Bourgeois economists saw the increased use of gold and silver, in the production of luxury items, as a consequence of its reduced value, but, Marx argues, it is a consequence, rather, of increased bourgeois wealth. Between 1809 and 1829, output of precious metals, from the Americas, fell by 50%, as they engaged in their bourgeois-democratic, national liberation wars, against Spain. Yet, during that same period, “an exceptionally rapid rise in the use of precious metals as articles of luxury took place in England even during the war and on the continent following the Treaty of Paris. Their use increased with the growth of wealth in general. It may be regarded as a general law that the conversion of gold and silver coin into luxury goods predominates in times of peace, while their reconversion into bars and also into coin only predominates in turbulent periods. How considerable a proportion of the gold and silver stock exists in the shape of luxury articles compared with the amount used as money is shown by the fact that in 1829, according to Jacob, the ratio was as 2 to 1 in England, while in Europe as a whole and America, 25 per cent more precious metal was used in luxury goods than in coins.” (p 135-6)
The circulation of money is a function of the circulation of commodities. Money is merely the universal equivalent form of the value of these commodities. The quantity of money, in circulation, therefore, rises or falls in proportion to that total value of commodities. In a period of economic expansion, more money is required in circulation, and in times of recession, less money is required in circulation. Hence the ideas, currently, of bourgeois economists and central banks, that a recession is required to reduce inflation is flawed, because a recession would require less money in circulation, or else, the currency in circulation becomes devalued, causing prices to rise not fall, i.e. producing stagflation.
That total value of commodities is itself a function of their average value, and the quantity of transactions (PT). But, this fact, as also seen, whilst it determines the amount of money in circulation, itself modified by its own velocity of circulation, so that PT = MV, does not apply to money tokens, because, when it comes to money tokens, their own value is determined, not by their material content, but solely by the quantity of them in circulation.
For money, the equation takes the form PT = MV, whereby it is the value of commodities that determines currency circulation, whereas for paper money tokens, the equation takes the form MV = PT. In other words, it is the quantity of tokens, multiplied by their velocity of circulation, which determines the average price of commodities, because each token continues to represent the standard of prices, so that the greater the quantity of tokens, the smaller the amount of social labour-time each represents, and so the more of them required as the equivalent of any given value of commodities. Hence higher prices.
In so far as gold acts as money and currency, the amount of gold in circulation must then rise or fall in accordance with these fluctuations in the total value of commodities to be circulated. This is also only possible where money hoards exist, which can be increased or reduced, accordingly, much as with reservoirs used to add water to, or store water from canals, to ensure adequate water levels for the movement of boats.
“The solidification of circulating money into hoards and the flowing of the hoards into circulation is a continuously changing and oscillating movement, and the prevalence of the one or the other trend is solely determined by variations in the circulation of commodities. The hoards thus act as channels for the supply or withdrawal of circulating money, so that the amount of money circulating as coin is always just adequate to the immediate requirements of circulation... In countries which have purely metallic currency or are at an early stage of development of production, hoards are extremely fragmented and scattered throughout the country, whereas in advanced bourgeois countries they are concentrated in the reservoirs of banks.” (p 136-7)
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