The process by which this one commodity becomes separated out, to act as the general commodity, the universal equivalent, or money commodity, varies from place to place. But, the general requirements for such a commodity, everywhere, ultimately, leads to the use of precious metals to fulfil this function. The very fact that many different commodities, however, have functioned as the money commodity, itself shows that there is nothing specific about gold which makes it money. Money is not gold (or silver or any other commodity) but is merely a quantity of abstract labour-time. The owner of money is the owner of a quantity of abstract labour-time, and thereby has command over it. What form this ownership takes – the form of a commodity, or gold or silver, or of a certificate – in theory, does not matter.
In practice, of course, it does matter. All commodities, as exchange-values, are money, but not everyone will accept every commodity as money. That is the limitation of barter. Moreover, one function of money is that it is a store of value, but commodities that are perishable, cannot easily fulfil that function. A certificate, be it a paper certificate, such as a bank-note, or some other money token, such as a gold coin, only acts as money so long as everyone has confidence that the claim to a quantity of social labour-time they represent will be honoured. A gold coin may have a nominal value that denotes a particular weight of gold, which, in turn, represents a given quantity of social labour-time, but, in fact, the coin will always contain less gold than its nominal value, either because of normal wear and tear, or deliberate debasement. That didn't matter, so long as the quantity of coins put into circulation continued to be limited. However, debasement of the coins, as a means of putting more of them into circulation, acted to devalue the coins, as against their nominal weight and value.
“As a result of an historical process, which, as we shall explain later, was determined by the nature of metallic currency, the names of particular weights were retained for constantly changing and diminishing weights of precious metals functioning as the standard of price. Thus the English pound sterling denotes less than one-third of its original weight, the pound Scots before the Union only 1/36, the French livre 1/74, the Spanish maravedi less than 1/1,000 and the Portuguese rei an even smaller proportion. Historical development thus led to a separation of the money names of certain weights of metals from the common names of these weights.”
(A Contribution To The Critique of Political Economy, Chapter 2, p 72)
The fact that these gold and silver coins could continue to function as money tokens, even when the actual weight and value of the coin was less than its nominal weight and value, was the basis upon which these metal coins could be simply replaced by base metal coins, and paper notes. But, that also meant that it was easier for the state to throw more of these money tokens into circulation. On the one hand, this has the effect of raising the general price level, to avoid deflation, and, at the same time, it has the benefit, for the state, of being able to repay its debts in the devalued currency.
Provided this devaluation of the currency is kept within bounds, it poses no problems. If wages, profits, rents, interest and taxes rise more or less synchronously with commodity prices, the devaluation of the currency simply means that the unit of measure has changed, as with measuring distance in yards rather than metres. As productivity rose sharply, as a result of continued technological developments, and the introduction of Fordism, which continually, thereby, reduces commodity values, this continual devaluation of the currency is, in fact, necessary, to prevent commodity price deflation, which is detrimental to the profits of oligopolies, and also to avoid having to negotiate annual reductions in nominal wages, as the value of labour-power was reduced.
But, when the devaluation of the currency exceeds those bounds, problems arise. In the hyperinflation of the Weimar Republic, the devaluation of the currency reaches levels whereby people seek to hold their money in other forms, such as commodities or gold. In the 1970's, when the global currency markets looked like they might break down, following the break down of fixed exchange rates, which itself followed the printing of large amounts of dollars to pay for the Vietnam War etc., it looked for a time as though gold might resume its function as world money. It rose in price from $30 an ounce in 1971 to $800 an ounce in 1980. Unable to afford to hoard gold, at the time, with inflation around 20%, I instead chose to buy in as many cans of baked beans, and other such commodities, as possible, in the knowledge that they would be much more expensive in six months time.
The devaluation of many currencies over the last 30 years, has acted to create a hyper-inflation of asset prices, which encourages speculation and leads to other dislocations, for example, by pushing up the costs of shelter and pension provision, by draining money from real capital accumulation, and the creation of repeated financial crises, as bubbles burst, and with a subsequent impact on credit and commodity circulation.
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