A Contribution To The Critique of Political Economy, Chapter 1 - Part 19 of 29

The exchange-value of every commodity, expressed as a quantity of the money commodity, is its money price, but, then, this money price must change, not only as a result of changes in the value of the individual commodities, but also the value of the money commodity, which now acts as its indirect measure. Suppose gold is the money commodity, and 1 gram of gold has a value of 10 hours labour. Suppose that 1 metre of linen has a value of 10 hours labour, as does 1 litre of wine, and a bible. The price of each of these commodities is expressed as 1 gram of gold, and if this gram of gold is given the name £1, then the price of each of these commodities is £1.

Now, if the value of linen rises to 12 hours, its price becomes £1.20. The same applies to all the other commodities whose price is expressed in grams of gold. But, the price of wine may fall to £0.80, if productivity in wine production rises, so that a litre of wine represents only 8 hours of labour. Similarly, if the productivity in all spheres remains constant, other than in gold production, the prices of all these commodities will rise, even though their values have not changed. Their price will change solely, because the value of gold, which indirectly measures their value, has changed. This is the difference between a change in the value of the money commodity, which affects all prices (inflation/deflation), as against a change in the value of individual commodities.

So, when Spain established colonies in South America, and brought back large quantities of looted gold and silver, this acted to inflate money prices of commodities in Spain. Inflation is a monetary phenomenon.

The same thing happened when gold rushes, in California and Australia made available large supplies of gold with a lower value. Earlier, it was said that, if the total value of commodities produced and circulated, in an economy, is equal to 1 million hours of labour/social labour-time, then its money equivalent, the other side of the equation, must also be equal to 1 million hours of social labour-time. That is tautologically true, because the money is the equivalent form of that value. If gold is the money commodity, and a gram of gold has a value of 100 hours of social labour, then 10,000 grams of gold is the equivalent form of the value of all this production, and if a gram of gold has the name £1, then the total price of this production is equal to £10,000. It doesn't mean that this equivalence requires the presence of 10,000 grams of gold.

Money, here, acts only as unit of account. I can look in my store room, and assess the value of its contents, without needing actual gold to compare it against, to measure it as so many £'s. It is idealised money/prices.  This is the difference between money and currency.  Currency must always take the form of the money commodity or else tokens/credit acting as its representative.  As currency, and part of the exchange C - M, or M - C, it must be physically present, and occurs separate from, and after idealised prices have been established by money acting as unit of account.  Indeed, as Marx sets out in Theories of Surplus Value, Chapter 17, this difference between money as unit of account, and money as currency/means of payment and circulation is one of the potential causes of crises of overproduction.

However, as a result of the gold discoveries, a gram of gold has a value of, say, only 80 hours labour, 12,500 grams of gold is now the equivalent form of the 1 million hours value of production, and would be required to circulate it. The name £1, for each gram of gold, would remain (as Marx sets out later, these names were originally derived from weights of the given metals), so that, even though the value of production has not changed, the total of prices would now rise to £12,500.

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