Lifting "the Veil of Money"

The biggest set of lies perpetrated and peddled by the bourgeoisie and its acolyte economists revolves around this “obscure veil” (Nietzsche applied the phrase to Kant’s “mere appearances” or “phenomena” opposed to the “thing-in-itself”) that separates mystically the “real world” of “goods” and the “apparent world” of money. Of course, if indeed money is “mere appearance”, then it is impossible to explain why it exists in the first place – just as every “appearance” must be more than a mere phantom, for the simple fact that it exists (here is the entire foundation of Schopenhauer’s attack on Kant’s metaphysics, and then of Nietzsche’s). If money is indeed only a “veil”, how then can there be any relation whatsoever between money and “the real thing”, the Kantian “thing-in-itself” or the “goods” that the bourgeoisie puts at the centre of capitalism?

Of course, what we are arguing here is that money is not a “token” representing the “things” or products it helps exchange. In fact there are no “real things” in capitalism; there are no “real products”: there are only socio-political relations of production. As a matter of fact, even bourgeois economists must accept this fact eventually – that is to say, the political nature of money and of “things” or products or “goods” be they “consumable output” or “factors of production”. Let us see how Wicksell deals with this Kantian antinomy or dichotomy between the “veil of money” and the “real world” of products it represents.

It is possible for a considerable difference between the uncontrolled rate and the contractual rate to persist, and consequently for entrepreneur profits to remain positive or negative, as the case may be, for a considerable period of time. It has already been mentioned that this possibility arises out of the fact that the transfer of capital and the remuneration of factors of production do not take place in kind, but are effected in an entirely indirect manner as a result of the intervention of money. It is not, as is so often supposed, merely the form of the matter that is thus altered, but its very essence.

For Wicksell, then, quite correctly, the intervention of money in the exchange of goods in a capitalist economy is something that transforms that exchange not just in “form” but also and above all in its very essence. But what does he mean by “essence”? If indeed transactions in a capitalist economy took place “in kind”, through a simple exchange of “things” or goods, then there could only be one “rate of interest” in the economy – the “natural” or “uncontrolled” rate. Unfortunately, due to “the intervention of money”, there is a rate of interest – the money or “contractual” or “controlled” rate – that is monetary in form and that can diverge from the “natural” or “uncontrolled” rate.

Yet, if money constitutes an “essential” departure from the “real” economy, from the “natural” economy, it is because money plays an “essential” role in a capitalist economy. The question then becomes: why is money “essential” in a capitalist economy, and how is it essential?

But money, which is the one thing for which there is really a demand for lending purposes, is elastic in amount.1 Its quantity can to some extent be accommodated—and in a completely developed credit system the accommodation is complete—to any position that the demand may assume.

We can see quite clearly here that Wicksell tries to explain “how” the monetary rate of interest differs from the natural rate: - it is because “there is really a demand [for money] for lending purposes”. But clearly he does not explain “why” “there is really” such a demand for money! Wicksell bundles together the empirical “observation” of the existence of money in a capitalist economy with the scientific explanation of why money is necessary to a capitalist economy. Why is money “needed” in a capitalist economy? Wicksell proffers no answer, and he merely uses the “existence” of money as an explanation for its existence. Now, I may know that something works. But does that tell me why it works? Hows often serve to conceal whys and wherefores.

The two rates of interest still reach ultimate equality, but only after, and as a result of, a previous movement of prices. Prices constitute, so to speak, a spiral spring

136 INTEREST AND PRICES

which serves to transmit the power between the natural and the money rates of interest; but the spring must first be sufficiently stretched or compressed. In a pure cash economy, the spring is short and rigid; it becomes longer and more elastic in accordance with the stage of development of the system of credit and banking.

The nature of the natural rate of interest on capital, and the causes that are responsible for determining its level, should by now have been made sufficiently clear—on the assumption, of course, of universally free competition. No distinction has been made between the original (uncontrolled) rate of interest and the contractual (lending) rate of interest.

P.135, top:

In dealing with most economic questions, it is legitimate to make this simplification. For the difference between the two rates, which constitutes the entrepreneurs' profit as such, constantly tends towards zero under the influence of competition among entrepreneurs; or at least it tends towards a certain small amount which is not very different from zero. There is only one case in which the difference cannot be neglected. This arises when it is a question of a change in the average level of commodity prices expressed in money. For such a change takes its real origin in the existence of such a difference between the two rates of interest. This has already been explained, and will now be dealt with in a more systematic manner.

In other words, if transactions took place only in kind, then there would be only one interest rate. But because money intervenes, then prices of commodities can diverge from “real” prices. Yet, the objection to this thinking is obvious: if transactions took place “in kind”, then there could absolutely be no “prices” attaching to commodities because each exchange would be sui generis, absolutely and utterly unique – one apple for two pears, one pear for half an apple…. In other words, there would be simple “barter” but no “prices”!

Actually the complications are greater. We have been making the implicit assumption that the relative values of commodities in exchange remain unaltered. But they are, of course, affected by the change in the conditions of production, and they in their turn exert an influence on the conditions of production. The only scientific method of dealing with the problem consists in paying simultaneous regard to all these factors, in the manner first demonstrated very clearly by Leon Walras.1

But “simultaneity” of exchanges does not resolve the problem of price. Certainly, simultaneity ensures the certainty of calculating the relative rates of exchange between commodities and their expression in a numeraire. But once again this “simultaneity” does not yield “prices” – it gives us only instantaneous ratios in terms of a chosen commodity. The “timelessness” of the equated “values” ensures that these “values” are entirely meaningless (this was the kernel of Hayek’s early critique of Walrasian equilibrium). Therefore, such a simultaneous calculation of exchanges only gives us, as Wicksell rightly notes, “the relative values of commodities” – relative to one another at a fixed moment in time – but it will never reveal the “value” of the commodities as a common “property” that can be expressed in a “price” that is “separate” from the exchange ratios of commodities. For there to be “prices” that can express economic value in monetary terms, the commodities exchanged must be commensurable: they must have a common property that makes them equivalent, a common property that can be expressed in a universal “price”, not in a numeraire. Because the notion of “economic equilibrium” can yield only a numeraire, it is a purely formal mathematical equation that does not reveal the material “content” of economic activity. And money, far from being a “veil” or a convenient means of exchange, just a “token” – money is in fact the very embodiment of this “material content”, of this common property, of this “value”. What can that common property be?