Marx’s Explanation of Money’s Functions: Overturning the Quantity Theory

Marx’s account of the functions of money, I will argue, is simultaneously a critique of the quantity theory. This critique has three parts: it identifies the misconceptions that make the quantity theory false, explains why the theory seems obviously true and, last, presents an alternative explanation to replace it. On the first count, Marx argues that the quantity theory conflates different functions of money — measure and means of circulation — and different forms — gold, tokens and credit money — and misconceives value as a result. Regarding the second, the quantity theory fits Marx’s definition of vulgar economics: the means of circulation function is immediately apparent and the quantity theory results from defining money in terms of it. Finally, Marx’s alternative to the quantity theory focuses instead on money’s function as means of payment, with the implication that capitalist money is credit money. This is the position of Tooke and his followers, with whom Marx so clearly sides in the Contribution. According to Marx, their refutation of the quantity theory is incomplete because they jumble both money with capital and money’s different aspects with each other.1 Marx corrects the first of these defects by explaining money first in the context of simple circulation; he corrects the second by presenting money’s functions in the order in which they presuppose each other in capitalism.