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On the Necessity of Money in Smith’s Commercial Society and Marx’s Commodity Producing Economy

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  • Isabella Weber

    () (Peterhouse College, University of Cambridge)

Abstract

This paper argues that both Smith and Marx find money to be necessary for the specialization of individual producers and the regulation of social production by market exchange. Increasing returns to scale constitute an incentive towards individual specialization of production and social division of labor. However, specialization is conditioned on the ability of specialized producers to provide their needs by exchange. A stable equilibrium of individually diversified production can emerge when social norms or limits to exchange prevent specialization. Specialization under conditions of barter constitutes a highly unstable equilibrium since the specialized producers fail regularly to provide their needs by exchange. It tends to either collapse back into a diversified equilibrium or to give rise to a socially accepted general equivalent, i.e. money. Money greatly increases the strategic complementarity of specialization by providing sufficient exchange certainty and a relatively stable specialized equilibrium can emerge.

Suggested Citation

  • Isabella Weber, 2015. "On the Necessity of Money in Smith’s Commercial Society and Marx’s Commodity Producing Economy," Working Papers 1527, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1527
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    File URL: http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_272015.pdf
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