Capital III, Chapter 19 - Part 4

Because the world money has always been comprised of gold and silver – in the 1970's, when it looked like the global monetary system might collapse, as the system of fixed exchange rates, established at Bretton Woods, fell apart, gold once again, de facto, assumed this role; its price rising from $30 an ounce in 1971, to $800 an ounce in 1980 - the goldsmiths were always best placed to take on this function.

“Goldsmiths acted as bankers still during the greater part of the 17th century in England.” (p 318)

As set out in Capital I, one function of this world money was to settle the balance of international payments, between countries. But, also as set out there, the countries that produced the precious metals also supplied them to the commodity producing economies in exchange for those commodities. As described in Capital II, this is the means by which money is originally created, and enters circulation.

Marx says, he will leave aside the other means by which these international payments balances were resolved, through various financial instruments. All of these amount to nothing but international forms of credit, which only defer the actual settlement of accounts via a transfer of value.

In Capital I, it was described how the money-commodity, as the universal equivalent form of value, thereby gives up its own exchange value. It is meaningless to describe the exchange value of £1 as being £1. Money's exchange value can only be expressed in terms of the totality of all the other commodities whose value it expresses as their equivalent.

But, that is not true of world money. £1 can be expressed as $1.71, €1 can be expressed as £0.79, Y100 as $1 and so on.

“National money discards its local character in the capacity of universal money; one national currency is expressed in another, and thus all of them are finally reduced to their content of gold or silver, while the latter, being the two commodities circulating as world-money, are simultaneously reduced to their reciprocal value-ratio, which changes continually. It is this intermediate operation which the money trader makes his special occupation. Money-changing and the bullion trade are thus the original forms of the money trade, and spring from the two-fold functions of money — as national money and world-money.” (p 318-9)

This was true, so long as national currencies were actually measured against gold and silver, as was the case in the earlier part of the 19th century, but alongside Britain's economic hegemony went the role of Sterling as world-money, effectively replacing the role of gold, even during the period of the Gold Standard. That was even more true when the Dollar assumed the role of reserve world currency. The value of the dollar was fixed at $30 to the ounce of gold, even though the quantity of dollars printed, in the 1960's and 70's, to cover government expenditure, on the Vietnam War, and the expansion of welfare programmes, such as Johnson's “Great Society”, expanded rapidly.

It was this change in the value of paper dollars, rather than any significant change in the value of gold, that caused the price of gold to rise to $800 an ounce. But, there is no reason for national currencies to be measured against each other in terms of gold. In fact, speculative demand for gold and silver causes such variations in their market price as to probably make such comparisons meaningless.

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