The argument of the Keynesians and Neo-Keynesians has, however, been blown out of the water by what has happened as a result of that. Michael Roberts talked about inflation rising as high as 3%, on the basis of his basically Keynesian theory of of inflation, a figure that was left in the dust not long after he predicted it, as inflation in the US, UK, and Europe surged into double digits, as all the additional money tokens flooded into general circulation, when lockdowns were relaxed, showing, once again, the validity of Marx's analysis of inflation as a monetary phenomenon, as against the Keynesian theory that it is a result of increased costs.
Marx illustrates the point by taking the figure of £14 million of gold coin required for circulation, and then examining what happens if a) the value of gold falls, b) gold is replaced by silver, and c) what happens if paper notes replace gold or silver. If the value of gold falls, then, as seen previously, as measure of value, each ¼ ounce of gold represents less social labour-time, so that the number of such ¼ ounces required as the equivalent form of the value of commodities rises. As a ¼ ounce of gold, as coin, is given the name £1, as the standard of prices, this increased quantity of coins in circulation, in proportion to commodities, is also manifest as a general rise in the prices of all commodities, and so of the general level of prices – inflation. But, this fall in the value of gold is the same as if, instead of gold being the money commodity, it is replaced by some other commodity, such as silver, whose value is lower.
If the value of silver is one-fifteenth that of gold, then, its clear that, if 14 million ¼ ounces of gold is the equivalent form of the value of commodities, 210 million ¼ ounces of silver are required in its place. But, as seen earlier, its not the actual value of the metal in the coin that gives it its name. Originally, the name derives from a given weight of metal, but that weight in the coin/standard of prices, is continually reduced over time, not to mention the value of the metal itself falling, whilst the name of the coin/standard of prices remains the same.
So, if ¼ ounces of gold, in a £1 coin, is replaced with ¼ ounce of silver, the name £1 remains, but the value of this coin/standard of prices is only a fifteenth its previous value. Fifteen times as many of these coins are required, as the equivalent form of value, as gold coins, and the result is that prices, measured in these £'s, now must rise fifteen fold too. Instead of the total of prices being £14 million, they rise to £210 million.
But, as was described earlier, this connection of the value of the coin to its metal content is itself an illusion. So long as a money commodity is the proxy for universal labour/social labour-time, and so acts as this indirect measure of value, it provides the basis for ideal prices. A quarter ounce of gold is always a quarter ounce of gold, and so, as indirect measure of value, it continues to be the basis of ideal prices, irrespective of whether coins contain ¼ ounce of gold 1/10 ounce of gold, or no gold at all, for example, containing silver, copper or nickel, or even take the form of paper notes. It is the difference between money and money tokens, money and currency.
For money, it is only ideal gold that is required, but, for currency, it is real gold, or a token representing it, that is required. That token may be comprised of gold itself, but a ¼ ounce gold coin may contain only ⅛ ounces, having been worn away. Yet, it functions as a ¼ ounce coin, even though half its value in metal does not exist. It does so only on the basis that it is accepted, in circulation, as representing ¼ ounce of gold as money. And, in order that it is so accepted, only as many of these coins must be in circulation as the gold they represent.
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