Chapter Two – Money or Simple Circulation, Measure of Value - Part 8 of 14

As seen above, in Marx's comment in relation to the demand for knives, even when the value of knives, in terms of the labour required for their production, falls dramatically, this does not mean that this value can itself be realised in their price, because, even at this lower value - a function of an expanded scale of production – it does not mean that demand will expand enough to absorb it. So, some of the labour will not have been necessary labour, will not have been value creating. And, given that production in all spheres, expands, with varying levels of productivity, such disproportions become inevitable, so that prices diverge from exchange-values, as demand and supply expand by varying amounts in each sphere.

“By the way, in the various branches of industry in which the same accumulation of capital takes place (and this too is an unfortunate assumption that capital is accumulated at an equal rate in different spheres), the amount of products corresponding to the increased capital employed may vary greatly, since the productive forces in the different industries or the total use-values produced in relation to the labour employed differ considerably. The same value is produced in both cases, but the quantity of commodities in which it is represented is very different. It is quite incomprehensible, therefore, why industry A, because the value of its output has increased by 1 per cent while the mass of its products has grown by 20 per cent, must find a market in B where the value has likewise increased by 1 per cent, but the quantity of its output only by 5 per cent. Here, the author has failed to take into consideration the difference between use-value and exchange-value.

(Theories of Surplus Value, Chapter 20)

In Capital II, Marx sets out numerous causes of the circuit of capital being disrupted in this way, as I have described in my book – Marx and Engels' Theories of Crisis.

For one thing, as Marx describes, in Theories of Surplus Value, Chapter 17, in opposition to Say's Law, the seller of commodities may acquire gold/money in exchange, but is then under no compulsion to exchange this gold/money for commodities. The circuit C-M-M-C, simply stops at C-M.

“In short, there is here contained in latent form the whole contradiction which arises because the product is a commodity, or because the particular labour of an isolated individual can become socially effective only if it is expressed as its direct opposite, i.e., “abstract universal labour.” (p 69-70)

Gold becomes the indirect measure of value, as exchange-value/price, but, here, it acts simply as unit of account. To act as currency, it must be physically put into circulation, to exchange against other commodities, and to achieve this, it must also be divided into different proportional quantities, and the purity of each piece verified.

“This unit of measure then develops into a scale of measure by being divided into aliquot parts which are in turn subdivided into aliquot parts. The quantities of gold themselves, however, are measured by weight. The standard weights generally used for metals accordingly provide ready-made standard measures, which originally also served as standard measures of price wherever metallic currency was in use. Since commodities are no longer compared as exchange-values which are measured in terms of labour-time, but as magnitudes of the same denomination measured in terms of gold, gold, the measure of value, becomes the standard of price.” (p 70)

Each of these aliquot portions are given a name historically derived from the specific weights of the metal. The Pound Sterling, originally referred to a pound weight of silver, which acted, first, as the standard of price in England, with gold only replacing it later. The value of commodities is no longer expressed in so many hours of labour, nor indirectly as exchange-value against other commodities, nor even against a quantity of the money commodity, but is expressed as a price, i.e. as so many £'s, or fractions of a £.

And, whilst these prices continue to be expressed in £'s, as the historical standard of price, the value of this £ itself changes. It is irrational to measure the value of gold by gold, but an ounce of gold may have the price £4 or it may have the price £8. How? Simply because the £ falls in value by half. How is that possible? Because the money commodity, as currency rather than as unit of account, must circulate, and does so as minted currency, i.e. it becomes precious metal coins of the given denomination. But, these coins, over time, become devalued, and the material content of the coin, in gold, is reduced. The £ coin that initially contained 1 gram of gold is reduced to half a gram.

This happens simply by wear and tear, as coins pass from hand to hand, by deliberate clipping, as people nibble gold from the coin to accumulate before passing it on, and by the state itself deliberately reducing the god content so that it repays its debts in devalued currency, now also able to use the gold to mint additional coins.

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