Capital II, Chapter 17 - Part 12

It might be thought that if only an amount of gold is imported that is equivalent to goods exported, here linen, this will not be enough to provide all the money required to circulate the mass of commodities within the economy, let alone to pay for imports of commodities from other countries. However, two things have to be born in mind here. Firstly, the amount of gold required for circulation is only a fraction of the total value of commodities because of the velocity of circulation. Secondly, the gold once put into circulation, remains there from year to year, only minus the wear and tear. The only gold needed to be imported then is that to replace the gold worn out.

“According to our assumption the annual production of gold, £500, just covers the annual wear of money. If we keep in mind only these £500 and ignore that portion of the annually produced mass of commodities which is circulated by means of previously accumulated money, the surplus-value produced in commodity-form will find in the circulation process money for its conversion into money for the simple reason that on the other side surplus-value is annually produced in the form of gold. The same applies to the other parts of the gold product of £500 which replace the advanced money-capital.” (p 342)

Here we can treat this as if all the money required had to be produced each year. This gold is produced by workers, who provide all of the money spent by capitalists, either to replace constant capital, to cover wages, or the capitalists' expenditure of surplus value. But, this gold also reproduces the constant capital, and the variable capital, as well as providing the surplus value of the gold producer.

In the first instance, the advance of capital was made by the gold producer to buy constant and variable capital, but, once the gold has been produced, and sold, the return of this value amounts to the workers producing or maintaining the means by which production continues.

“The advance on the part of the capitalist appears here, too, merely as a form which owes its existence to the fact that the labourer is neither the owner of his own means of production nor able to command, during production, the means of subsistence produced by other labourers.” (p 342)

Changes in the rate of turnover mean that the amount of money-capital required varies, and so there has to be some elasticity in the money supply. This is achieved through fluctuations in the amount of money in circulation, and that held in hoards and reserves. But, as demonstrated above, changes in the rate of surplus value i.e. changes in the division of the total social labour between wages and surplus value, has no effect on the amount of money required.

Suppose we have an economy where we have only a division between wages and surplus value i.e. we discount constant capital. The total value of output is £5,000 divided £2,000 to wages, and £3,000 to surplus value. Wages rise to £4,000. But, by the same token surplus value falls to £1,000. The total amount of value has not changed, no more nor less labour-time has been expended.

Consequently, the amount of money required remains the same. True, the capitalist now needs to lay out £4,000 of money-capital compared to £2,000 previously, but now, only £1,000 of money is required to realise the surplus value, to be spent by the capitalist, rather than the £3,000 required previously. This is why as Marx, Ricardo and Smith (in some of his writings) recognised, it is not wages that determines prices, or wage rises that cause inflation.

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