Value, Price and Profit, III - Wages and Currency - Part 4 of 4

As Marx described in A Contribution To The Critique of Political Economy, if the total value of commodities to be circulated rises, either because the average unit value rises, but the volume remains the same, or because the average unit value remains the same/falls, but the volume expands, more currency is required, if the velocity of circulation remains constant, and the amount of credit transactions is unchanged – MV = PT. If the total value of commodities to be circulated falls, then, inter alia, if the amount of currency is not reduced, the unit value of the standard of prices falls, and unit prices rise.

But, as Marx sets out, in fact, as economies expand, a greater proportion of exchanges take place on the basis of credit, thereby, reducing, proportionally, the amount of currency required. A quickened pace of economic activity, means also a rise in the velocity of circulation of currency, and proportional reduction in the quantity required. When Weston and Marx refer to currency, they mean, here, gold coins, because of the convertibility into gold of money tokens.

“Compare the year 1862 with 1842. Apart from the immense increase in the value and amount of commodities circulated, in 1862 the capital paid in regular transactions for shares, loans, etc. for the railways in England and Wales amounted alone to 320,000,000 Pounds, a sum that would have appeared fabulous in 1842. Still, the aggregate amounts in currency in 1862 and 1842 were pretty nearly equal, and generally you will find a tendency to a progressive diminution of currency in the face of enormously increasing value, not only of commodities, but of monetary transactions generally. From our friend Weston's standpoint this is an unsolvable riddle.” (p 32-3)

Why was that? Because, in the intervening period – a long wave uptrend, ran from 1843 to 1865 – an increasing proportion of trade was conducted on the basis of credit transactions, paper bank notes increased, replacing gold coins, and improved banking raised the velocity of circulation.

“Looking somewhat deeper into this matter, he would have found that, quite apart from wages, and supposing them to be fixed, the value and mass of the commodities to be circulated, and generally the amount of monetary transactions to be settled, vary daily; that the amount of bank-notes issued varies daily; that the amount of payments realized without the intervention of any money, by the instrumentality of bills, cheques, book-credits, clearing houses, varies daily; that, as far as actual metallic currency is required, the proportion between the coin in circulation and the coin and bullion in reserve or sleeping in the cellars of banks varies daily; that the amount of bullion absorbed by the national circulation and the amount being sent abroad for international circulation vary daily. He would have found that this dogma of a fixed currency is a monstrous error, incompatible with our everyday movement. He would have inquired into the laws which enable a currency to adapt itself to circumstances so continually changing, instead of turning his misconception of the laws of currency into an argument against a rise of wages.” (p 33)

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