In the 1980's, and 1990's, a huge rise in productivity resulted from the technological developments of the period, which themselves had been prompted by the labour shortages, and higher wages that squeezed profits in the 1960's and 70's, resulting in the crises of overproduction of capital, in the 1970's, and early 1980's.
This technological revolution, whose symbol was the microchip, brought about a period of intensive accumulation, in which new types of fixed capital, replaced labour. That meant that a relative surplus population was created, unemployment rose, and wages fell, enabling profits again to rise, thereby, ending the crisis of overproduction of capital.
The revolution in technology, brought about a massive moral depreciation of existing fixed capital, and all of the new fixed capital was not only much more productive, but also massively cheaper than the fixed capital it replaced, not only relatively, but in many cases, absolutely. For example, a PC costing around £500, in the mid 1980's, had as much power as a mainframe computer of the 1970's costing £2 million! Every small business was now able to computerise its accounts, payroll and stock control systems, in a way that previously only the largest companies could do. Even small engineering companies could introduce computer controlled lathes and milling machines, as well as introducing computer aided design. Word processors replaced typewriters, and photocopiers replaced printing machines. This large-scale depreciation of fixed capital, meant that there was a huge release of capital, and a massive rise in the annual rate of profit.
The surge in productivity, meant that much greater volumes of commodities could now be produced, and, the unit value of these commodities was now a fraction of what it had previously been. Using Marx's formula above, then, it can be seen that, if the average unit value of each commodity falls, then the amount of money in circulation must also fall, unless either a) the number of transactions, i.e. the volume of commodities to be circulated, at least, increases proportionately, or else the value of money falls more than the average value of commodities, or else the velocity of circulation falls.
It is certainly the case that the quantity of commodities produced, and so number of transactions undertaken increased hugely. As an indication of that, of all the goods and services produced in Man's entire existence, 25% of them were produced in the first decade of this century.
So, on the one hand, this huge increase in the volume of output would require more money in circulation, whilst the huge falls in the unit value of those commodities counteracts it. If we look at the unit prices of all these commodities, however, the number which actually fell is quite limited. In nearly all cases, it is the prices of newly introduced commodities that fell, as they became more mature.
In most part, the falls in unit prices came in the form of improvements in quality, a fact that led to the use of so called hedonic pricing for the calculation of GDP, productivity and inflation. Taking, say a pocket calculator, when they began to be introduced in the 1970's, they were relatively expensive, and basic. First, as they began to be produced and sold on a huge scale, the prices of them fell, but, then, rather than the prices continuing to fall by so much, they began to become much more powerful, offering more and more functions. A similar course can be seen with PC's, and later with other devices such as mobile phones, and, then, many of these devices simply became lumped together in one device, without any corresponding price increase. Today, we see the opposite phenomenon in the form of "shrinkflation" as the prices of various commodities rise by small amounts, whilst the actual commodity itself is reduced in quantity/quality.
For other things, such as cars, food and so on, it was not an actual fall in unit prices that occurred, but a fall relative to wages and other revenues, itself indicating the role of inflation. For, example, I was watching an episode of Dalgleish the other day, set in 1974, when a boy buys cod and chips for 50p. Today, it would cost you more than a fiver. Yet, compared to wages, and other revenues, food prices have fallen. Car prices have also risen, but not by as much as wages and other revenues, especially when comparing the cars of today with the crude, inefficient, rust buckets of the 1970's.
To put this another way, although money prices have risen, living standards have also risen, because money revenues increased faster than money prices. That is true, even in respect of wages, despite the fact that wages fell relative to profits and other revenues. That is because, whilst the gross product rose more than total values (lower unit values), the net product rose at a faster rate than the gross product, i.e. the surplus product, and surplus value rose at a faster pace, and was one of the foundations of a higher rate of profit, the other being the fall in the value of constant capital.
The value of gold, as with other commodities, will have fallen as a result of rising productivity, but there is no reason to think it would have fallen by more than that of other commodities. More significantly, the relation of the currency to gold has been broken. The currency, now, is merely a representation of a given quantity of social labour-time, and the quantity of currency in circulation required is, then, merely a function of it.
In other words, rather than each banknote claiming to represent a given quantity of gold – which itself was only a physical proxy for a given amount of social labour time, a primitive means of indirectly measuring value – each note may just as well say that it represents a certain quantity of social labour-time, a claim on society's products equal to that amount. So, the total amount of those notes, in circulation, can never have, as a total nominal value, an amount greater than their equivalent, the value of commodities to be circulated in the economy.
If more is put into circulation, then the consequence, as set out in Marx's formula, can only be inflation, a rise in unit prices, independently from values. Finally, the velocity of circulation is a function of the number of transactions, and of technical factors in relation to payments. A greater volume of transactions, and increased economic activity, will cause the velocity of circulation to rise, and similarly, as the mechanisms for payments and transmission of money – for example, use of electronic payments – become more efficient, so the velocity of circulation is increased.
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