Anti-Duhring, Part II, Political Economy, X – From The Critical History - Part 7

As Marx set out in “A Contribution To The Critique of Political Economy”, before you can understand the laws relating to the circulation of money tokens/credit money, it is first necessary to understand what money itself is, as the universal equivalent form of value, and, thereby, to understand the laws relating to the circulation of precious metal coins/tokens. An understanding of what money is, and, thereby, the laws relating to these coins, means that its possible to understand the error of “The Quantity Theory of Money”, put forward by Hume and others.

That theory contradicts the Labour Theory of Value, which also meant that Ricardo's acceptance of it put him at odds with his own theory of value. Instead of determining the value of the money commodity by the labour required for its production, and, thereby, determining, as “money”, only that quantity of this money commodity that was equal to the total value of commodities it acted as equivalent for, the Quantity Theory determined “money” to be all of the given money commodity, e.g. gold. It then took this total quantity of gold and set it against the total quantity of commodities, and, thereby, determined the average price of those commodities, or conversely, the value of a given amount of gold.

So, if the quantity of gold increased, the value of a gold sovereign is taken to have fallen, causing prices to rise. As Marx set out in “A Contribution To The Critique Of Political Economy”, this is wrong. The value of the money commodity is determined, as with any other commodity, by the labour required for its production. It is, then, only the quantity of this commodity that is equal to the value of all other commodities that constitutes money. Indeed, the amount of this commodity, say gold, that represents money, does not even have to physically exist – it s only “ideal” or “imaginary” gold.

In systems using precious metal coins, the quantity of these required for circulation is, then, determined by the nominal value of the coin, and the average number of transactions it performs – the velocity of circulation. If money amounts to 100,000 sovereigns, and each sovereign, on average, performs ten transactions, 10,000 sovereigns need to be put into circulation. If 20,000 are put into circulation, the value of each sovereign, as a money token, is halved. It is not money itself that is devalued, but the money token/currency. But, then, the owners of sovereigns would redeem them for gold at their nominal/face value or else they would melt them down into bullion, whose price (as against its value) would have doubled. The excess currency would, thereby, be removed from circulation.

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