The existence of credit, going back almost as far as the existence of money, shows that it is not necessary to have money founded on some physical commodity, as proponents of the Gold Standard suggest. Money is a claim to a quantity of social-labour-time, and any accepted token representing such a quantity can act as money. The question with any such token is the extent to which it is actually accepted as a guaranteed claim to such labour-time Gold acted as a suitable money commodity because it had all of the required characteristics. It had value, and so could express exchange-value; it had a lot of value contained in relatively small volumes, so that it was portable and storable; it was durable; it was more or less homogeneous and divisible. The role of a money commodity, such as gold, is to enable the commodity seller to obtain this claim on a quantity of labour-time in the absence of credit/trust. But, in reality all that a quantity of gold or silver says is, “Here I am, I represent an amount of social labour-time”. It is only on this basis that it functions as money. Provided there is credit/trust, this actual quantity of gold or silver need never be physically present. In that case, the money commodity only acts in its role as unit of account, as proxy for a given quantity of abstract labour.
But, it is also for this reason that a gold or silver coin need not physically contain the quantity of precious metal it represents – which, in turn, is only a proxy for a given amount of social-labour-time. The gold or silver coin acts only as a token, a representative of this quantity of gold or silver. Provided there is sufficient trust/credit, that the amount of value/claim on social labour-time, represented by the coin or other token will be honoured then such tokens can circulate, and so act as currency, even if they comprise, in themselves, virtually no value. They can be made of base metal, paper or plastic. As Marx says,
“In the course of circulation some gold coins have lost more of their metal content, others less, and one sovereign is now indeed worth more than another. Since they are however equally valid while they function as coin – the sovereign that weighs a quarter of an ounce is valued no more highly than the sovereign which only represents a quarter of an ounce – some unscrupulous owners perform surgical operations on sovereigns of standard weight to achieve the same result artificially which circulation has brought about spontaneously in the case of lighter coins... When 4,672½ gold sovereigns placed on the scales weigh on the average only 800 ounces instead of 1,200, they will buy only 800 ounces of gold on the gold market: in other words, the market-price of gold has risen above the mint-price. All sovereigns, even those retaining the standard weight, would be worth less as coin than in the shape of bars...
In so far as a gold coin in circulation is worth a quarter of an ounce, whereas it weighs only a fifth of an ounce, it has indeed become a mere token or symbol for one-twentieth of an ounce of gold, and in this way the process of circulation converts all gold coins to some extent into mere tokens or symbols representing their substance...
The names of coins become thus detached from the substance of money and exist apart from it in the shape of worthless scraps of paper. In the same way as the exchange-value of commodities is crystallised into gold money as a result of exchange, so gold money in circulation is sublimated into its own symbol, first in the shape of worn gold coin, then in the shape of subsidiary metal coin, and finally in the shape of worthless counters, scraps of paper, mere tokens of value...
How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given...
The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.”
(A Contribution to the Critique of Political Economy)
A 1 ounce gold coin may, initially, have a value equal to 100 hours of labour, and so represents a claim to 100 hours of social labour. If this coin, and all others like it, are replaced with an equal number of coins, but now comprised of base metal, they continue to represent the same claim on social labour-time. It is not this physical debasement of the currency that results in the value of each coin/note being devalued, but the increase in quantity of them thrown into circulation. Throwing more money or credit into circulation does not increase the amount of value in the economy, because that can only be increased by increasing the labour undertaken. The quantity of currency in circulation, with a given velocity of circulation, cannot exceed the total value of commodities to be circulated. In other words, the equivalent form of that value cannot exceed the value of the commodities for which it is the equivalent. They are tautologically the same. Increasing the quantity of money tokens simply reduces the value of each token, making it represent a smaller quantity of the total social labour, so that the money prices of commodities rise – inflation. Each token is devalued as a unit of account.
This becomes obvious, and the nature of the commodity fetishism clear, if we follow Marx in looking at the operation of The Law of Value in other modes of production. In the primitive commune, it is not only production that is direct, but also its distribution. The commune decides what it will produce, allocates labour and resources to it, in the proportions determined by The Law of Value, and, having produced it, collectively consumes what it has produced. There is no mystery, here, for the commune, in determining the value of its production, even if it does not, and has no need to, stick that particular label on it. The commune may indeed only use the label “value” or “worth” in relation to this production to signify its use value. As Marx says, this is the etymological derivation of the word value. But, the commune is in no doubt that its value, in the Marxian sense, i.e. the labour-time required for production, exerts this inevitable constraint on what it can produce, and in what proportions it can produce, as dictated by The Law of Value.
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