Theories of credit money in Japanese Marxian economics: 3 Commodity theory of money in modern Uno theories

C. Commodity theory of money in modern Uno theories

 

C.1 Credit money as commodity money

Obata, a current representative theorist of modern Uno school, explains “commodity money in a broad sense” in his textbook of the principle of political economy:

The commodities have specific use-value, such as linen and coat. There is no general use-value. Since the commodity has some “specific” use-value, its “general” exchangeability for others is constrained. Conversely, as long as a commodity is “valued,” any commodity has the qualification to become money potentially, that is, the nature of money. Therefore, money is a special commodity based on the nature of money inherent in commodities. The position to think this way is the commodity theory of money. The theory of the value-form of the commodity inevitably reaches the commodity theory of money (Obata [2009] p.44).

 

Commodity money consists of material money and credit money. The material money is defined as follows:

Material money is the money which the physical body of the specific commodity becomes as it is (ibid., p.45)

　

Obata explains the credit money as follows:

The commodity theory of money is often said to consider only material money or metal money as money. However, it is a misunderstanding that arises from equating commodities with things. Originally, commodities are in a particular state of things with use-value for others and always have value on the backside. The commodity theory of money explains money on the basis of the value of commodities. The theory does not argue that money is made of physical material without the value of commodities. Commodity money includes material money but is not reduced to it. Then, the commodity value can be externalized and self-supporting in the form of a monetary claim. The credit is money becoming self-sustaining in the form of a claim (ibid., pp. 46-47)

Theoretically, all the commodities express their value by one thing, and their exchangeability concentrates on the same thing. The thing becomes commodity money. Nevertheless, money can take two forms: material money and credit money. Marx and Uno have explained the material money sufficiently. Obata discusses the polymorphism, that money takes multiple forms, in Obata [2013]. Although he shows the basic concept of credit money, he does not sufficiently succeed in a detailed argument.

He classifies multiple forms of money as follows:

ibid., [2009] p. 48

 

  Importantly, commodity money consists of material money and credit money. Currently, the fiat money does not circulate except auxiliary money in a limited amount. Chartalist money stands on the chartalist theory of money. Obata explains the :

The idea opposed to the commodity theory of money is the chartalist theory of money. The chartalist theory assumes that even non-commodities can be thrown as money from outside the market. If the material of the chartalist money is paper, it is the state paper money. However, regardless of material, it is widely called fiat money. The theory that the agreement of people can create money independently is a kind of the chartalist theory.  Because credit money and state paper money are usually made of the same material, paper, they are grouped as paper money, opposed to metal money. However, it is a mess due to the appearance of money. The commodity theory of money can explain both material money, including metal money, and credit money. On the other hand, fiat money, including state paper money, stands on the chartalist theory of money and is conceptually different from credit money (ibid., pp. 47-48).

From the above quotation, the meaning of Fig. C-1 is clear.

Here, let us develop the theory of credit money backed by the issuer’s assets. It continues from (4) the way to ​​“cut off with commodity money” at the end in section B. The structure of credit money be illustrated in the balance sheet as follows:

Fig. C-2

Because credit money is issued by bank lending, the bank holds a claim on the borrower. The borrower has assets that guarantee repayment. The assets may be commodities for sale, production means generating revenue, or the ability to receive wages or tax revenues. It is easy to show the basis of the value of credit money in this static manner.

However, it is challenging to elucidate the logical genesis of credit money, as with the value-form theory. Currently, theorists of the Modern Uno school propose several methods to elucidate credit money’s genesis based on the value of a set of multiple commodities without gold or fiat money.

 

C.2 Determination of the level of interest rate

Credit money is issued by banks, which are a kind of capital pursuing valorization. Therefore, the interest rate should be where banking capitals can gain the general rate of profit. Here, Obata shows the relation between the interest rate and profit rate as follows:

 

Bank net profit rate = {(Q × i - Q' × i' ) – k – d } / P

= the general rate of net profit of industrial capitals       

 

Where: Q is loan quantity, i is lending interest rate, Q’ is deposit quantity, i’ is deposit interest rate, k is circulation cost (various expenses in bank business ), d is bad debt loss, and P is bank’s equity capital (ibid., p. 238)

 

The interest rate is determined, so that bank’s profit rate in this formula is at the same level as the general rate of profit of industrial capitals. In this way, the mechanism of money creation can be explained in a self-contained manner in the capital pursuing profit. However, to fully understand this relationship, it is necessary to know the circulation cost, net profit rate and gross profit rate, and downward dispersion of net profit rate, which modern Uno theories propose.