As described earlier, a ¼ ounce of gold is always ¼ ounce of gold, and so, as measure of value, this relation to commodities is unchanged. In the earlier example, the equivalent value of commodities was 10,000 grams of gold, and that remains true. However, if, now, a sovereign represents only ⅛ grams of gold, its clear that the equivalent is not 10,000, but 20,000 sovereigns. Not only does this require the amount of sovereigns in circulation to double, but it also means that the prices of commodities double,
In order to deter light coins circulating, as full weight, states adopted various measures. It is the reason for the edges of coins being milled, for example, and laws meant that coins which fell below a certain weight ceased being legal tender, and were withdrawn. But, this also meant that higher value coins also had to be restricted to spheres where they circulated less frequently, reducing their wear. In turn, they were replaced, in spheres where wear and tear is greater, by base metal coinage that is also more durable. These coins, are, therefore, mere tokens for the value of gold they represent, but this is made possible by the fact that the gold coin itself, in so far as it becomes worn, is only a token for part of the gold it represents.
“In so far as a gold coin in circulation is worth a quarter of an ounce, whereas it weighs only a fifth of an ounce, it has indeed become a mere token or symbol for one-twentieth of an ounce of gold, and in this way the process of circulation converts all gold coins to some extent into mere tokens or symbols representing their substance.” (p 111)
Gold, then, continues to act as measure of value, but, as currency, this gold is represented by tokens, each token representing a given amount of gold, unrelated to its own value, which is why these tokens not only take the form of base metals, but of worthless scraps of paper.
“These subsidiary means of circulation, for instance silver or copper tokens, represent definite fractions of gold coins within the circulation. The amount of silver or copper these tokens themselves contain is, therefore, not determined by the value of silver or copper in relation to that of gold, but is arbitrarily established by law. They may be issued only in amounts not exceeding those in which the small fractions of gold coin they represent would constantly circulate, either as small change for gold coin of higher denominations or to realise correspondingly low prices of commodities.” (p 112)
Because these coins are used in those spheres where the prices of commodities, in transactions, are low, the number of transactions, and so velocity of circulation of these coins, is high. A small value of money, represented by these coins themselves, is then compensated by a much higher velocity of circulation of these coins than is the case for sovereigns. And, the extent to which these coins can function as legal tender is also set down by law, to prevent them “from moving into the sphere of gold coin and from establishing themselves as money. Thus for example in England, copper is legal tender for sums up to 6d. and silver for sums up to 40s. The issue of silver and copper tokens in quantities exceeding the requirements of their spheres of circulation would not lead to a rise in commodity-prices but to the accumulation of these tokens in the hands of retail traders, who would in the end be forced to sell them as metal. In 1798, for instance, English copper coins to the amounts of £20, £30 and £50, spent by private people, had accumulated in the tills of shopkeepers and, since their attempts to put the coins again into circulation failed, they finally had to sell them as metal on the copper market.” (p 113)
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