In the previous section, Marx illustrated why the arguments, currently, of the orthodox economists about “transitory” inflation, and its demise, as aggregate demand and supply were balanced are wrong. He did so, even in the context of money taking the form of a money commodity, such as gold, or the use of precious metal coins. In short, he demonstrated that aggregate prices can rise, even if aggregate demand and supply is falling, because all that is required is that the value of the money commodity should fall, or, in the case of precious metal coins, which act as the standard of prices, that these standards of price become devalued, as a result of either a fall in the value of the precious metal, or else as a result of the standard representing a smaller quantity of that metal, which may arise from wear and tear or deliberate debasement, with a consequent increase in the quantity of such coins required for circulation.
The fact of high levels of inflation in periods of lower growth or even of crisis, where output is reduced and workers laid off, such as the 1970's and early 1980's – stagflation – illustrates his point. It illustrates why the demands of speculators for a recession, now, will not lead to lower inflation, as long as money tokens continue to be devalued.
In this section, looking at the role of these money tokens, Marx sets this out in greater detail. Assuming gold as the money commodity, it acts as the measure of value. The value of every commodity is measured and expressed as a price. This price is its value whose equivalent is a given weight of gold, for example, a gram. As seen previously, these historically determined weights of gold or silver then give their names to a standard of prices, such as Pound, Thaler, and so on. Whilst the names of these standards of prices remain, their actual values do not remain constant, and that is because both the value of the money commodity itself changes, and because the weight of material contained in this standard changes.
Its clear that, if a gram of gold is given the name £, but, then, the value of gold halves, the value of the £ halves, and consequently, all prices double, because these prices are only exchange-values expressed in £'s. The same is true if the value of gold remains constant, but the actual amount of gold represented by a £ is halved.
“Gold functioning as a medium of circulation assumes a specific shape, it becomes a coin. In order to prevent its circulation from being hampered by technical difficulties, gold is minted according to the standard of the money of account. Coins are pieces of gold whose shape and imprint signify that they contain weights of gold as indicated by the names of the money of account, such as pound sterling, shilling, etc.” (p 107)
The coin removes the need, in each exchange, for the purity of the gold to be verified, and its quantity weighed, as each coin now represents, for example, ¼ ounce of 22 carat gold, in the case of a sovereign. This responsibility devolves upon the state. Assuming no change in the value of gold, ideal money does not change in value. If I measure the value of linen against ¼ ounce of gold, this ¼ ounce is always ¼ ounce. So, ideal prices could only change as a result of changes in the value of gold itself – or, obviously, the values of commodities. But, this is not true of coins or other money tokens. The sovereign represents ¼ ounce of gold, but, precisely because it acts as currency, and is passed from hand to hand, it suffers wear and tear, reducing its metal content, let alone its deliberate reduction as a result of clipping, with the clipped gold being melted down.
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