“Herr Duhring can only repeat his predecessors errors concerning Hume’s actual theory of money according to which money is a mere token of value, and therefore, other things being equal, commodity prices rise in proportion to the increase in the volume of money in circulation, and fall in proportion to its decrease.” (p 304)
Today, many socialists have heard that Marx rejected this Quantity Theory of Money. Given the association of Monetarism, as propounded by the likes of Milton Friedman, with right-wing ideas and governments, and the opposition to the ideas of Monetarists by the Keynesians, who have a corresponding relationship to more social-democratic governments, it is not too surprising that many such socialists have conflated the two things. But, again, it reflects only a confusion in relation to money as against money tokens/currency, and one that was encouraged by a Stalinism that was itself collapsing into social-democracy, and adoption of Keynesian rather than Marxist economics.
“But after propounding the above theory, Hume himself raises the objection (as Montesquieu, starting from the same premises, had done previously) that
nevertheless “’it is certain” that since the discovery of the mines in America, “industry has increased in all the nations of Europe, except in the possessors of those mines”, and that this “may justly be ascribed, amongst other reasons, to the increase of gold and silver”.
His explanation of this phenomenon is that
“though the high price of commodities be a necessary consequence of the increase of gold and silver, yet it follows not immediately upon that increase; but some time is required before the money circulates through the whole state, and makes its effect be felt on all ranks of people”. In this interval it has a beneficial effect on industry and trade.” (p 304)
Marx describes this, also, in Capital II. What, in fact, was happening? It is not that an increase in the supply of gold and silver – money – of itself resulted in a rise in prices. Take money out of the equation and assume only an exchange of commodities. The basis of this exchange is an exchange of equal values, say 1 metre of cloth for 1 kilo of wine. If the supply of cloth and wine are in balance to meet the demand for each, a rise in the supply of one of them may result in a temporary fall in its rate of exchange. For example, if more cloth is supplied, either some of it is unsold, or 1 metre of cloth is exchanged for less than a litre of wine to clear the market. But, it does not change the value of cloth, and the result is that less cloth is, then, produced and brought to market.
The only way that this increase in supply of cloth can be sustained is if the value of cloth itself falls, i.e. if less labour is required for its production. If, then 2 metres of cloth has the same value as 1 litre of wine, the supply of cloth can be sustainably increased, and a new exchange rate of 2:1 is established. Price is only a specific form of exchange-value, the exchange value of commodities against money. So, if gold is the money commodity, it is not a question of more gold being supplied, but this increase in supply being a consequence of new gold discoveries which reduced the value of gold, i.e. less labour is required for its production.
This gold, whose value is lower, is supplied into European markets, as described above. At first, the lower value of this gold is not manifest in those exchanges. It exchanges at its old value, and so the gold miners are able to buy, say, British cotton cloth, and this demand for cloth stimulates textile production. But, over time, this influx of gold circulates within the British economy. The textile producers buy more cotton, more machines and so on, and pay for it with this gold. Their suppliers now buy more inputs with the gold paid to them. Eventually, this increased supply of gold has had an effect throughout the economy. The effect is two-fold; first it leads to an increased demand, and consequently an increase in production; secondly, it results in the new value of gold becoming manifest as an increase in prices. But, that is only so because the increased supply of gold was also an increased supply of gold at a lower value.
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