Chapter 3 — Money, or the Circulation of Commodities
The Measure of Values
Chapter 3 analyses the functions of money. Marx distinguishes several distinct functions that money performs simultaneously, each with its own logic.
3.1 Money as Measure of Value
Price is the monetary expression of a commodity's value. The measure of value is money's first function.
price = value expressed in money terms
= units of gold equivalent to the labour time embodied in the commodity
Marx notes an important distinction:
- Ideal money can perform the measure-of-value function — you don't need actual gold in hand to quote a price
- Coin (real money) performs the means-of-circulation function
This distinction matters: the measure of value is conceptually prior to money as a circulating medium.
The transformation problem, briefly
Marx is careful to distinguish between: - Intrinsic value: gold has value because it embodies socially necessary labour time - Nominal value: the denomination stamped on coins
The two need not coincide. A debased coin still functions as a measure of value.
3.2 Money as Means of Circulation
C — M — C: the metamorphosis in detail
Money as a means of circulation must be: - Real (not ideal) — physically present in the transaction - Transient — passes from hand to hand, not hoarded
The velocity of money circulation matters:
MV = PT
M = quantity of money in circulation
V = velocity of money (times it changes hands per period)
P = average price of commodities
T = number of transactions
Coin and token money
Gold coins wear down in circulation. When they fall below their ideal weight, they continue to function as means of circulation but no longer as measure of value. This is the origin of token money — money that circulates without full metallic backing.
3.3 Money as Store of Value
Money that is not immediately spent exits circulation and becomes a store of value (hoard).
M — C... (money withdrawn)
As a store of value, money must be: - Durable (maintain its quantity) - Stable (maintain its value)
In inflationary conditions, money fails as a store of value — a key instability of capitalist money.
The hoarding function
Marx notes that capitalist production has no natural limit — unlike simple commodity production, which is bounded by use-value. The capitalist drives without a natural ceiling. This has consequences for money demand and credit.
3.4 Money as Means of Payment
In developed commodity circulation, goods are often sold on credit:
Seller (credit) → Buyer receives goods → Buyer pays later (M)
The debt instrument is a bill of exchange. When this circulates as money-substitute, we get credit money.
When debts are called in simultaneously, the credit system can collapse — the demand for means of payment surges while the supply contracts. Marx sees this as a key source of crisis.
Summary of money functions
| Function | Formula | Nature |
|---|---|---|
| Measure of value | Price = value ÷ labour time of gold | Ideal |
| Means of circulation | C — M — C | Real, transient |
| Store of value | M... (hoard) | Real, withdrawn |
| Means of payment | Credit transactions | Deferred |
3.5 World Money
On the world stage, money operates in its full metallic function — no single national currency is privileged. Gold serves as: - Universal measure of value - Universal means of purchase (to settle trade imbalances) - Universal embodiment of social wealth (treasury reserves)
The movement of gold into and out of a country is a real indicator of balance of payments — Marx notes this carefully.
Summary
Money is not a "thing" but a social relation. Its various functions — measure, circulation, store, payment — are historically developed. The form in which we encounter money today (credit cards, digital currency) does not change its fundamental nature as the universal equivalent of capitalist commodity production.