James Steuart and the making of Karl Marx’s monetary thought

Abstract

This paper analyses the influence of James Steuart on Karl Marx’s monetary thought. It deals more specifically with Marx’s rejection of an automatic mechanism that links variations in the quantity of money to their direct impact on prices. Steuart’s pioneering discoveries in economics inaugurate an anti-quantity theory tradition that Marx supported and which fed his own conception of money and credit. Here, we deal with the criticism of the assumptions of the quantity theory of money (QTM), the specifically social character of labour which creates exchange value, the distinction between the functions of money, the difference between income spending and capital advances, and the difference between simple circulation and reflux of money credit.

Keywords:

• Money
• quantity theory of money
• reflux law
• Marx
• Steuart

JEL codes:

• B21

Acknowledgements

We thank the three anonymous reviewers for their careful reading of our manuscript and their many insightful suggestions. We would also like to thank Paul Dudenhefer for his help in revising and polishing the article and Carole Boulai, Mauricio Coutinho, Carlos Eduardo Suprinyak and Shereen Ilahi for their helpful comments. Last but not least, we want to warmly thank all the participants of the Karl Marx conference organised in Lyon, 27–29 September 2017, specially Claire Silvant, Gilbert Faccarello and Jean Cartelier.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 This paper is part of a larger project that soon incorporate Marx’s notes on Steuart’s French edition of the Principles in Marx’s personal Library kept in Moscow. For the pages of Steuart’s French edition of the Principles with Marx’s annotations, see the Karl Marx–Friedrich Engels GESAMTAUSGABE (MEGA) Exzerpte, notizen, marginalien. Band 32 (1999), 623–624.

2 (M) for money-capital; (C) for the elements of commodity-capital (labour force and means of production); (P) for the process of production or setting in motion of the means of production by the active labour force.

3 For Marx, modern economic thought (or political economy) begins with Petty and Boisguilbert, and his “classical phase” ends with Ricardo and his first systematic critic, Sismondi.

4 Adam Smith refers to mercantilism as “Commercial or Monetary system” (1776). This is also the case of McCulloch (1824) and others authors later.

5 Despite its importance, we will not discuss Steuart's theory of balance of trade in this paper.

6 The elimination of the different functions of money (replaced only by the means of the exchange function) is the basis of the so-called neutrality of money among classical economists. This is also why the Ricardian and Neo-Ricardian models can be considered systems without money. Note, however, that according to Deleplace (2017), considering Ricardo as a supporter of QTM is a conventional assessment that raises many doubts. For him, Ricardo would not be a supporter of the QTM.

7 Marx made this point clear in book III of Capital (Marx 1894, 770–771).

8 The exchange equation or quantity theory formula MV = PT does not establish a causal relationship between the quantity of money in circulation and the price level. Only under certain assumptions does this equation of exchange become the foundation of the QTM. The amalgam between both will systematically take place at the end of nineteenth and beginning of the twentieth centuries with the works of Irving Fisher (1896 and 1911) and Edwin W. Kemmerer (1903). Fisher attributes the paternity of the algebraic formalization of the equation to Simon Newcomb and Francis Edgeworth (Fisher 1911, 25).

9 Although Steuart is not the only one, Marx notes that similar ideas can be found in Boiguilbert and Guillaume François Le Trosne in France.

10 Note that this will be also one of Keynes’s main anti-QTM arguments in his Economic Consequences of Mr Churchill (1925).

11 During the Napoleonic blockade.

12 By making Steuart the founder of the criticism of QTM, Marx does not consider Steuart's approach to be incompatible with his own analysis of money as a developed expression of exchange value. On the contrary, Marx argues that Steaurt's "concrete analysis" of money underlines both his historical analysis of the social forms of labour and his difficulties to perceive the specificity of exchange value creating labour. This critical reading of Steuart's monetary criticism contrasts with recent interpretations that make Steuart the founder of a Proto-Keynesian approach, namely purely monetary prices. In this last perspective, there is nothing but money prices, and if we wish to get relative (or real) prices we have to reckon them as ratios of money prices.

13 We do not develop in this paper Steuart's analysis of the function of money as a store of value for international circulation (“money of the world”). We will discuss this point as well as his theory of balance of trade in another paper.

14 Steuart develops his theory of credit in his Principles separately and after solving the problem of money circulation and prices and his critique of Hume. The latter takes place in book II and the former in Book IV. Steuart’s theory of credit incorporates a set of financial considerations and thus ranges from interest rates to the role of the state and basic economic forces in determining the interest rate and liquidity of debt securities (See Bentemessek 2012).

15 Fixed capital has the slowest reflux velocity of all capitalist investment.

16 Although Tooke seemed to ignore Steuart's work.

17 This is the case of the mathematician Johann Büsch, who "translated Steuart’s brilliant English into the Low-German dialect of Hamburg and distorted the original whenever it was possible” (Marx 1859a, 398).

18 Although Marx will revise his global judgement on Smith's monetary theory between Contribution and Capital (Marx 1859b, 398-399; Marx 1867, 133).