And, so it is quite clear that, once we accept the reality of fiat currency, then Roberts' argument that it is the value of commodities that determines the quantity of money supply, or correctly speaking currency supply, is seen to be quite clearly wrong. With fiat currency, the money supply appears as this supply of money tokens, and credit money that can be expanded at will by the monetary authorities.
“The rise or fall of commodity-prices corresponding to an increase or decrease in the volume of paper notes – the latter where paper notes are the sole medium of circulation – is accordingly merely a forcible assertion by the process of circulation of a law which was mechanically infringed by extraneous action; i.e., the law that the quantity of gold in circulation is determined by the prices of commodities and the volume of tokens of value in circulation is determined by the amount of gold currency which they replace in circulation. The circulation process will, on the other hand, absorb or as it were digest any number of paper notes, since, irrespective of the gold title borne by the token of value when entering circulation, it is compressed to a token of the quantity of gold which could circulate instead.
In the circulation of tokens of value all the laws governing the circulation of real money seem to be reversed and turned upside down. Gold circulates because it has value, whereas paper has value because it circulates. If the exchange-value of commodities is given, the quantity of gold in circulation depends on its value, whereas the value of paper tokens depends on the number of tokens in circulation. The amount of gold in circulation increases or decreases with the rise or fall of commodity-prices, whereas commodity-prices seem to rise or fall with the changing amount of paper in circulation. The circulation of commodities can absorb only a certain quantity of gold currency, the alternating contraction and expansion of the volume of money in circulation manifesting itself accordingly as an inevitable law, whereas any amount of paper money seems to be absorbed by circulation.”
(ibid)
When Roberts says that the quantity of money in circulation is determined by the value of commodities to be circulated, this is correct, for the reasons Marx outlines in the passages above, but this is not the case in relation to the money tokens in circulation, be they coins or paper notes, again for the reasons that Marx sets out in the passages above, and again, for the reasons he describes, because the standard of prices is given by the face value of these tokens, although the value of commodities in circulation, and the money required to circulate them is not changed, the prices of those commodities, are most definitely changed as a result of increasing the quantity of those money tokens, relative to the money they represent. That applies whether that takes the form of more money tokens being put into circulation, relative to the money they represent (inflation), or fewer (deflation).
“One finds a number of occasions in the history of the debasement of currency by English and French governments when the rise in prices was not proportionate to the debasement of the silver coins. The reason was simply that the increase in the volume of currency was not proportional to its debasement; in other words, if the exchange-value of commodities was in future to be evaluated in terms of the lower standard of value and to be realised in coins corresponding to this lower standard, then an inadequate number of coins with lower metal content had been issued. This is the solution of the difficulty which was not resolved by the controversy between Locke and Lowndes. The rate at which a token of value – whether it consists of paper or bogus gold and silver is quite irrelevant – can take the place of definite quantities of gold and silver calculated according to the mint-price depends on the number of tokens in circulation and by no means on the material of which they are made...
The rise or fall of commodity-prices corresponding to an increase or decrease in the volume of paper notes – the latter where paper notes are the sole medium of circulation – is accordingly merely a forcible assertion by the process of circulation of a law which was mechanically infringed by extraneous action;”
(ibid)
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