As Marx also sets out in A Contribution To the Critique of Political Economy, a fall in the value of gold, as money commodity, is not the only basis for a need to throw more currency into circulation, and so for prices to rise. Once money takes the form of currency/coins, this leads to the development of a standard of prices, i.e. £, $ etc. Originally, this standard of prices is a given quantity of the money commodity, e.g. £1 equals 1 lb. of sterling silver. But, over time, the state reduces the amount of precious metal represented, whilst keeping the name of the standard of prices the same.
If a gram of gold continues to have a value of 100 hours of universal labour, but the state reduces the amount of gold represented by £1 to just 0.5 grams, then its clear that the value of £1 is, itself, halved, even though the value of gold remains constant. A £1, now, represents only 50 hours of universal labour, and, because money is a social relation, based upon equal amounts of this universal, social labour, the money equivalent of 1 million hours of labour, in commodities, rises to £20,000. So, with the same velocity of circulation, 2,000 £1 coins are now required. Again, it is this change in the value of the standard of prices that brings about the need for additional currency, and a rise in prices, not a rise in the quantity of money/gold.
If the value of the money commodity remained constant, and the quantity of the money commodity represented by the standard of prices was unchanged, then all that was required was to put the appropriate amount of currency into circulation, determined by the formula MV = PT, where M represents the value of the currency unit/standard of prices, V represents the average number of transactions that each unit performs in a year, P represents the average value of the commodities to be circulated in each transaction, and T represents the number of transactions/sales.
Excess precious metal coins would be taken out of circulation, and converted to bullion, and so too would convertible notes. However, as Marx describes, with fiat currencies, i.e. where paper notes and coins cannot be redeemed for a given quantity of precious metal, this no longer applies. Unlike a 1 gram gold coin, a £1 paper banknote has no value of its own. It cannot be turned back into a valuable commodity, but nor can it be handed in to the bank with the demand that a gram of gold be handed over in exchange for it. So, these excess notes and coins remain in circulation, and the value of each note is then correspondingly reduced, leading to a rise in the general level of prices – inflation.
A good part of Value, Price and Profit is given over to an examination of these issues, and, in particular, then, the claim by Weston that rising wages lead to rising prices, an idea propounded, also, by Proudhon, and carried forward, today, by Keynesians and post-Keynesians. It formed a basis for them arguing, as Alistair Darling did, in 2008, for example, that there is no point workers demanding much higher wages, because it would just lead to much higher prices. Here, Marx destroys that argument, showing that higher wages lead not, necessarily, to higher prices, but to lower profits, and a corresponding reallocation of capital into production of wage goods, and out of luxury goods production.
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