Marx, Say’s Law and Commodity Money

Andrew B Trigg

doi:10.1093/cpe/bzaa005

Abstract

Abstract Under Marx’s critique of Say’s Law, as originally devised by Say and James Mill, money hoarding leads to a shortfall in aggregate demand. This paper responds to a Post Keynesian argument that hoarding does not restrict aggregate demand since for Marx money consists of a produced commodity, and hoarding is just one form of commodity demand. Drawing on Marx’s monetary writings, a new monetary equilibrium is suggested in which produced gold is used to replace wear and tear in circulation. An alternative critique of Say’s Law is thus proposed as a contribution to understanding the complexity of Marx’s monetary foundations.

Highlights

A key problem with Marx’s critique of Say’s Law is his use of a commodity theory of money
Say’s Law can be undermined by money hoarding when an interruption or delay in the circulation of commodities drags aggregate demand below aggregate supply; but if the money hoard consists of a produced commodity, which for Marx is gold, hoarding can be considered to be just one form of commodity demand
There is not a problem of shortage of aggregate demand, the problem being the occurrence of partial gluts rather than general overproduction applying to the economy as a whole

Summary

INTRODUCTION

A key problem with Marx’s critique of Say’s Law is his use of a commodity theory of money. Of particular importance is Sardoni’s (1987) analysis of how in an economic crisis the increase in money hoards can be offset by a reduction in circulating money balances—leaving the demand for produced gold unchanged This insight, which is mentioned somewhat in passing by Sardoni, is developed and formalised here based on a detail study of Marx’s writings on money in direct confrontation with Say’s Law. Drawing on Capital, volume 2 (Marx 1978), the proposed monetary mechanism specifies how produced money is exchanged for non-money commodities, and how gold production is required to replenish wear and tear of circulating money.

SAY’S LAW

GLUTS AND SHORTAGES

MARX’S INTERNAL CRITIQUE

AN EXTERNAL CRITIQUE

CONCLUSIONS