It would clearly be ridiculous for someone with a devalued gold sovereign coin containing ⅛ ounce of gold to be able to buy with it the ¼ ounce of gold that the sovereign represented. Yet, this was the money illusion that many economists fell into, in trying to equate prices with money, rather than examining the underlying nature of value, determined by labour-time, its expression in the commodity as exchange-value, as the proportional relation between these values, and price as this proportional relation to the money commodity.
If the material content of the sovereign falls to ⅛ ounce, then the price of a ¼ ounce of gold rises to 2 sovereigns, £2. In fact, today, if you buy a full weight ¼ ounce sovereign, it will cost around £350, which gives an indication of the fall in the value of the £ over time.
But, of course, its not just against gold that the value of this £ falls. The whole point of a standard of prices is that it moves proportionally to all other commodities. That's what enables it to function as a stable standard – stable not in the sense that its own value does not change, but that it changes by the same proportion against all other commodities. If the price of iron, previously, was £1 per ton, of linen £1 per 100 metres, of tea £1 per 100 kilos, then now, with an ounce of gold having a price of £8, all of these other commodities will also double in price, whilst their proportional relation to each other will remain the same, i.e. 1:1, to gold 1:4.
In fact, as Marx later explains, when these precious metal coins are devalued, as a result of their material content being reduced, whilst their historic names remain the same, they become money tokens, and what actually determines their value, as coins/currency, becomes no longer the value of this material content of gold, but is the quantity of them put into circulation. In other words, it is the total amount of social labour-time/universal labour they purport to represent in their face value.
But, this leads to an inevitable contradiction, in respect of precious metal coins. Suppose 1,000 ¼ ounce sovereigns circulate as currency, being the equivalent value of the commodities to be circulated. If the metal content of the sovereign is halved, but the same quantity are in circulation, as currency, these coins, by their face value, would continue to act as the equivalent value of all other commodities/quantity of universal labour. There would be no change in prices.
However, one commodity remains gold, and now, a sovereign containing ⅛ ounce of gold would buy a quarter ounce of gold, so that owners of sovereigns would wish to buy gold and have it minted into twice as many coins as they had given up to buy it, and then they would do the same thing again, so that, in short order, the number of such coins in circulation would have doubled, so that each coin now represents only half the social labour-time it did before. And, then, of course, all prices, including gold would have doubled, as a result of the inflation of the currency.
“The comparison of commodity-prices in terms of different quantities of gold thus becomes crystallised in figures denoting imaginary quantities of gold and representing gold as a standard measure divided into aliquot parts. Gold as measure of value and as standard of price has quite distinct specific functions, and the confusion of the one with the other has led to the most absurd theories. Gold as materialised labour-time is a measure of value, as a piece of metal of definite weight it is the standard of price. Gold becomes the measure of value because as an exchange-value it is compared with the exchange-values of other commodities; in its aspect as a standard of price a definite quantity of gold serves as a unit for other quantities of gold.” (p 70-71)
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