Chapter Two – Money or Simple Circulation, Measure of Value - Part 14 of 14

The price of gold is also given in terms of this standard of prices, for example, $2,000 per ounce. When gold coins were in use, their prices were called the “mint price of gold”. During the period of The Gold Standard, currencies were fixed to the value of gold, and, after WWII, the reverse was the case, with the price of gold being fixed at $35 an ounce, for the purpose of convertibility. The ridiculous nature of that, but advantage it gave to the US, was that, as it devalued the $, by printing more and more of them, which it used to finance its wars in Korea, Vietnam and so on, as well as its Great Society welfarism, the value of the Dollar, compared to other currencies, remained fixed, via this artificial link to gold.

In 1971, when DeGaulle got fed up of this blatant exploitation, and demanded the US pay for French imports in gold, at the official exchange rate of $35 an ounce, Nixon ended convertibility of the Dollar to gold, and made it illegal for US citizens to own gold bullion. The ending of the fix, saw the price of gold soar to $800 an ounce in the following years. As Marx described it, more than a century earlier,

“Because as standard of price gold is expressed by the same names of account as the prices of commodities – for example £3 17s. 10½d. may denote an ounce of gold just as well as a ton of iron – these names of account are called the mint-price of gold. Thus the queer notion arose that gold is estimated in its own material and that, unlike all other commodities, its price is fixed by the State. The establishing of names of account for definite weights of gold was mistaken for the establishing of the value of these weights.” (p 74)

In fact, if gold is the money commodity, then, as with any other commodity, its value cannot be fixed, because its value continually changes with the labour-time required for its production, which is a function of social productivity. But, considering then what price is – exchange-value against the money commodity – it can have no price either, because a gram of gold could only have a price of 1 gram of gold!

“In order to have a price, in other words to be expressed in terms of a specific commodity functioning as the universal equivalent, this other commodity would have to play the same exclusive role in the process of circulation as gold. But two commodities which exclude all other commodities would exclude each other as well.” (p 75)

This is why bi-metal currency systems, using both gold and silver have always failed, because they attempt to treat them as the same, with some fixed relation between them, where no such relation can exist. The fact that we do have money prices for gold, as for all other commodities, and that this price continually fluctuates, is simply an indication that gold has ceased being the money commodity, and its link to currencies, as standard of price is broken. Currencies, now, simply represent a quantity of social labour-time, as the universal equivalent form of value, and the value of each currency unit is determined not by any relation to gold, but purely on the basis of the fractional proportional of total social labour-time it represents. Consequently, the more of such tokens thrown into circulation, relative to total social labour-time, the less the value of each token, and the higher the general level of prices – inflation.

Back To Part 13

Forward To Chapter 2.B Theories of The Standard of Money