Chapter 2.C Theories of The Medium of Circulation and of Money - Part 10 of 20

Marx takes Ricardo's argument and analyses its consequences, in relation to a series of different scenarios.

a) the aggregate value of commodities falls because

1. a smaller quantity is produced at the old values
   
   
2. the same quantity is produced, but at lower value, due to higher productivity

b) the aggregate value increases because

1. a larger quantity is produced at the old values
2. the same quantity is produced, but at a higher value, due to lower productivity

“What happens to the existing quantity of metal in circulation in these two cases? If gold is money only because it circulates as a medium of circulation, if it is forced to stay in the sphere of circulation, like paper money with forced currency issued by the State (and Ricardo implies this), then the quantity of money in circulation will, in the first case, be excessive in relation to the exchange-value of the metal, and it will stand below its normal level in the second case. Although endowed with a specific value, gold thus becomes a token which, in the first case, represents a metal with a lower exchange-value than its own, and in the second case represents a metal which has a higher value. Gold as a token of value will fall below its real value in the first case, and rise above it in the second case (once more a deduction made from paper money with forced currency).” (p 172)

In the first case, its as though silver replaced gold as currency, and, in the second case, as though gold replaced silver as currency. In the first case, an ounce of silver has much less value than an ounce of gold, so a £1 silver coin has much less value than a £1 gold coin. Many more of the former are required, and consequently, commodity prices rise, including the price of gold. The opposite applies if gold replaces silver. Much the same effect can be seen with fiat currencies following hyperinflation, where a new currency is issued, each note representing a greater quantity of social labour-time, and, consequently, with several noughts removed from commodity prices measured in it.

The same would apply if the aggregate value of commodities remained the same, but the quantity of gold in circulation fell or increased. For example,gold coins might wear out and not be adequately replaced, or gold mines might produce more than required for circulation.

“To recapitulate: if the exchange-values of the commodities are given, the money in circulation is at its proper level when its quantity is determined by its own metallic value. It exceeds this level, gold falls below its own metallic value and the prices of commodities rise, whenever the aggregate exchange-value of commodities decreases or the supply of gold from the mines increases. The quantity of money sinks below its appropriate level, gold rises above its own metallic value and commodity-prices fall, whenever the aggregate exchange-value of commodities increases or the supply of gold from the mines is insufficient to replace worn-out gold. In these two cases the gold in circulation is a token of value representing either a larger or a smaller value than it actually possesses. It can become an appreciated or depreciated token of itself.” (p 172-3)

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