The Standard of Prices

The standard of prices is the unit of money which forms the basis of determining the price of all other commodities, i.e. their exchange-value against money. Initially, this unit is a given quantity of the money commodity, and specifically, when precious metals become the money commodity, it is a given weight of the particular metal. The names given to the standards of prices, are originally derived from these weights of metal. For example the Pound Sterling, derived its name from a pound weight of Sterling Silver. Each state has its own standard of prices, forming the currency within that state, and these standards/currency units apply only within that state.

All exchange values are based upon the value of a quantity of one commodity, expressed as a quantity of some other commodity, for example, the exchange-value of a metre of linen, may be a litre of wine, meaning the value of each of these given quantities of the stated commodities is equal. Another way of expressing this is to say that the wine price of a metre of linen, is 1 litre. The commodity which expresses the price of the other is the equivalent form of value of the other. The money commodity, which acts to express the price of all other commodities, is the universal equivalent form of value.

To act as such a universal equivalent, some specific quantity of the money commodity needs to be settled on, as the unit in which these prices are expressed. For example, a pound of Sterling Silver, established the £, as the standard of prices, and the prices of all other commodities can then be expressed in £'s, or fractions of a £. The £ was divided into 20 parts each called Shilling, for example, and each Shilling was divided into 12 Pennies. A similar derivation can be found for the Silver Thaler, and the word Dollar is itself a derivation from Thaler. The standards of price take on the form of coins, such as the silver Thaler.

A given quantity of the money commodity, which then forms the basis of the standard of prices, is able to perform this function, because it is a measure of value of all other commodities. This relation of the money commodity to all other commodities, i.e. its value relative to theirs (exchange-value) does not change, unless its value, or the value of those other commodities changes. A ¼ ounce of gold, is always a ¼ ounce of gold, and so if its value, and the value of, say, wine remains constant, then a ¼ ounce of gold will always equal the same amount of wine. But, that is not true for the standard of prices, because, although its name remains the same, derived from these historic weights of metal, the actual quantity of that metal represented by the coin/standard of prices, is reduced over time.

If £1 originally represented ¼ ounces of gold, over time, that may fall to become only 1/100 ounces of gold. The standard of price retains the same name £, but now represents much less gold, which, in turn, means it represents much less value/social labour-time, which, in turn, means that its relation to all other commodities is changed. Now, a £ represents only 1/25 of the gold/value/social labour-time, it did previously, and so 25 times as many of these £'s are required to represent the same amount of value/social labour-time, meaning that the prices of all other commodities, expressed in these £'s, are increased 25 fold.

Because, money first takes the form of a money commodity, such as gold or silver, and the standard of prices takes the form of a precious metal coin, the true nature of money as universal labour, is obscured. The real nature of money is universal labour, as the actual measure of the value of commodities in order that they can be equated. In other words it is the basis of exchange-value, and money, in the form of a money commodity, such as gold, is, then, this exchange-value made solid, exchange-value incarnate. But, the nature of money materialised in the coin, as standard of price leads to the appearance that it is this coin, this standard of price, that is some objective measure of value, in and of itself, that the standard of price is a fixed quantum of value, against which the value of all other commodities vary, in the same way that, say, a metre stick is a constant measure of length.

But, that is not the case, any more than if a metre stick were to be divided into 3 equal length parts, but each one of them continued to be called a metre, for the purpose of measuring the length of other objects. The standard of prices, is only a name given to a quantity of social labour-time, that is originally materialised in a quantity of some money commodity, for example, a pound of Sterling Silver. If the name of the standard or prices remains, but the actual quantity of the money commodity it represents falls, then this also means that the amount of social labour-time/universal labour it represents also falls. The money commodity itself only acts as a proxy for that universal labour, its transubstantiation into the form of the given commodity.

Consequently, if the quantity of social labour-time represented by the standard of prices declines, then its relation to the value of all other commodities is equally altered. The value of the standard of prices can change for two different reasons. Firstly, the value of the money commodity, such as gold, may change. When new gold fields were discovered, the value of gold fell, for example, so less labour-time was required for the production of gold, and its value, relative to other commodities, fell accordingly. Secondly, the quantity of gold/silver represented by the standard of prices can change, and this usually means that it represents a smaller quantity of gold/silver, and so less social labour-time, so that its value relative to all other commodities falls, and this is manifest in a rise in the price of all other commodities – inflation.

But, the fact that the name of the standard of prices remains constant, and, as measure of the value of other commodities, it is their prices that change, gives the impression that the standard of prices itself remans a fixed quantum of value, and it is only the values of other commodities that change. This was the basis of the dispute between Lowndes and Locke, and a century later between Attwood, and the Birmingham Little Shilling Men, against Peel. It was also the basis of the contradiction established by Bretton Woods, and the fixing of the US Dollar to gold at a price of $35 an ounce, which necessarily blew apart in 1971. That resulted in the Dollar falling immediately against gold, and by 1980, it had fallen to $800 an ounce, meaning that the Dollar had lost 96% of its initial artificially established gold value.

What, the standard of prices really represents is simply a quantity of social labour-time/universal labour, and its manifestation in a quantity of some money commodity/precious metal, is only an historical evolution of it. In practice, with the development of paper money tokens, and fiat currency, as representatives of the standard of prices, the historical role of the money commodity itself disappears, clinging on only a while longer, as world money. As Marx sets out in A Contribution To The Critique of Political Economy, the quantity of the money commodity that represents the value of all other commodities is determined by its own value, for example, if the total value of commodities is 1 million hours of labour, and 1 ounce of gold has a value of 100 hours of labour, money is equal to 10,000 ounces of gold. If each ounce performs 10 transactions a year, then 1,000 ounces of gold are required as currency.

However, if paper notes are introduced to replace each ounce of gold, then any number of these notes can be circulated, but the total value of commodities, the total amount of labour-time they represent does not change. So, if 2,000 such notes are introduced, each claiming to represent 100 hours of labour, it is clear that this cannot be the case, because, in total they would represent 2 million hours of labour. Each note, whatever its face value says, must, in reality, be compressed, so that it actually represents only 50 hours of labour, so that, in total, they represent the same 1 million hours of labour. Because, each note retains the name £1, this appears as a doubling of commodity prices. So, unlike precious metal coins, whose value is determined by the value of precious metal they represent, the value of paper notes is determined solely by the quantity of them put into circulation.

In a way, this reflects the actual relation more clearly, because, each note, worthless as a piece of paper, in itself, can now be seen to derive its value, not from the amount of gold it purportedly represents (which itself was only a proxy for universal labour) but directly from the amount of social labour-time it represents. If total social labour-time embodied in commodities is 1 million hours, and 1,000 £1 notes are put into circulation, each performing ten transactions, then its clear that each note represents 100 hours of social labour-time, and if 2,000 such notes are put in circulation, each note represents only 50 hours of social labour-time. Each note, worthless in itself, continues to perform the function of money, in reducing all labour to universal labour, via competition, because, as fiat currency, backed by the state, it appears to have value, amounting to this claim on a given amount of social labour-time, and the sellers of commodities, must validate the labour expended, in the production of their commodities, by persuading buyers to give up their money tokens in exchange for them.

First we have value alienated from use value, in the form of exchange-value, then this exchange-value is substantiated in the form of a money commodity, as exchange-value incarnate, whose use value is only to represent exchange-value, and finally, as the money commodity takes the form of currency, and this currency takes the form of worthless tokens, this represents its reification.