And so, as Marx says, whilst too much gold in circulation simply results in its withdrawal from circulation, this cannot be the case with paper money tokens, which have no intrinsic value. And, because these paper money tokens have no intrinsic value, and simply represent a given amount of gold – or in reality, a given amount of social labour-time – the value of each note is then determined not by its own intrinsic value, or even by the quantity of gold (social labour-time) it nominally purports to represent, but by the quantity of such notes put into circulation. If the gold that would have circulated is equal to £1 million, then paper notes with a face value of £1 million must replace it, but, because the paper notes cannot be automatically removed from circulation, if more are put into circulation they stay there, and the value of each note is then depreciated.
“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.
The intervention of the State which issues paper money with a legal rate of exchange – and we speak only of this type of paper money – seems to invalidate the economic law. The State, whose mint price merely provided a definite weight of gold with a name and whose mint merely imprinted its stamp on gold, seems now to transform paper into gold by the magic of its imprint. Because the pieces of paper have a legal rate of exchange, it is impossible to prevent the State from thrusting any arbitrarily chosen number of them into circulation and to imprint them at will with any monetary denomination such as £1, £5, or £20. Once the notes are in circulation it is impossible to drive them out, for the frontiers of the country limit their movement, on the one hand, and on the other hand they lose all value, both use-value and exchange-value, outside the sphere of circulation. Apart from their function they are useless scraps of paper. But this power of the State is mere illusion. It may throw any number of paper notes of any denomination into circulation but its control ceases with this mechanical act. As soon as the token of value or paper money enters the sphere of circulation it is subject to the inherent laws of this sphere.”
(ibid)
In other words, this does not change the underlying law that the amount of money in circulation is determined by the laws previously described. More money cannot be created simply by putting more paper notes into circulation at a given nominal value, which is what was thought by John Law, the Pereire Brothers, or today by MMT. Putting more money tokens into circulation simply devalues each token leaving the amount of money they represent in total the same. However, because each note bears on its face a standard of prices, such as £1, €1, $1 and so on, the consequence of this devaluation of the note itself necessarily implies a modification of prices denominated in that given standard. It is the same as if gold had been replaced by silver, with a consequent modification of the nominal prices measured in it.
“Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for a total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it was brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise of prices would be merely a reaction of the process of circulation, which forcibly placed the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.”
(ibid)
No comments:
Post a Comment