In terms of money, this does not change the law that the amount in circulation is determined by the value of commodities/social labour-time, for which it is the equivalent form. The prices of these commodities is set down in contracts. Similarly, this applies where money tokens represent money. In the case of fiat currency, each token represents a quantum of social labour-time, and this, then, determines the aggregate of prices.
However, its clear that, although this applies, over a period, on any given day, the value of commodities circulated will not coincide with the money tokens in circulation. If £10 million of commodities are in circulation, £1 million of that may only be paid for in a month's time, and so, money tokens to that amount are not required. Conversely, £1 million of money tokens may be circulated to pay for commodities that were in circulation a month ago, but for which payment has only just fallen due.
“We have seen that changes in the value of gold and silver do not affect their functions as measure of value and money of account.” (p 148)
That is because, as money, and indirect measure of value, any changes in their value – inflation or deflation – affects all prices equally. If a metre of linen is equal to ¼ ounce of gold, as is a 1 litre of wine, if the value of gold falls in half, then the price of both linen and wine doubles to ½ ounce of gold, whilst the relative value of linen and wine to each other remains unchanged.
“But with regard to hoarded money these changes are of decisive importance, since with the rise or fall in the value of gold and silver the value of the hoard of gold or silver will rise or fall. Such changes are of even greater importance for money as means of payment. The payment is effected at a date subsequent to the sale of the commodities; that is to say, money performs two different functions at two different periods, acting first as a measure of value, and then as the means of payment appropriate to this measure. If meanwhile a change has occurred in the value of the precious metals, or in the labour-time needed for their production, the same quantity of gold or silver will have a greater or smaller value when it functions as means of payment than at the time it served as measure of value, when the contract was signed. The function which a specific commodity, such as gold or silver, performs as money, or as exchange-value that has assumed an independent form, comes here into conflict with the nature of the specific commodity, whose value depends on variations in its costs of production.” (p 148)
Indeed, this is an advantage of fiat currency over currencies based on precious metals. A fiat currency can maintain stable prices, simply by limiting the quantity of notes placed in circulation, so that each note continues to represent a given quantum of social labour-time, say, 10 hours. In that case, given any velocity of circulation, the quantity of tokens in circulation would move up or down according to the quantity and value of commodities to be circulated. For example, if the velocity of circulation is 10, each note circulates 100 hours of social labour-time. If the total value of commodities is equal to 1 million hours, 10,000 notes are put in circulation. If each note is called £1, the total prices of of commodities is £100,000, with an average price of £10.
If the total mass of commodities doubles, so that it now represents 2 million hours of labour-time, 20,000 notes would be required. If the number of notes remained 10,000, each note would now represent 200 hours of social labour-time, and total prices would continue to be £100,000, but with an average price of only £5, i.e. there would be deflation. But, of course, as described earlier, central banks use this fact to ensure not a deflation of prices, but a steady 2% p.a. inflation of prices, and have used it to create a much greater inflation of asset prices. Then, its not the value of gold that determines the quantity of notes in circulation, but the quantity of notes in circulation that determines the price of gold.
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