Marx quotes Proudhon.
“Gold and silver were the first commodities to have their value constituted." (p 75)
By this, Proudhon means that they were the first to have their exchange-value determined by labour-time. This is both historically inaccurate and logically impossible. As Marx sets out, in A Contribution To The Critique of Political Economy, and Engels describes in his Supplement to Capital III, cattle were one of the first commodities to be used as the universal commodity, or money commodity. It is also impossible for gold/silver to have its exchange-value constituted first, because, as exchange-value, it requires the value to be determined relative to the value of other commodities, so that it is necessary for the values of at least several commodities to be “constituted” simultaneously, a process itself involving competition between suppliers.
“And as M. Proudhon constitutes the value of products determining it by the comparative amount of labour embodied in them, the only thing he had to do was to prove that variations in the value of gold and silver are always explained by variations in the labour time taken to produce them. M. Proudhon has no intention of doing so. He speaks of gold and silver not as commodities, but as money.” (p 75)
If we take gold and silver as commodities, rather than money, then the value of gold and silver rises or falls in proportion to the labour-time required for their production, and their exchange-value (constituted value) rises or falls in proportion to their value relative to the value of other commodities. A gram of gold has a value, say, of 10 hours labour, and exchange-value to linen is, say, 10 metres, if the value of 10 metres of linen is 10 hours of labour. The exchange-value of gold rises if its own value rises to, say, 12 hours, whilst the value of linen and other commodities remains constant, and vice versa. However, as Marx explains in A Contribution To The Critique of Political Economy, this is not the case with gold and silver as money/currency.
Only a certain quantity of gold/silver, as money commodity, can act as money, precisely because of what money is, as separate from commodity. Money is the universal equivalent form of value. It is not a thing, be it gold, silver, cattle or paper notes, but a social relation, it is a representation of a given amount of social labour-time, the equivalent of the total value of commodities to be circulated. The quantity of gold/silver that can act as money, therefore, is determined by this total value of commodities, and the value of the money commodity itself, relative to it.
If the total value of commodities is equal to 1 million hours of labour, then only 100,000 grams of gold represent money, i.e. the equivalent form of the value of social production. That is true whether the given economy has in its possession 10 million grams of gold, 10 thousand grams of gold, or only 10 grams of gold. That is because the gold, here, is only “ideal gold”, like an ideal metre, used as measuring stick.
Money, however, does not only act as measure of value. As currency, it also acts as means of circulation. In that capacity, it is not “ideal gold” that is required, but real gold, or a money token representing it, and giving a claim to it. If 100,000 grams of gold represent money, and a gram of gold is the standard of price, with each gram performing 10 transactions a year, 10,000 grams of gold act as currency. As Marx sets out in A Contribution To The Critique of Political Economy, this determines how much currency can be put into circulation, because, as coin/currency, the value of each token is determined, not by its material content, but by the amount of “ideal gold” it represents, i.e. the amount of actual gold that would otherwise have been put into circulation. This is why debased coins, and even paper notes, with no value, can continue to circulate, provided they conform to this requirement. By the same token, if this requirement is breached, by too many tokens being put into circulation, the value of each token is, thereby, reduced accordingly, resulting in inflation.
In such conditions, where precious metal tokens are used, the market price of the metal rises above the mint-price. As described by Gresham's Law, the full weight coins are driven out of circulation, and the basis of the currency is changed so that the quantity of metal represented by the standard of price is reduced. Similarly, where paper notes are redeemable in gold, an excess of notes, resulting in inflation, sees the notes redeemed for the nominal weight of gold they represent, whose price has now risen, which reduces the amount of notes in circulation. In fiat currency systems, the paper cannot be redeemed for gold, and so the value of each note, and of the standard of prices, is reduced, so that a general inflation of prices results.
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