a fundamental misunderstanding¶

There is a fundamental misunderstanding of the nature of money in the public psyche. We tend to think of money as a useful abstraction for exchange: bartering made universal.

In fact, this is how money started. But over time, money-as-exchange was replaced with money-as-capital. Money-as-exchange was invented to simplify trade. Rather than directly trading commodities for other commodities--for which individuals may have varying use--one could simply exchange commodities for money, which could then be used to purchase a variety of other commodities. For example, rather than producing 20 bushels of grain and then hauling it around, trying to find people willing to exchange grain for lumber, baskets, tools, etc., you could exchange all of it for money, and purchase whatever you needed whenever you needed it. This abstraction represented a clearing of the way for exchange in and of itself. Money-as-exchange meant you could purchase use-value (food, housing, tools), rather than producing it yourself, or producing something that could then be exchanged for what you need. In the early days, this wasn't much of a problem, since the primary way you acquired money was through... selling the products of labor. Production was still necessary to get money.

Of course, there were already cracks in the "purity" of money-as-exchange from the beginning. The most obvious failing was of course, that the production didn't need to be your production. You could use force or manipulation to steal or swindle money or commodities from those who actually produced it. This was already happening long before money, but money sped it up. A corollary of money-as-exchange not requiring your production was that it allowed the explosion of merchants: people who use money to purchase commodities, then sell those same commodities for more money than they spent, without adding to their use-value. A new class of people emerged who, without producing anything, managed to still acquire money (and therefore purchase what they needed to survive).

At the start, this was not a problem. Merchants served a role in society. They didn't produce, but they did aid production. Those who did produce could easily and reliably exchange their commodities to merchants, purchase commodities from other merchants, and thereby quickly return to production. In other words, money-as-exchange and merchants removed some of the friction involved in REproduction. This reduction in the friction of exchange meant more labor could go toward production of necessities, and therefore more surplus. More surplus (abstracted through money) meant more labor could be invested into advancing production (producing tools, innovating technology, etc.) However, crucially, merchants could advance their money-making MUCH more quickly than those who actually produced the commodities they bought and sold.

If the profit from one buy-sell cycle was 10%, that meant the merchant could then buy 10% more commodities in the next cycle. If, in that same cycle, the actual producers only advanced their commodity production by 5%, then the "advancement" of the exchange power of money has therefore doubled the actual advancement of production. In 17 years, the merchants' investments will have yielded a 5-fold return, while actual production only doubled. Where before, a single merchant might have purchased (and sold for profit) the products of a single farmer's labor, now he could do the same with TWO farmers. Already, money-as-exchange starts to morph into something new. Without producing anything, a single merchant is accumulating value from the productive labor of two people, something that would not be possible otherwise.

And it gets much worse. With this additional money, the merchant can do much more than purchase commodities for resale. He can hire workers to sell the goods on his behalf. He can purchase land on which production can be done exclusively on his behalf, thereby eliminating the need for purchase. He can hire security forces to protect his holdings, or even violently seize the holdings of others. He can levy rent for others to do their normal production on his land.

All of these--and more--are the result of his money becoming something more than an exchange medium. This is money-as-capital.

The capitalist's money can be used in a variety of ways, not just to purchase commodities for his own use or to boost production, but to seize more and more control of the production that already exists independently of his influence. The more the capitalist invests his money into buying production over simply purchasing commodities, the more of his money transforms from a simple abstraction of exchange, into the purpose for which the exchange happens in the first place. The production itself is meaningless to the pursuit of money-as-capital. If the capitalist could find a way to simply use money to purchase more money directly, he would. And in fact, that is the origin of finance capital, which is a topic for another day.