Marx´ Critique of the Currency Principle

Abstract

The goal of this paper is to rescue the critique of Marx of the Currency Principle from its current oblivion. The ideas of Marx are extraordinarily interesting both from a theoretical and from a practical standpoint, as the theory of the Currency Principle remains right up today the theoretical basis of the restrictive monetary policies periodically applied by central banks in order to “stabilize the economy”, “contain inflation” and correct “excessive money creation”. The core of the Currency Principle was the principle that the central bank had to contract the circulation of banknotes “pari passu” with the contractions of the gold reserve. Marx contends, in agreement with the Banking School, that such a principle rests on a defective monetary theory and that it creates an artificial scarcity of means of payment; this drives up the interest rate to a level that is higher than that naturally required to liquidate the periodic overproduction brought about by the capitalist system.