been depreciated, as well as the value of inventories of finished commodities awaiting sale. Each of these aggregations of commodities has a value, usually expressed as the equivalent of a certain amount of money, but it is clear that neither goods in process nor fixed capital is money. Marx views the value of commodities in this sense as analytically prior to money; money can be explained according to Marx only on the basis of an understanding of the value of commodities.

Marx follows 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 particular human needs and wants; and second, to exchange for othe

When we apply the idea of value separate from price to transactions involving money, the concept of the value of money, the ratio of total labor time to total value added, plays a central role. Only with this convention for defining the value of money will we be able consistently to maintain the ideas that money is a form of value; that value is conserved in exchange; and that the expenditure of labor creates value (Foley 1982, pp. 37- 47).

From this point of view the problem of the value of money is linked closely to the dynamics of production and accumulation in a capitalist system, and to the factors which produce booms and crises. The value of money is determined in the first instance by the particular historical path of accumulation capital has followed; periods of high demand will lead to a fall in the value of money through capitalist fires increasing prices, while crises will tend to put downward pressure on the value of money. If such changes in the value of money come into contradiction with vestigial links between a money commodity and the monetary system, this type of explanation must be modified to take account of the specific action of those links. In the late twentieth century the system has usually adapted by weakening even further the links between money and the vestigial money commodity

Two Revisions of Marx's Theory of Money

Whichever of these two paths we follow, we are left with the problem of understanding what dynamic laws govern the value of money. If gold is the general equivalent, but the value of money can vary within quite wide boundaries given the value of gold, then we will want to know what governs where within those boundaries the value of money settles. If gold appears only as a last resort within a system of promises to pay value, then we particularly need to know what processes govern the motion of the value of money itself.

There are, however, some contradictions in this method. Agents, through an excess of optimism, or later bad luck, or (though I hesitate to raise this ugly possibility) through consciously and fraudulently manipulating the system to their personal advantage, might issue promises to pay value which they cannot or will not meet. The first mediation of this contradiction would be for trading agents to use third party promises to transfer value. This has the advantage to the seller of establishing the presumption that the buyer did deliver something of value at some time to the third party or to another party. It has further advantages if the third party has better "credit," being in a position in which failure to meet its promises is more costly and the holder of a promise has a better chance of enforcing the promise. In this way a chain of promises of higher and higher social validation is created, which could give rise to one theory of banking. At each level of transactions the promises to pay of a third party circulate as money value. Those third parties themselves need higher level third parties to clear the payments among themselves, and so on.

In fact, the relations between gold and currency values were, under gold standard institutions, regulated in two ways: by the minting of new coinage at the stated price (so many dollars from so many ounces of gold), and by the melting of coin into bullion for export. The minting of gold is functionally equivalent to its import. These activities took place only if the market exchange ratios between national moneys and gold were sufficiently favorable in one direction or the other. This raises a serious problem, however, for the theory that currency is nothing more than the representative of a certain quantity of gold. There were always some limits within which the "dollar" or the "pound" could fluctuate in value relative to gold. What laws governed these movements? The general equivalent theory in the form Marx presents it does not explicitly answer this question.

We could, as a first line of thought, argue that

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