Finance Capital, Hilferding 1910


The necessity of money

In principle the human productive community may be constituted in either of two ways. First, it may be consciously regulated. Whether its scale is that of a self-sufficient patriarchal family, a communistic tribe, or a socialist society, it creates the organs which, acting as the agents of social consciousness, fix the extent and methods of production and distribute the social product thus obtained among the members. Given the material and man-made conditions of production, all decisions as to method, place, quantity and available tools involved in the production of new goods are made by the pater familias, or by the local regional or national commissars of the socialist society. The personal experience of the former gives him a knowledge of the needs and productive resources of his family; the latter can acquire a like knowledge of the requirements of their society by means of comprehensively organized statistics of production and consumption. They can thus shape, with conscious foresight, the whole economic life of the communities of which they are the appointed representatives and leaders in accordance with the needs of the members. The individual members of such a community consciously regulate their productive activity as members of a productive community. Their labour process and the distribution of their products are subject to central control. Their relations of production are directly manifest as social relations, and the economic relations between individuals can be seen as being determined by the social order, by social arrangements rather than by private inclination. Relations of production are accepted as those which are established and desired by the whole community.

Matters are different in a society which lacks this conscious organization. Such a society is dissolved into a large number of mutually independent individuals for whom production is a private matter rather than a social concern. In other words, its members are individual proprietors who are compelled by the development of the division of labour to do business with one another. The act by which this is accomplished is the exchange of commodities. It is only this act which establishes connections in a society otherwise dismembered into disparate units by private property and the division of labour. Exchange is the subject matter of theoretical economics only because, and to the extent that, it performs this mediating function in the social structure. It is of course true that exchange may also take place in a socialist society, but that would be a type of exchange occurring only after the product had already been distributed according to a socially desired norm. It would therefore be merely an individual adaptation of the distributive norm of society, a personal transaction influenced by subjective moods and considerations. It would not be an object for economic analysis. It would have no more importance for theoretical analysis than does the exchange of toys between two children in the nursery, an exchange which is fundamentally different in character from the purchases made by their fathers at the toy shop. For the latter is only one element in the sum of exchanges by which society realizes itself as the productive community which it really is. A productive community must express itself in such acts of exchange because only in this way can the unity of society, dissolved by private property and the division of labour, be restored.

Just as Marx said that a coat is worth more within the exchange relationship than outside it, so we may say that exchange has far greater significance in one social context than in another.[1] It becomes a distinctive social force when it supplies the integrating factor in a society in which private property and the division of labour have dissociated individuals and yet made them interdependent. Only in a society of this type does it acquire the function of assuring the social life process. The outcome of completing all possible acts of exchange in such a society is what would have been accomplished in a communist, consciously planned, society by the central authorities; namely, what is produced, how much, where, and by whom. In short, exchange must allocate among the producers of commodities what would be allocated to the members of a socialist society by the authorities who consciously regulate production, plan the labour process, and so on. The task of theoretical economics is to discover the law which governs this type of exchange and regulates the course of production in a commodity producing society, just as the laws, decrees and directives of the authorities regulate production in a socialist society. The difference between the two systems is that in a commodity producing society economic law is not directly imposed on production by the deliberations of human intelligence, but operates in the manner of a natural law, having the force of a `natural social necessity'.[2]

In addition, exchange must also provide the answer to another question : whether production is to be undertaken by the independent artisan or by the capitalist entrepreneur? The answer to this question is to be found in the change in the exchange relationship with the development from simple commodity production to capitalist production. The act of exchange itself differs qualitatively only as between different social systems; for instance, between the socialist and the commodity producing society. In a commodity producing society the act of exchange is qualitatively uniform, however much the quantitative ratios at which goods exchange may vary. In such a society, an objective social factor constitutes the basis of exchange relations: the socially necessary labour time embodied in the things exchanged. In communist society, on the other hand, the only basis of exchange is a subjective equalization, an equal desire. Under such conditions, exchange is purely accidental and is not therefore a possible object of investigation for theoretical economics. Not being susceptible to theoretical analysis, it can be grasped only in psychological terms. But since exchange always appears as a quantitative ratio between two things, people do not notice the difference.[3]

The act of exchange becomes the necessary mediator in the circulation of social goods because their circulation is itself a social necessity. A single or isolated exchange may be purely fortuitous, but exchange becomes a general and established practice if it makes possible the social circulation of goods and ensures the productive and reproductive processes of society. Social production is thus a condition of exchange among individuals, and only in this way are they integrated into society and enabled to share in the aggregate social product which has to be distributed among them. This situation removes an act of exchange from the sphere of the accidental, the arbitrary and the subjective, and raises it to the level of the uniform, the necessary and the objective. And as a condition of the social circulation of goods, it is also a vital necessity to every individual. A society based upon private property and the division of labour is only possible by virtue of this exchange relationship among its members; it becomes a society through exchange, which is the only social process it recognizes from an economic standpoint. Only in this society does the exchange act become the object of a specific analysis, which asks how the exchange act, as a means of circulating social goods, arises.

Exchange converts a good into a commodity, an object no longer intended for the satisfaction of an individual need or brought into existence and vanishing with that need. On the contrary, it is intended for society, and its fate, now dependent on the laws which govern the social circulation of goods, can be far more capricious than that of Odysseus; for what is one-eyed Polyphemus compared with the argus-eyed customs officials of Newport, or the fair Circe compared with the German meat inspectors? It has become a commodity because its producers participate in a specific social relationship in which they have to confront each other as independent producers. Originally a natural, quite unproblematic thing, a good comes to express a social relation, acquires a social aspect. It is a product of labour, no longer merely a natural quality but a social phenomenon. We must therefore discover the law which governs this society as a producing and working community. Individual labour now appears in a new aspect, as part of the total labour force over which society disposes, and only from this point of view does it appear as value-creating labour.

Exchange is thus accessible to analysis because it not only satisfies individual needs, but is also a social necessity which makes individual need its instrument while at the same time limiting its satisfaction. For a need can be satisfied only to the extent that social necessity will permit. It is of course a presupposition, for human society is inconceivable without the satisfaction of individual needs. This does not mean, however, that exchange is simply a function of individual need, as indeed it would be in a collectivist economy, but that individual needs are satisfied only to the extent that exchange allows them to participate in the product of society. It is this participation which determines exchange. The latter appears to be simply a quantitative ratio between two things,[4] which is determined when this quantity is determined. The quantity which is turned over in exchange, however, counts only as a part of social production, which itself is quantitatively determined by the labour time that society assigns to it. Society is here conceived as an entity which employs its collective labour power to produce the total output, while the individual and his labour power count only as organs of that society. In that role, the individual shares in the product to the extent that his own labour power participates, on average, in the total labour power (assuming the intensity and productivity of labour to be fixed). If he works too slowly or if his work produces something useless (an otherwise useful article would be considered useless if it constituted an excess of goods in circulation), his labour power is scaled down to average labour time, i.e. socially necessary labour time. The aggregate labour time for the total product, once given, must therefore find expression in exchange. In its simplest form, this happens when the quantitative ratios between goods exchanged correspond to the quantitative ratios of the socially necessary labour time expended in their production. Commodities would in that case exchange at their values.

In fact, this can happen only when the conditions for commodity production and exchange are equal for all members of society; that is to say, when they are all independent owners of their means of production who use these means to fabricate the product and exchange it on the market. This is the most elementary relationship, and constitutes the starting point for a theoretical analysis. Only on this basis can later modifications be understood; but they must always satisfy the condition that, whatever the nature of an individual exchange may be, the sum of exchange acts must clear the market of the total product. Any modification can be induced only by a change in the position of the members of society within production. In fact, the modification must take place in this manner because production and the producers can only be integrated as a social unit through the operation of the exchange process. Thus the expropriation of one section of society and the monopolization of the means of production by another modify the exchange process, because only there can the fact of social inequality appear. However, since the exchange relationship is one of equality, social inequality must assume the form of a parity of prices of production rather than an equality of value. In other words, the inequality in the expenditure of labour (which is a matter of indifference to capitalists since it is the labour expenditure of others) is concealed behind an equalization of the rate of profit. This kind of equality simply underlines the fact that capital is the decisive factor in a capitalist society. The individual act of exchange no longer has to satisfy the requirement that units of labour in exchange shall be equal, and instead the principle now prevails that equal profits shall accrue to equal capitals. The equalization of labour is replaced by the equalization of profit, and products are sold not at their values, but at their prices of production.

If the exchange act may thus be regarded as a creation of society, it is no less true to say that both society and the individual become aware of this only after exchanges have been completed. The work of an individual is, first and foremost, his own individual endeavour, motivated by his own self-interest. It is his personal labour, not the labour of society. But whether or not it conforms with the requirements of the total circulation of goods, of which his labour is necessarily a component part, can be determined only when all the component elements have been compared and the aggregate requirements of that circulation have been completely satisfied.

Commodities are the embodiment of socially necessary labour time. But labour time as such is not expressed directly, as it is in the society envisaged by Rodbertus, in which the central authority establishes the unit of labour time which it will accept as valid for each commodity. Labour time is expressed only in the exchange commensurability of two articles. Thus the value of an article, i.e., its average time of production, is not expressed directly as eight, ten or twelve hours, but as a specific quantity of another article. In other words, a natural object with all its material attributes expresses the equivalent value of another thing. For example, in the equation, one coat equals twenty metres of linen, the twenty metres of linen are the equivalent of one coat simply because both are embodiments of socially necessary labour time. It is in this sense that all commodities are commensurable.

The value of an article is a social relationship and is always represented in terms of another article regardless of the differences in their respective use values. Such a definition of value is implicit in, and inseparable from, the nature of commodity production. A use value belonging to one person becomes a commodity and then a use value to another person, thereby giving rise to the social relationship peculiar to members of a commodity producing society in which all are under the same compulsion to exchange their goods. The producer does not learn whether his commodity really satisfies a social need or whether he has made the correct use of his labour time until after the completion of the exchange. The confirmation that he is a fully-fledged member of a commodity producing society does not come to him from some person authorized to speak in its name, and able to criticize, approve or reject his work, as the merchant might do with his weavers. The only proof he has of his usefulness as a member of society is another article which he obtains in exchange for his own. Society entrusts its destiny to things, rather than to people and its own collective consciousness; and notwithstanding Stirner's views to the contrary this is the root of its anarchy. The thing which can give the producer this assurance must therefore have the necessary authorization to speak in the name of society. It obtains this authorization in precisely the same way as other agents receive their authorization, by the common action of those who confer it. Just as people meet and authorize someone from among their own number to take specific action on their behalf, so commodities must meet to authorize a single commodity to confer full or partial citizenship in the world of commodities. The act of exchange is the occasion for such a meeting of commodities. The social activity of commodities on the market is to capitalist society what collective intelligence is to a socialist society. The consciousness of the bourgeois world is concentrated in the market report. It is only after the successful completion of the exchange that the individual can have any insight into the process as a whole, or any guarantee that his product has satisfied a social need, as well as the incentive to begin his production anew. The object which is thus authorized by the common action of commodities to express the value of all other commodities is – money. The authority of this particular commodity develops along with the development of the exchange of commodities.

A and B, as owners of commodities, may begin a social relationship merely by exchanging their products, say a coat for twenty metres of linen. As the production of commodities becomes the general rule, the tailor must perforce satisfy all his needs by exchange. Instead of limiting this relationship to the maker of linen, he now develops similar arrangements with many other people. One coat may be worth twenty metres of linen ; but it is also worth five pounds of sugar, ten pounds of bread etc. As all commodity producers engage in transactions of this type, there emerges a pattern of numerous exchange equations by which commodities are paired off and their value measured against one another. In the development of this process, commodities gradually come to measure their respective values, with increasing frequency, by a single commodity, thus making that commodity a general standard of value.

A simple expression of value, e.g., one coat equals twenty metres of linen, already expresses a social relationship, but one which may he quite accidental or isolated. In order to be a genuine expression of a social reality, it must first lose its isolated character. When the production of commodities becomes the universal form of' production, the social circulation of goods, and hence the social interdependence among workers asserts itself in innumerable acts of exchange and value equations. The concerted action of commodities in exchange transforms private, individual and concrete labour time into the general, socially necessary and abstract labour time which is the essence of value. As the value of commodities comes to be measured in multifarious exchanges, so it comes to be measured increasingly in terms of a single commodity, and this needs only to become established as the standard of value in order to become money.

The exchange of values is essential to production and reproduction in a commodity producing society. Only in this way is private labour socially recognized, and a relationship between things turned into a relationship between producers. However exchange takes place, whether directly or through the medium of money, it is necessarily an exchange of equivalent values. As a value, therefore, money is like any other commodity, and the necessity for it to have value arises directly out of the nature of the commodity producing society.[5]

Money is a commodity like all other commodities and thus embodies value, but it is differentiated from all other commodities by being the equivalent of all of them and thus expressing their value. It acquires that status as a result of the whole process of exchange.[6] It becomes the legitimate standard of value. The money commodity, a substance with all its natural characteristics, is now the direct expression of value, of this quality which only arises from the social relations of commodity production and their embodiment in objects. It can now be seen how the necessity for a common measure of value – in which the value of every other commodity is directly expressed, and with which every commodity can consequently he directly exchanged -- arises from the process of exchange, from the need continually to equate commodities with each other. Money is, therefore, on the one hand a commodity, but on the other hand it is always forced into the unique position of acting as a general equivalent for all the others. This has happened through the action of all other commodities, which have legitimated it as their sole and universal equivalent.

The exchange value of all commodities is thus expressed in a socially valid form, in the money commodity, in a definite quantity of its use value. Through the reciprocal action of all other commodities, which are measured by it, the money commodity appears as the direct embodiment of socially necessary labour time. Money is thus `the exchange value of commodities as a particular, exclusive commodity'.[7] All commodities thus acquire a standardized social position through their transformation into money.

Just as, according to Ernst Mach, the ego is merely a focal point for an infinite variety of sensations, from the interplay of which it forms a picture of the world, so money is a knot in the skein of social relationships in a commodity producing society, a skein woven from the innumerable threads of individual exchanges. In money, the social relationships among human beings have been reduced to a thing, a mysterious, glittering thing the dazzling radiance of which has blinded the vision of so many economists when they have not taken the precaution of shielding their eyes against it.

In so far as commodities come into relation with each other in the exchange process they are reduced to products of socially necessary labour time and, as such, are equal. The bond which ties a commodity, as a use value, to some particular individual need is severed while it is in circulation, where it counts only as an exchange value. It resumes its role as a use value and re-establishes its relevance to another individual need only after the process of exchange has been completed. As an exchange value, however, a commodity finds its immediate expression in money, the use value of which is nothing but the embodiment of socially necessary labour time, that is, exchange value. Money, therefore, makes the exchange value of a commodity independent of its use value. Only the transformation of money into a good realizes the use value of the good. As a use value it then leaves the sphere of circulation and enters that of consumption.

Money can serve as a general equivalent for all commodities only because it is itself a commodity, that is, exchange value. But as an exchange value, any commodity can serve as a standard of value for all other commodities. Hence, it is only when commodities, by common action, align themselves with one special commodity that it can become an adequate expression of exchange value, or universal equivalent. The fact that all commodities are exchange values means that the producers in this society atomized by the division of labour and private property – which nevertheless forms a production community despite the fact that it does not possess a common consciousness – have a relationship to each other only through the medium of their material products. This becomes evident in the fact that the products of their labour, as exchange values, merely represent different fractions of the same object -- money. General labour time, the economic expression of the productive community, and indeed its essential feature, thus appears as a unique object, a commodity alongside, and yet distinct from, all other commodities.

A commodity enters the process of exchange as a use value, having proved that it can satisfy a need to the extent required by society. It then becomes an exchange value for all other commodities which fulfil the same condition. This symbolizes its conversion into money, as the expression of  exchange value in general. In becoming money, it has become the exchange value for all other commodities. The commodity must therefore become money, because only then can it be expressed socially, as both use value and exchange value; as the unity of both which it really is. However, since all commodities transform themselves into money by divesting themselves of their use values, money becomes the transformed existence of all other commodities. Only as a result of this transformation of all other commodities into money does money become the objectification of general labour time, that is, the product of the universal alienation and suppression (Aufhebung) of individual labours.

The necessity of money thus arises from the nature of commodity producing society, which derives its law from the exchange of commodities as products of socially necessary labour time. It arises from the fact that the social relationship of the producers is expressed as the price of their products, which prescribes their share in the production and distribution of the product. The law of price is the regulative principle of this society, the distinctive feature of which is that it requires a commodity as a means of exchanging commodities, since only a commodity embodies socially necessary labour time. The need for the means of exchange to have value follows directly from the character of a society in which goods have become commodities and must be exchanged as such. 'The very same process which makes commodities out of goods, turns the commodity into money.' Social association is thus brought about unconsciously through the exchange of commodities, and the confirmation that this has taken place in an appropriate way is provided by the same process of exchange. But the confirmation comes only after the process of production, which had already established this social association, is finished and unalterable. The anarchy of the capitalist mode of production consists in the fact that there is no conscious organization of production in advance to accomplish its goal. For the individual members, conscious only of themselves and not of society as a whole, social association appears to be a natural law, functioning independently of the will of the participants, although it exists only because of their own unconscious social action. Their action indeed is never conscious and purposive with respect to social association, but only with respect to the satisfaction of individual needs. In this sense it may be said therefore that the necessity to mediate exchange through money, that is, through a substance which is valuable in itself, arises from the anarchy of commodity producing society.

While money is thus, on the one hand, a necessary product of commodity exchange, it is, on the other hand, the condition for generalizing the exchange of products as commodities. It renders commodities directly commensurable by becoming their standard of value. This is because, as value, it is the same as the commodities, and within the value form their opposite; an equivalent which has the form of a use value in which [exchange] value is expressed.

Money thus originates spontaneously in the exchange process and requires no other precondition. The exchange process makes that commodity into money which is best qualified for the role by its natural attributes. The use value of this commodity, of gold for example, makes it money material. Gold is not money by nature (but only due to a definite structure of society); but money is by nature gold. Neither the state nor the legal system determines arbitrarily what the nature or medium of money shall be. Their primary function is to coin money. The state changes nothing except the units into which gold is divided. While at first these were distinguished or measured according to weight, they are now classified according to another arbitrary standard, necessarily based upon conscious agreement. Since the supreme conscious organization in a commodity producing society is the state, it falls to the state to sanction this agreement, so that it shall be generally accepted throughout society. Its procedure in this instance is the same as in establishing any other standard, for example, a measure of length. Only in this case, since it is a standard of value that is involved, and value always inheres in a particular thing, and in every such thing according to the time devoted to its production, the state must also declare what the thing, the money substance, shall be. The standard is valid only within the area covered by the agreement, for example, within the boundaries of the state, outside of which it becomes unacceptable. On the world market gold and silver are accepted as money, but they are measured in terms of their weight.[8]

In the absence of state intervention an agreement with respect to a specific money can also be worked out by private persons — for example, by the merchants of a city — in which case, of course, it is valid only within the jurisdiction of the group.[9]

Gold is therefore divided up in some way by the state, and every piece is stamped with the government seal. All prices are then expressed in terms of this standard. The state, then, has established the unit of price. As a standard of value, the value of gold, because it is a commodity and hence value, embodying socially necessary labour time, varies with any alteration in its time of production. As a measure of price, however, it is divided into pieces of equal weight, and this division is by definition invariable. The state coinage is simply a guarantee that a piece of coined money contains a specified weight of the money material; for example, gold. It is also an important technical simplification, since money need no longer be weighed, but only counted. Any quantity of value required in exchange can then be conveniently supplied.


[1]. The great diversity of acts of exchange makes it absurd to look for a uniform law governing all such acts in completely different social formations.

[2]. J. Karner (Karl Renner), Die soziale Funktion der Rechtsinstitute [The Institutions of Private Law and their Social Functions] (1904), There are, therefore, laws of a specific type, appearing only in a given social system, which disappear with that system, and have causal force only as long as that system lasts. The task of economic theory is to understand these laws.

[3] 'They (the commodity producers') social relations appear simply as private exchange arrangements. After all, exchange as such is essentially a personal transaction. All that is necessary for an act of exchange is that the parties have things to exchange and the desire to exchange them. In that sense, exchange is a phenomenon known to all social systems because they are all familiar with property.

In fact, the exchange of a pen for a piece of chalk in school, or the exchange of a horse for an automobile between two members of a socialist society, is a private affair, of no interest to theoretical economics. It is the basic error of the marginal utility theory that it seeks to discover the laws of capitalist society by an analysis of exchange as a purely private transaction'. R. Hilferding, 'Zur Problemstellung der theoretischen Nationalökonomie bei Karl Marx', Die Neue Zeit, XXIII, 1 (1904-5), p. 106.

[4] In a commodity producing society, things must enter universally into a rewith each other, and they do this as the expression of socially necessary labour time. Only as such an expression are they commensurable. The essence of the theory of value is that commodities are products of socially necessary labour time, that is, products of society; but it is not an essential feature of the theory that labour time must in all cases be the same on both sides of the exchange relationship. This is a secondary factor, which determines exchange ratios only under the most simple forms of commodity Production.

[5] The extent to which this proposition needs to be modified in the light of modern forms of paper currency will be examined later.

[6] Every commodity has value in so far as it incorporates socially necessary labour time, and is the outcome of a social process of production. It enters the process of exchange as a bearer of value. This is the sense of Marx's remark that, `the act of exchange gives to the commodity converted into money, not its value, but its specific value form'. Capital, vol. I, p. 103.  [MECW 35, p101]

[7] Karl Marx, A Contribution to the Critique of Political Economy. [MECW 29, p289]

[8] At least for the time being, pending the consummation of the trend toward an exclusive gold standard.

[9] An example of this practice is the currency of the Hamburg Bank since 1770. Sales were cleared by transfer operations at the Hamburg Giro Bank. A bill of credit was honoured only against payment in silver at the full weight. The money medium was silver, the unit being the Cologne mark (in fine silver) rated at 27.25 marks in the accounts of the bank. In other words, the book money which served the trade of Hamburg until 1872 was secured by the uncoined silver within the city. It made no difference, in this instance, that the silver itself was kept in the vaults of the bank and only certificates of ownership (quite different from bank notes) circulated. Fully backed `paper money', which is merely a certificate showing that the owner has deposited bullion that is actually in the possession of the bank, is a purely technical expedient and a protection against the wear and tear of the metal. 1t does not modify any of the laws of the circulation of money, any more than would the circulation of pieces of silver wrapped in leather or paper.

The only part the state can play in the matter is the one outlined in the text. This serves to dispel Knapp's illusion that money originates by state fiat. Moreover, it enables us to see that, historically, money originated in circulation and is therefore primarily a medium of circulation. Only after it has become a general standard of value and the general equivalent of commodities, does it become a general means of payment, notwithstanding Knapp's view to the contrary (see Knapp, op. cit., p. 2).