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How to explain the mystery of money

By Paul D'Amato | Janury 7, 2005 | Page 7

"MONEY MAKES the world go round," sings Joel Grey in the 1972 film Cabaret. William Shakespeare was more poetic about it, saying in Timon of Athens that "yellow, glittering, precious gold" has the power to "make black white" and "foul fair," and even the "coward valiant."

Money seems to possess mystical powers--pieces of paper or metal that confer on their bearer the power to convert them into real objects of need or want. It has become a kind of fetish or idol that we bow down to. We are so accustomed to money's role in society that it appears to be the natural state of human society.

But there's nothing magical about money. It has its origins in the development of the exchange of commodities. "All the illusions of the monetary system," wrote Karl Marx, "arise from the failure to perceive that money, though a physical object with distinct properties, represents a social relation of production."

What does that mean? It means that money arises first as a means of exchanging commodities between independent producers.

In a community where all goods are produced and shared in common, everyone contributes the work that they can, and everyone takes out what they need from the common store of goods. Such a society would not need money, because there would be no exchange of commodities taking place.

Historically, the first exchange of commodities was barter. Different communities exchanged surplus products that they did not need for goods produced somewhere else that they did need, but could not produce themselves. So, for example, one community would take surplus salt and trade it to a community that needed it, in exchange for that other community's surplus obsidian.

Roughly speaking, the proportion of goods exchanged would be based on the amount of labor it took for each community to produce its product.

As trade became more regular, some kind of medium became necessary to facilitate these exchanges. At first, it was usually whatever moveable commodity was most coveted and in abundance--cattle, horses, deer, etc. Ultimately, though, because of their malleable character, silver and primarily gold became the preeminent money commodities.

States began producing silver or gold coins in various weights, stamped with the face of a particular ruler.

There is nothing magical about gold. It is a commodity like all others, whose value is measured by how much labor time is necessary to produce it. By convention, it became what Marx calls the "universal equivalent." We could, by common agreement, make shoestrings the "universal equivalent." Then all prices would be quoted in shoestrings.

The mystery of money is compounded by the fact that as capitalism developed, coins made with valuable metals like gold and silver were replaced by paper symbols and coins debased with cheaper metals. But these coins and paper symbols were originally named after the gold or silver weights they were supposed to represent. Britain's pound note, for example, originally represented the equivalent value of one pound of sterling silver.

The fact that paper money is ultimately symbolic of real economic values is demonstrated clearly by the fact that if a government prints money at will, its value depreciates.

In a modern capitalist society, where everything can be and is bought and sold, money's historical origins are invisible. Its existence appears to be a power independent of human will.

"Men are henceforth related to each other in their social process of production in a purely atomistic way," wrote Marx of capitalism. "Their own relations of production therefore assume a material shape which is independent of their control and their conscious individual action. This situation is manifested first by the fact that the products of men's labor universally take on the form of commodities. The riddle of the money fetish is therefore the riddle of the commodity fetish, now become visible and dazzling to our eyes."

How a minority of people finds itself in possession of large amounts of this dazzling substance while others have so little will be the subject of a future article.

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