So, now, I will examine the rest of Martin Thomas' argument, and his comments in respect of interest rates, and the role of industrial struggle, which he wrongly describes as class struggle, and so on.
What Martin Thomas describes as Marx's theory of money and inflation is actually that of Ricardo, not Marx, and was what stood behind the 1844 Bank Act, and later the principles of The Gold Standard. Ricardo confused gold as commodity, and gold as money/measure of value. The quantity of gold in a country, including that in its gold reserves, has nothing to do with the role of gold as the money commodity, and so as measure of value, precisely because, as Marx sets out in A Contribution to The Critique of Political Economy, the gold that acts as measure of value, is only ideal gold, not real gold. It does not have to be physically present to perform this function as either measure of value, or unit of account. So long as I know that an ounce of gold has a value of, say, 10 hours of universal labour, I can use this ideal measure to indirectly measure the values of other commodities, as quantities of this ideal gold, and so establish their ideal exchange-value against it, as their money price, and, thereby, to determine their relation one to another, via these prices.
The value of gold, as commodity, is not a function of its supply, nor the stock of it held in a country, but, as with any other commodity, of the universal labour-time required for its production, and, as the money commodity, the actual labour used for gold production, becomes, itself, the proxy for universal labour. This value, as Marx describes, becomes established, for gold, as world money, as a consequence of gold producers interactions with other commodity producers. Money is the universal equivalent form of value, and consequently, the quantity of any money commodity, such as gold, which acts as money, is objectively determined, by, on the one hand the value of all commodities for which it acts as equivalent form, and, on the other hand, by its own value. If the total value of commodities is equal to 1 million hours of universal labour, and an ounce of gold has a value of 100 hours of universal labour, then only 10,000 ounces of ideal gold represents money, and this is true whether the actual amount of gold in the country is 1 million ounces, 10,000 ounces or 10 ounces.
Ricardo thought that the actual quantity of gold stock was important, because all of the crises he had witnessed were financial crises, resulting from banks issuing bank notes that were redeemable for a quantity of gold, in excess of the actual gold they had in their vaults, resulting in bank runs, and bank failures. But, what this really showed was that, so long as such tokens were redeemable for gold, they had to conform to the same rules that determine the amount of gold, as coin, that would have been thrown into circulation.
As Marx describes, the confusion also arises as a result of a false conception introduced by David Hume, by which the relation between gold and commodities is a function of the total quantity of gold in the country, and the total quantity of commodities, the latter being divided by the former to give the average price. It again confuses gold as commodity with gold as money, and was the basis of the quantity theory of money. On this basis, also, the value of gold is not determined by the labour-time required for its production, according to the labour theory of value, but on the basis simply of its physical quantity in proportion to the physical quantity of all other commodities. It reduces the determination of value to being just an interaction of supply and demand.
But, as Marx describes, in Scotland, where gold was the money commodity, and formed the basis of the standard of prices, virtually no gold was actually in circulation, and, instead, paper notes circulated in its place.
“Not a single atom of real gold is used to estimate the value of a thousand bales of cotton in terms of a certain number of ounces of gold and then to express this number of ounces in £. s. d., the names of account of the ounce. For instance, not a single ounce of gold was in circulation in Scotland before Sir Robert Peel’s Bank Act of 1845, although the ounce of gold, called £3 17s. 10/2d. as the British standard of account, served as the legal standard of price.”
(A Contribution To The Critique of Political Economy)
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