Preliminary
Marx begins his address with preliminary remarks, describing the conditions, in Europe, that I discussed in my introduction, of a rash of strikes for higher pay, provoked by rising inflation. On the one hand, there were those who, as now, saw inflation only as meaning rising prices, as a reflection of higher costs of production/values, and, in particular, higher wage costs. Marx had shown, in A Contribution To The Critique of Political Economy, The Poverty of Philosophy, Wage-Labour and Capital, and in Capital and Theories of Surplus Value, why that was false.
In general, values – the labour-time required for production – of commodities decline rather than rise, because social productivity rises. If prices, in aggregate, rise, therefore, this must be a consequence, not of a general rise in unit values/costs of production, but a greater fall in the value of the one commodity – the money commodity – used as the indirect measure of those values, i.e. its exchange-value. That does not mean that some values/costs of production may not rise, temporarily, for example, due to a crop failure, or wars, but that cannot be the cause of a general rise in prices over a longer period.
As Marx describes, in Capital III, Chapter 6, there was such a war that caused a rise in cotton prices, as well as a lack of supply of cotton. The US Civil War, and blockade of Confederate ports, stopped the supply of US cotton to Europe, resulting in rising cotton prices, and a break in the circuit of capital. It was the equivalent of the NATO/EU boycott and sanctions against Russian oil and gas supplies, in recent times. European textile producers had to turn to other potential suppliers of cotton in India and Egypt. They also sought out ways to reduce waste, to counteract these higher costs.
But, as Marx describes, the real basis of rising prices, in aggregate, was not rising values/costs, but a falling value of gold, resulting from the discovery of new gold fields. It was only necessary for the value of gold to fall more than the average value of other commodities for prices to rise. As Marx describes in A Contribution To The Critique of Political Economy, that is not the only factor. Prices are measured against a given quantity of gold, which forms the standard of prices. However, the state can and does, over time, reduce this given quantity of gold, represented by the standard of prices, whilst retaining its name, such as £, $, F etc. So, even if the value of gold remained constant, prices would rise, if the state reduced this quantity of gold represented by the standard of price. In reality, what this means is that the standard of price represents a smaller quantity of social labour-time.
In addition, as set out in the introduction, the amount of social labour-time represented by the standard of prices, is a function of how many of these tokens are thrown into circulation. It does not matter whether these tokens are themselves made of gold or silver and other metals, or are paper notes. What does matter is whether they are redeemable for the specified quantity of gold. If they are, then any excess will be driven out of circulation, as it is redeemed for gold, and so, any inflation of the currency is curtailed. But, in such conditions, the state often responds by reducing the amount of gold represented by the standard of prices, so that owners of the individual tokens cannot exchange them at their previous nominal value. Consequently, the inflation of prices would not be reversed.
As Marx sets out, in Capital III, the Bank of England, in the 19th century, raised or reduced the quantity of notes and coins in circulation according to the requirements of the circulation of commodities, determined by the quantity and value of goods and services produced. However, as Marx and Engels also set out, in Capital III, it is not only the quantity of goods and services that determines how much currency is required. As well as the use of currency as means of exchange, C-M-C, currency is used as means of payment. In other words, there is credit, or a system of mutually cancelling debts. Currency is then only required to meet the amount of net debt resulting from these exchanges. If the amount of trade conducted on the basis of credit rises, then, less currency is required in circulation. If the amount of currency is not reduced, then, it is devalued and prices are inflated.
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