Changes in the value of gold and silver, as money commodity, relative to the value of other commodities, are necessarily limited. Only if gold is replaced by silver is any significant change likely, or, for example, where new gold discoveries brought large supplies of gold at a much lower value. But, as Marx describes, this is not true with money tokens. They can be increased in quantity without limit, and, whereas the quantity of gold in circulation is a function of its value, by contrast, the value of money tokens is a function of the quantity of them put into circulation. So, now, the general price level can be increased or decreased, irrespective of the value of gold, but simply on the basis of an expansion or contraction of the currency.
“If the value of an ounce of gold falls or rises in consequence of a change in the labour-time required for its production, then it will fall or rise equally in relation to all other commodities and will thus for all of them continue to represent a definite volume of labour-time. The same exchange-values will now be estimated in quantities of gold which are larger or smaller than before, but they will be estimated in accordance with their values and will therefore maintain the same value relative to one another.” (p 67)
So, it is impossible to have an absolute measure of exchange-value/price, but nor is such an absolute measure required.
“The fact that, because of the changing value of gold, exchange-values are represented by varying quantities of gold does not prevent gold from functioning as the measure of value, any more than the fact that the value of silver is one-fifteenth of that of gold prevents silver from taking over this function.” (p 67)
However, when paper money tokens are introduced, the potential for their limitless expansion means that the value of each token can fall also without limit, resulting not only in high levels of inflation, but also hyperinflation, such as seen in Weimar, and in recent times in Argentina, Zimbabwe and elsewhere. Under these conditions, the currency itself can cease to function, because it relies on trust that the owner of the money tokens can obtain the equivalent of the universal social labour-time the token purports to represent, and that ceases to be the case. This is also why crypto-currencies can never function as currency, because they are not commodities/use values, and have no value, their price being a function only of gambling causing wide swings, meaning, at any time, their price can go to zero, and probably will.
“Labour-time is the measure of both gold and commodities, and gold becomes the measure of value only because all commodities are measured in terms of gold; it is consequently merely an illusion created by the circulation process to suppose that money makes commodities commensurable. On the contrary, it is only the commensurability of commodities as materialised labour-time which converts gold into money. (p 67-8)
And so, in times of high levels of inflation, and hyperinflation, no one wants to hold the currency, and, instead, they seek ownership of other commodities. Typically, that takes the form of demand for gold and silver, other precious metals, or durable, high value commodities, like diamonds and other gems. But, it also takes the form of demand for consumption goods, particularly those that are more durable, such as canned goods, on the basis that the price of them will be higher a week later. The opposite to that happens in periods of deflation.
With fiat currency, both can be self-reinforcing. In times of high inflation, consumers increase current demand, which, in turn, leads suppliers to raise prices, and also to increase production, meaning they demand inputs, causing those input prices to rise. Central banks increase liquidity so that these higher prices can be passed on by firms without squeezing their profit margins. In times of deflation, consumers reduce demand, causing commodities to be overproduced, and firms to reduce output, money flows into other avenues, such as speculation in assets, which, in turn drains liquidity from general circulation.
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