RESULTADOS Tabla

Smith, whilst supporting banking school arguments, has informed more general capitalist theory. Smith outlined the origin of money and its role in advancing the division of labour through transcending the inefficiency of barter (Smith [1776] 2003). Metallic money became the ideal form and this led to state-minted coins based on weight and finesse. The state was able to provide legitimacy, harmonisation and efficiency to the weighing and assaying functions. In this sense, for Smith (and Hume), the state has an indispensable role in the creation of (commodity) money yet the origin and nature of money are market-driven from mining. Smith then explained how as coins circulated a system of nominal prices was established once the coin denominations had been established. Price (or exchange value) theory is significant in the thesis since one of the key objectives is to identify the factors affecting the purchasing power of money. Smith formulated the classical theory of exchange values/ratios that was principally determined by the labour content as the regulating factor. If

62 _{They had accepted bank deposits as money, which was not accepted by the currency school at time but is now}

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nominal prices were to deviate from their natural price in the short term, competition would eventually render the natural price. It is contended in the thesis that the labour value of produce is an important underlying driver of the exchange ratios in an economy, notwithstanding the existence of market forces that appear to drive price (see 5.4).

Smith had ambiguity between his treatment of labour value in production and the labour value in exchange, in his non-recognition of the Marx notion of surplus value in order to explain profit (Ormazabal 2004) [see 5.5]. When the profit of a firm is added to the calculation, the exchange-price exceeds that of the labour value. Marx resolved the dilemma by identifying that profit is extracted from the labour used in producing the output. Surplus value, for Marx, is the difference between the labour value added to commodities by living labour and the value of the wage (see 5.5). Marx argued that the existence of profit does not add value to a commodity, since profit merely exists in the form of (realised) surplus value (Ormazabal 2004). In contrast, the mainstream view of economic history still maintains that Smith realised the error of the labour theory of value. Yet Smith’s description of the ‘invisible hand’, has contributed definition to the logic/apologetics of free markets and resource allocation in capitalism. Zarlenga claims that Smith’s support for the banking school, with their policy of less state regulation of credit issue, can be seen as an attempt to divert attention from the existence of profiteering private banks. The banking sector, consequently, accumulated financial power as the capitalist system evolved (Zarlenga 2002). The counter to this view of Smith is that credit responds to demand and the needs of the real economy, and so the private source of credit is not a problem. Smith defended his theoretical position towards credit provision with reference to his ‘real bills’ theory.

Banknotes that were superfluous to the channel of circulation, according to Smith, were converted to gold and exported for the purchase of imports, rather than raising prices (Itoh 1999: 18). Also, the advance of credit did not increase the capital of an economy directly, through instigating fresh production (a re-statement of the neutrality of money), it speeded the process of capital turnover through creating efficiencies. Money stocks for the different stages of production were therefore not needed, with their associated administration (and opportunity) costs. Subsequently, Smith felt that banks should advance to capitalists the precise amount that they would have kept as precautionary funds. If they were to advance any more they would discover that notes return faster than usual and the bank would need to keep high levels of reserves in order to meet demand for specie, reducing their profitability. To

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counteract this, the bank should, when they discounted bills of exchange (trader IOU’s), only advance to the merchants the amount they need according to commercial requirement, so their number was moderated by the real nature of the bills. These real bills represented production and trade, and so any credit monies created were backed by this economic activity. Smith anticipated that equilibrium would exist as a result between commodities and credit monies. Henry Thornton contested Smith’s bills doctrine. Thornton adhered to the quantity theory but recognised different money forms had different circulation velocities, and it was difficult to talk of a necessary quantity of money. Thornton attacked the distinction Smith had made between ‘fictitious’ bills and ‘real’ bills, since capitalist sales limited the ‘real’ bills. Thornton posited that it was creditworthiness that mattered most to banks. One set of goods may give rise to several ‘real’ bills as they pass between traders. Thornton argued instead that it would only be the reflux that limited banknote issue and that credit expansion levels were linked to the relationship between the varying rate of interest and rate of profit. Thornton thought that money had an instigative function, in terms of production, and saw no natural limit to credit expansion, and the level of output (Itoh 1999: 21). Smith’s objective was enhanced regulatory capacity for the state (i.e. credit impact), to moderate the allocation of credit and prevent excessive fiduciary issue. In this sense, Smith argued that the state should be able to determine the level and the allocation of bank credit, as in the UK in the 1950s (see 10.5), and prevent financial market credit that feeds financialisation (see 11.2).