Chapter II: Money or Simple Circulation (4)

All the forms in which gold develops into money, are but the unfolding of potentialities which the metamorphosis of commodities bears within itself. These forms did not become distinctly differentiated in the process of simple money circulation where money appears as coin and the movement C―M―C forms a dynamic unity; at most, they appeared as mere potentialities as, e. g., in the case of the break in the metamorphosis of a commodity. We have seen that in the process C―M the relations between the commodity and money were those of an actual use-value and ideal exchange-value to an actual exchange value and only ideal use-value. By alienating his commodity as a use-value the seller realized its own exchange value and the use-value of money. On the contrary, the buyer, by alienating his money as exchange value, realized its own use-value and the price of the commodity. Commodity and money changed places accordingly. When it comes to a realization in actual life of this bi-polar contrast, a new break occurs. The seller actually alienates his commodity, but realizes its price only in idea: he has sold his commodity at its price, which is to be realized, however, only subsequently, at a time agreed upon. The purchaser buys as the representative of future money, while the vender sells as the owner of present goods. On the part of the vender, the commodity as use-value is actually alienated, without the price being actually realized; on the part of the purchaser, money is actually realized in the use-value of the commodity, without being actually alienated as exchange value. Instead of a token of value representing money symbolically as was the case before, the purchaser himself performs that part now. And just as in the former case the symbolic nature of the token of value called forth the guarantee of the state which has made it legal tender, so does the personal symbolism of the buyer bring about legally enforcible private contracts among commodity owners.

The contrary may happen in the process M―C, where the money can be alienated as a real means of purchase, and in that way the price of the commodity can be realized before the use-value of the money is realized and the commodity actually delivered. This occurs constantly under the everyday form of pre-payments. And it is under this form that the English government purchases opium from the ryots of India, or, foreign merchants residing in Russia mostly buy agricultural products. In these cases, however, the money always acts in its well known role of a means of purchase and therefore, does not assume any new forms.[103] We need not dwell, therefore, on this case any longer; but with reference to the changed form which the two processes M―C and C―M assume now, we may note that the difference between purchase and sale which appeared but imaginary in the direct process of circulation, now becomes a real difference, since in the former case only the money is present and in the latter only the commodity, and in either case only that extreme is present from which the initiative comes. Besides, the two forms have this in common: that in either, one of the equivalents is present only in the common will of the buyer and seller,―a will that is binding on both and assumes definite legal forms.

Seller and buyer become creditor and debtor. While the commodity owner looked comical as the guardian of a treasure, he now becomes awe-inspiring, since he no longer identifies himself but his neighbor with a certain sum of money and makes him and not himself a martyr of exchange value. From a believer he becomes a creditor, for religion he substitutes law.

“I stay here on my bond!”

Thus, in the modified form C―M in which the commodity is present and money is only represented, money plays first of all the part of a measure of value. The exchange value of the commodity is estimated in money as its measure; but as exchange value, established by contract, price exists not only in the mind of the seller, but also as a measure of obligation on the part of the buyer. Besides serving as a measure of value, money plays here the part of a means of purchase, although in that capacity it only casts ahead the shadow of its future existence. It attracts the commodity from its position in the hand of the seller into that of the buyer. As soon as the term of the contract expires, money enters circulation, since it changes its position by passing from the hands of the former buyer into those of the former seller. But it does not enter circulation as a circulating medium or as a means of purchase. It performed those functions before it was present and it appears after it has ceased to perform them. It now enters circulation as the only adequate equivalent of the commodity, as the absolute form of existence of exchange value, as the last word of the process of exchange, in short as money, and money in its distinct role of a _universal means of payment_. In this capacity of a means of payment money appears as the absolute commodity, but within the sphere of circulation and not without it as was the case with hoards. The difference between the means of purchase and the means of payment makes itself unpleasantly felt in periods of commercial crises.[104]

Originally, the conversion of the product into money in the sphere of circulation appears only as an individual necessity for the commodity owner in so far as his own product has no use-value to him, but has to acquire it first by being alienated. But in order to pay at the expiration of the contract, he must have sold commodities before that. Thus, entirely apart from his individual wants, the movement of the circulation process makes selling a social necessity with every owner of commodities. As a former buyer of a commodity he is compelled to become a seller of another commodity in order to get money not as a means of purchase but as a means of payment, as the absolute form of exchange value. The conversion of commodity into money as a final act, or the first metamorphosis of a commodity as an end in itself which in the case of hoarding seemed to be a matter of caprice on the part of the commodity owner, becomes now an economic function. The motive and essence of sale for the sake of payment becomes from a mere form of the process of circulation its self emanating substance.

In this form of sale the commodity completes its change of position; it circulates while it postpones its first metamorphosis, viz. its transformation into money. On the contrary, on the part of the buyer the second metamorphosis is completed, i. e. money is reconverted into a commodity before the first metamorphosis has taken place, i. e., before the commodity has been turned into money. The first metamorphosis thus takes place after the second in point of time; and thereby, money i. e. the form of the commodity in its first metamorphosis, acquires a new destination. Money or the spontaneous development of exchange value, is no longer a mere intermediary form of the circulation of commodities, but its final result.

That such _time sales_ in which the two poles of the sale are separated in point of time, have their natural origin in the simple circulation of commodities, requires no elaborate proof. In the first place, the development of circulation leads to a continual repetition of the mutual transactions between the same commodity owners who confront each other as seller and buyer. The repetition is not accidental; on the contrary, goods are ordered, let us say, for a certain date in the future when they are to be delivered and paid for. In that case the sale is ideal, i. e. it is legally accomplished without the actual presence of the goods and money. Both forms of money, those of a medium of circulation and of a means of payment still coincide here, since in the first place, commodity and money change places simultaneously, and secondly, the money does not buy the commodity, but realizes the price of the commodity purchased before. In the second place, the nature of a great many use-values makes the simultaneous alienation and delivery of the goods impossible, and delivery has to be postponed for a certain time; e. g., when the use of a house is sold for one month, the use-value of the house is delivered only at the expiration of the month, although it changes hands at the beginning of the month. Since the actual transfer of the use-value and its virtual alienation are separated here in point of time, the realization of its price occurs also after its change of place. Finally, the difference in the seasons and in the length of time required for the production of various commodities brings about a situation where one tries to sell his goods, while the other is not ready to buy; and with the repeated purchases and sales between the same commodity owners the two ends of sale fall apart according to the conditions of production of the respective commodities. Thus arises a relation of creditor and debtor between the owners of commodities which, though constituting the natural foundation of the credit system, may be fully developed before the latter comes into existence. It is clear that with the extension of the credit system, and, consequently, with the development of the capitalist system of production in general, the function of money as a means of payment will extend at the expense of its function as a means of purchase and, still more, as an element of hoarding. In England, e. g., money as coin has been almost completely banished into the sphere of retail and petty trade between producers and consumers, while it dominates the sphere of large commercial transactions as a means of payment.[105]

As the universal means of payment money becomes the _universal commodity_ of all contracts, at first only in the sphere of circulation of commodities.[106] But with the development of this function of money, all other forms of payment are gradually converted into money payments. The extent to which money is developed as the exclusive means of payment indicates the degree to which exchange value has taken hold of production in its depth and breadth.[107]

The volume of money in circulation, as a means of payment, is determined in the first place, by the amount of payments, i. e. by the sum total of the prices of the commodities alienated, but not about to be alienated, as in the case of the simple circulation of money. The quantity thus determined is subject, however, to two modifications. The first modification is due to the rapidity with which the same piece of money repeats the same function, i. e. with which the several payments succeed one another. A pays B, whereupon B pays C, and so forth. The rapidity with which the same coin repeats its function as a means of payment, depends first, upon the continuity of the relation of creditor and debtor among the owners of commodities, the same commodity owner being the creditor of one person and the debtor of another, etc., and secondly, upon the interval which separates the times of various payments. This chain of payments or of supplementary first metamorphoses of commodities is qualitatively different from the chain of metamorphoses which is formed by the circulation of money as a circulating medium. The latter not only makes its appearance gradually, but is even formed in that manner. A commodity is first converted into money, then again into a commodity, thereby enabling another commodity to become money, etc.; or, seller becomes buyer, whereby another commodity owner turns seller. This successive connection is accidentally formed in the very process of the exchange of commodities. But when the money which A has paid to B is passed on from B to C, from C to D, etc., and that, too, at intervals rapidly succeeding one another, then this external connection reveals but an already existing social connection. The same money passes through different hands not because it appears as a means of payment; it passes as a means of payment because the different hands have already clasped each other. The rapidity with which money circulates as a means of payment thus shows that individuals have been drawn into the process of circulation much deeper than would be indicated by the same rapidity of the circulation of money as coin or as a means of purchase.

The sum total of prices made up by all the purchases and sales taking place at the same time, and, therefore, side by side, constitutes the limit for the substitution of the volume of coin by the rapidity of its circulation. If the payments that are to be made simultaneously are concentrated at one place―which naturally arises at first at points where the circulation of commodities is largest―the payments balance each other as negative and positive quantities: A is under obligations to pay B, while he has to be paid by C. etc. The quantity of money required as a means of payment will, therefore, be determined not by the total amount of payments which have to be made simultaneously, but by the greater or less concentration of the same and by the magnitude of the balance remaining after their mutual neutralization as negative and positive quantities. Special arrangements are made for settlements of this kind even where the credit system is not developed at all, as was the case e. g. in ancient Rome. The consideration of these arrangements, however, as well as that of the general time limits of payment, which are everywhere established among certain elements in the community, does not belong here. We may add that the specific influence which these time settlements exert on the periodic fluctuations in the quantity of money in circulation, has been scientifically investigated but lately.

In so far as the payments mutually balance as positive and negative quantities, no money actually appears on the scene. It figures here only in its capacity of a measure of value: first, in the prices of commodities, and second, in the magnitude of mutual obligations. Aside from its ideal form, exchange value does not exist here independently, not even in the form of a token of value; that is to say, money plays here only the part of ideal money of account. The function of money as a means of payment thus implies a contradiction. On the one hand, in so far as payments balance, it serves only ideally as a measure of value. On the other hand, in so far as a payment has actually to be made, money enters circulation not as a transient circulating medium, but as the final resting form of the universal equivalent, as the absolute commodity, in a word, as money. Therefore, whenever such a thing as a chain of payments and an artificial system of settling them, is developed, money suddenly changes its visionary nebulous shape as a measure of value, turning into hard cash or means of payment, as soon as some shock causes a violent interruption of the flow of payments and disturbs the mechanism of their settlement. Thus, under conditions of fully developed capitalist production, where the commodity owner has long become a capitalist, knows his Adam Smith, and condescendingly laughs at the superstition that gold and silver alone constitute money or that money differs at all from other commodities as the absolute commodity, money suddenly reappears not as a medium of circulation, but as the only adequate form of exchange value, as the only form of wealth, exactly as it is looked upon by the hoarder. In its capacity of such an exclusive form of wealth, it reveals itself, unlike under the monetary system, not in mere imaginary, but in actual depreciation and worthlessness of all material wealth. That is what constitutes the particular phase of crises of the world market which is known as a money crisis. The _summum bonum_ for which everybody is crying at such times as for the only form of wealth, is cash, hard cash; and by the side of it all other commodities just because they are use-values, appear useless like so many trifles and toys, or, as our Dr. Martin Luther says, as mere objects of ornament and gluttony. This sudden reversion from a system of credit to a system of hard cash heaps theoretical fright on top of the practical panic; and the dealers by whose agency circulation is affected shudder before the impenetrable mystery in which their own economical relations are involved.[108]

Payments, in their turn, require the formation of reserve funds, the accumulation of money as a means of payment. The building up of reserve funds appears no longer as a practice carried on outside of the sphere of circulation, as in the case of hoarding; nor as a mere technical accumulation of coin, as in the case of coin reserves; on the contrary, money must now be gradually accumulated to be available on certain future dates when payments become due. While hoarding, in its abstract form as a means of enrichment, declines with the development of the capitalist system of production, that species of hoarding which is directly called for by the process of production, increases; or, to put it differently, a part of the treasure which is generally formed in the sphere of circulation of commodities, is absorbed as a reserve fund of means of payment. The more developed the capitalist system of production, the more these reserve funds are limited to the necessary minimum. Locke, in his work “On the Lowering of Interest”[109] furnishes interesting data with reference to the size of these reserve funds in his time. They show what a considerable part of the total money in circulation the reservoirs for means of payment absorbed in England just at the time when banking began to develop.

The law as to quantity of money in circulation, as it has been formulated in the analysis of the simple circulation of money, receives an essential modification when the circulation of the means of payment is taken into account. The rapidity of the circulation of money whether as circulating medium or as means of payment―being given, the total amount of money in circulation at a given time will be determined by the sum total of the prices of commodities to be realized, _plus_ the total amount of payments falling due at the same time, _minus_ the amount of payments balancing each other. The general law that the volume of money in circulation depends on the prices of commodities is not affected by this in the least, since the extent of the payments is itself determined by the prices stipulated in contracts. What is, however, strikingly demonstrated, is that even if the rapidity of circulation and the economy of payments be assumed to remain the same, the sum total of the prices of the commodities circulating in a given period of time, say one day, and the volume of money in circulation on the same day are by no means equal, because there is a large number of commodities in circulation whose prices have yet to be realized in money at a future date, and there is a quantity of money in circulation which constitutes the payment for commodities which have long gone out of circulation. The latter amount will depend on the sum of payments falling due on the same day although contracted for at entirely different periods.

We have seen that a change in the values of gold and silver does not affect their function as measures of value or money of account. But this change is of decisive importance for money as a hoard, since with the rise or fall of value of gold and silver, the total value of a gold or silver hoard will also rise or fall. Of still greater importance is the effect of this change on money as a means of payment. The payment takes place after the sale of the commodity, or the money serves in two different capacities at two different periods; first, as a measure of value, then as a means of payment corresponding to the measurement. If, during this interval, the value of the precious metals or the labor-time necessary for their production undergoes a change, the same quantity of gold or silver will be worth more or less when it appears as a means of payment than what it was when it served as a measure of value, i. e., when the contract was concluded. The function of a particular commodity, like gold or silver, to serve as money or independent exchange value comes here in conflict with the nature of the particular commodity whose magnitude of value depends on changes in the cost of its production. The great social revolution which caused the fall in value of the precious metals in Europe, is as well known as the revolution of an opposite character which had been brought about at an early period in the history of the ancient Roman republic by the rise in value of copper in terms of which the debts of the plebeians had been contracted. Without attempting here to follow any further the fluctuations of value of the precious metals and their effect on the system of bourgeois political economy, it is at once apparent that a fall in the value of the precious metals favors the debtors at the expense of the creditors, while a rise in their value favors the creditors at the expense of the debtors.

c. WORLD MONEY.

Gold becomes money as distinguished from coin only after it is withdrawn from circulation in the shape of a hoard; it then enters circulation as a non-medium of circulation, and finally breaks through the barriers of home circulation to assume the part of a universal equivalent in the world of commodities. It becomes _world money_.

While the general measures of weight of the precious metals served as their original measures of value, the reverse process takes place now in the world market, and the reckoning names of money are turned back into corresponding weight names. In the same way, while shapeless crude metal (aes rude) was the original form of the medium of circulation and the coin form constituted but the official stamp certifying that a given piece of metal was of a certain weight, now the precious metal in its capacity of a world coin throws off its stamp and shape and reassumes the indistinguishable bullion form; and even if national coins, such as Russian imperials, Mexican dollars, and English sovereigns, do circulate abroad, their name is of no importance, and only their contents count. Finally, as international money, the precious metals come again to perform their original function of mediums of exchange, which, like the exchange of commodities, arose first not within the various primitive communities, but at their points of contact with one another. As world money, money thus reassumes its primitive form. On leaving the sphere of home circulation, it strips off the particular forms which it has acquired in the course of the development of the process of exchange within that particular national sphere, those local garbs of standard of price, of coin, of auxiliary coin, and of token of value.

We have seen that in the home circulation of a country, only one commodity serves as a measure of value. Since, however, that function is performed by gold in some countries and by silver in others, there is a double standard of value in the world market and money assumes two forms in all its other functions. The translation of the values of commodities from gold prices into silver prices and vice versa depends in each case upon the relative value of the two metals, which is constantly changing and, therefore, appears to be constantly in the process of determination. Commodity owners in every national sphere of circulation have to use gold and silver alternately for foreign circulation and thus to exchange the metal which is accepted as money at home for the metal which they happen to need as money abroad. Every nation is, therefore, utilizing both metals, gold and silver, as world money.

In the international circulation of commodities, gold and silver appear not as mediums of circulation, but as universal mediums of exchange. The universal medium of exchange performs its function only under its two developed forms of a means of purchase and of a means of payment, whose mutual relation in the world market is the very reverse of what it is at home. In the sphere of home circulation, money in the form of coin, played exclusively the part of a means of purchase, either as the intermediary in the dynamic unity C―M―C or as the representative of the transient form of exchange value in the unceasing change of positions by commodities. In the world market it is just the contrary. Gold and silver appear here as a means of purchase when the exchange of matter is but one-sided, and purchase and sale do not coincide. The frontier trade at Kiachta e. g. is both actually and according to treaty, one of barter, in which silver plays only the part of a measure of value. The war of 1857-58 compelled the Chinese to sell without buying. Silver suddenly appeared now as a means of purchase. Out of regard to the letter of the treaty, the Russians made up the French five frank coins into crude silver commodities, which were made to serve as a means of exchange. Silver has always served as a means of purchase between Europe and America on one side and Asia on the other, where it settles down in the form of hoards. Furthermore, the precious metals serve as international means of purchase whenever the ordinary balance of exchange of matter between two nations is suddenly upset, as e. g. when a failure of crops forces one of them to buy on an extraordinary scale. Finally, the precious metals are international means of purchase in the hands of gold and silver producing countries, in which case they directly constitute a product and commodity and not merely a converted form of a commodity. The more the exchange of commodities between different national spheres of circulation is developed, the more important becomes the function of world money to serve as a _means of payment_ for the settlement of international balances.

Like home circulation, international circulation requires a constantly changing quantity of gold and silver. A part of the accumulated hoards serves therefore, in each country as a reserve fund of world money, which now declines, now rises, according to the fluctuations of the exchange of commodities.[110] Besides the special movements which take place between national spheres of circulation, world-money possesses a universal movement, whose starting points are at the sources of production from which gold and silver streams spread out in different directions all over the world market. Here gold and silver enter the world circulation as commodities and are exchanged for commodity equivalents in proportion to the labor-time contained in them, before they penetrate national spheres of circulation. In the latter, they appear now with a given magnitude of value. Every fall or rise in the cost of their production equally affects, therefore, their relative value throughout the world market; on the other hand, that value is entirely independent of the extent to which the different national spheres of circulation absorb gold or silver. The part of the metal stream which is caught up by every separate sphere in the world of commodities, partly enters directly the home circulation of money to make up for worn out coin; partly is dammed up in the different reservoirs containing hoards of coin, means of payment and world-money; partly is turned into articles of luxury, while the rest simply forms a treasure. At an advanced stage of development of the capitalist system of production the formation of hoards is reduced to the minimum required by the various processes of circulation for the free play of their mechanism. The hoard as such becomes idle wealth, unless it appears as a temporary form of a surplus resulting from a favorable balance of payments or as the result of an interrupted exchange of matter, i. e. as the solidification of a commodity in its first metamorphosis.

Gold and silver, in their capacity of money, being by conception universal commodities, assume in their capacity of world money the form adapted to a universal commodity. To the extent to which all commodities are exchanged for them, they become the transformed impersonation of all commodities and, therefore, universally alienable commodities. Their function of serving as the embodiment of universal labor-time is realized more and more as the interchange of matter produced by concrete labor embraces increasing parts of the world. They become universal equivalents to the extent to which the series of particular equivalents which constitute their spheres of exchange, increases. Since in the sphere of world circulation commodities unfold their own exchange value on a universal scale, they assume the form of world money when transformed into gold and silver. As commodity owning nations are thus turning gold into money by their diversified industry and universal trade, industry and trade appear to them only as a means of getting money out of the world market in the shape of gold and silver. Gold and silver, as world money, are, therefore, as much products of the universal circulation of commodities as they are means of widening its sphere. Like chemistry which grew up behind the backs of the alchemists who tried to find a way of making gold, so do the sources of world industry and world trade spring up behind the backs of the owners of commodities, while they are hunting for the commodity in its magic form. Gold and silver help to create the world market by anticipating its existence in their conception of money. That this magic effect of the precious metals is by no means confined to the period of infancy of capitalist society but is a necessary outgrowth of the perverse conception which the representatives of the commodity world have of their own work in society, is shown by the extraordinary influence exerted in the middle of the nineteenth century by the discovery of new gold fields.

Just as money develops into world-money, so the commodity owner develops into a cosmopolitan. The cosmopolitan relation of men is originally only a relation of commodity owners. The commodity as such rises above all religious, political, national, and language barriers. Price is its universal language and money, its common form. But with the development of world-money as distinguished from national coin, there develops the cosmopolitanism of the commodity owner as the faith of practical reason opposed to traditional, religious, national and other prejudices which hinder the interchange of matter among mankind. As the identical gold that lands in England in the form of American eagles, turns there into sovereigns and three days later circulates in Paris in the form of Napoleons, only to emerge in Venice in a few weeks as so many ducats, retaining all the while the same value, it becomes clear to the commodity owner that nationality “is but the guinea’s stamp.” The lofty idea which he conceives of the entire world is that of a market, the _world market_.[111]

4. THE PRECIOUS METALS.

The process of capitalist production first of all takes hold of the metallic circulation as of a ready, transmitted organ which, though undergoing a gradual transformation, always retains its fundamental structure. The question as to why gold and silver and not other commodities serve as money material falls outside the limits of the capitalist system. We shall, therefore, confine ourselves to summing up the most essential points.

Since universal labor-time admits of quantitative differences only, the object which is to serve as its specific incarnation must be capable of representing purely quantitative differences, i. e., it must be homogeneous and uniform in quality throughout. That is the first condition a commodity must satisfy to perform the function of a measure of value. If commodities were estimated in oxen, hides, grain, etc., they would really have to be estimated in an ideal average ox, or average hide, since there are qualitative differences between an ox and an ox, grain and grain, hide and hide. On the contrary, gold and silver, as elementary substances, are always the same, and equal quantities of them represent, therefore, values of equal magnitude.[112] The other condition which a commodity that is to serve as a universal equivalent must satisfy and which follows directly from its function of representing purely quantitative differences, is that it must be capable of being divided and re-united at will, so that money of account may be represented materially as well. Gold and silver possess these properties to a superior degree.

As mediums of circulation, gold and silver have this advantage over other commodities, that their high specific gravity which condenses much weight in little space, corresponds to their economic specific gravity which condenses relatively much labor-time, i. e. a great quantity of exchange value in a small volume. This insures facility of transport, of transition from hand to hand and from one country to another, the ability to appear as rapidly as to disappear, in short, that material mobility which constitutes the _sine qua non_ of the commodity that is to serve as the _perpetuum mobile_ of the process of circulation.

The high specific value of the precious metals, their durability, comparative indestructibility, insusceptibility of oxidation through the action of the air, in the case of gold insolubility in acids except in aqua regia,―all these natural properties make the precious metals the natural material for hoarding. Peter Martyr who seems to have been a great lover of chocolate, remarks, therefore, of the cacao-bags which formed a species of Mexican gold: “O felicem monetam, quae suavem utilemque praebet humano generi potum, et a tartarea peste avaritiae suos immunes servat possessores, quod suffodi aut diu servari nequeat.”[113]

The great importance of metals in general in the direct process of production is due to the part they play as instruments of production. Apart from their scarcity, the great softness of gold and silver as compared with iron and even copper (in the hardened state in which it was used by the ancients), makes them unfit for that application and deprives them, therefore, to a great extent, of that property on which the use-value of metals is generally based. Useless as they are in the direct process of production, they are easily dispensed with as means of existence, as articles of consumption. For that reason any desired quantity of them may be absorbed by the social process of circulation without disturbing the processes of direct production and consumption. Their individual use-value does not come in conflict with their economic function. Furthermore, gold and silver are not only negatively superfluous, i. e. dispensable articles, but their aesthetic properties make them the natural material of luxury, ornamentation, splendor, festive occasions, in short, the positive form of abundance and wealth. They appear, in a way, as spontaneous light brought out from the underground world, since silver reflects all rays of light in their original combination, and gold only the color of highest intensity, viz. red light. The sensation of color is, generally speaking, the most popular form of aesthetic sense. The etymological connection between the names of the precious metals, and the relations of colors, in the different Indo-Germanic languages has been established by Jacob Grimm (see his History of the German Language).

Finally, the susceptibility of gold and silver of being turned from coin into bullion, from bullion into articles of luxury and vice versa, i. e. the advantage they possess as against other commodities in not being tied down to a definite, exclusive form in which they can be used, makes them the natural material of money, which must constantly change from one form to another.

Nature no more produces money than it does bankers or discount rates. But since the capitalist system of production requires the crystallization of wealth as a fetich in the form of a single article, gold and silver appear as its appropriate incarnation. Gold and silver are not money by nature, but money is by nature gold and silver. In the first place, the silver or gold money crystal is not only the product of the process of circulation, but in fact its only final product. In the second place, gold and silver are ready and direct products of nature, not distinguished by any difference of form. The universal product of the social process or the social process itself as a product is a peculiar natural product, a metal hidden in the bowels of the earth and extracted therefrom.[114]

We have seen that gold and silver are unable to fulfill the requirements which they are expected to meet in their capacity of money, viz. to remain values of unvarying magnitude. Still, as Aristotle had already observed, they possess a more constant value than the average of other commodities. Apart from the universal effect of an appreciation or depreciation of the precious metals, the fluctuations in the ratio between the values of gold and silver has a special importance, since both serve side by side in the world market as money material. The purely economic causes of this change of value must be traced to the change in the labor-time required for the production of these metals; conquests and other political upheavals which exercised a great influence on the value of metals in the ancient world, have nowadays only a local and transitory effect. The labor-time required for the production of the metals will depend on the degree of their natural scarcity, as well as on the greater or less difficulty with which they can be obtained in a purely metallic state. As a matter of fact, gold is the first metal discovered by man. This is due to the fact that nature itself furnishes it partly in pure crystalline form, individualized, free from chemical combination with other substances, or, as the alchemists used to say, in a virgin state; and so far as it does not appear in that state, nature does the technical work in the great gold washeries of rivers. Only the crudest kind of labor is thus required of man in the extraction of gold, either from rivers or from alluvial deposits; while the extraction of silver presupposes the development of mining and a comparatively high degree of technical skill generally. For that reason the value of silver is originally greater than that of gold in spite of the lesser absolute scarcity of the former. Strabo’s assertion that a certain Arabian tribe gave ten pounds of gold for one pound of iron and two pounds of gold for one pound of silver, seems by no means incredible. But as the productive powers of labor in society are developed and the product of unskilled labor rises in value as compared with the product of skilled labor; as the earth’s crust is more thoroughly broken up and the original superficial sources of gold supply give out, the value of silver begins to fall in proportion to that of gold. At a given stage of development of engineering and of the means of communication, the discovery of new gold or silver fields become the decisive factor. In ancient Asia the ratio of gold to silver was 6 to 1 or 8 to 1; the latter ratio prevailed in China and Japan as late as the beginning of the nineteenth century; 10 to 1, the ratio in Xenophon’s time, may be considered as the average ratio of the middle period of antiquity. The exploitation of the Spanish silver mines by Carthage and later by Rome had about the same effect in antiquity, as the discovery of the American mines in modern Europe. For the period of the Roman empire 15 or 16 to 1 may be assumed as a rough average, although we frequently find cases of still greater depreciation of silver in Rome. The same movement beginning with the relative depreciation of gold and concluding with the fall in the value of silver, is repeated in the following epoch which has lasted from the Middle Ages to the present time. As in Xenophon’s times the average ratio in the Middle Ages was 10 to 1, changing to 16 or 15 to 1 in consequence of the discovery of the American mines. The discovery of the Australian, Californian and Columbian gold sources makes a new fall in the value of gold probable.[115]

C. THEORIES OF THE MEDIUM OF CIRCULATION AND OF MONEY.

As the universal thirst for gold prompted nations and princes in the sixteenth and seventeenth centuries, the period of infancy of modern bourgeois society, to crusades beyond the sea in search of the golden grail,[116] the first interpreters of the modern world, the founders of the monetary system, of which the mercantile system is but a variation, proclaimed gold and silver, i. e. money, as the only thing that constitutes wealth. They were quite right when, from the point of view of the simple circulation of commodities, they declared that the mission of bourgeois society was to make money, i. e. to build up everlasting treasures which neither moth nor rust could eat. It is no argument with the monetary system to say that a ton of iron whose price is £3 constitutes a value of the same magnitude as £3 worth of gold. The point here is not the magnitude of the exchange value, but as to what constitutes its adequate form. If the monetary and mercantile systems single out international trade and the particular branches of national industry directly connected with that trade as the only true sources of wealth or money, it must be borne in mind, that in that period the greater part of national production was still carried on under forms of feudalism and was the source from which producers drew directly their means of subsistence. Products, as a rule, were not turned into commodities nor, therefore, into money; they did not enter into the general social interchange of matter; did not, therefore, appear as embodiments of universal abstract labor; and did not, in fact, constitute bourgeois wealth. Money as the end and object of circulation is exchange value or abstract wealth, but it is no material element of wealth and does not form the directing goal and impelling motive of production. True to the conditions as they prevailed in that primitive stage of bourgeois production, those unrecognized prophets held fast to the pure, tangible, and resplendent form of exchange value, to its form of a universal commodity as against all special commodities. The proper bourgeois economic sphere of that period was the sphere of the circulation of commodities. Hence, they judged the entire complex process of bourgeois production from the point of view of that elementary sphere and confounded money with capital. The unceasing war of modern economists against the monetary and mercantile system is mostly due to the fact that this system blabs out in brutally naive fashion, the secret of bourgeois production, viz. its subjection to the domination of exchange value. Ricardo, though wrong in the application he makes of it, remarks somewhere that even in times of famine, grain is imported not because the nation is starving, but because the grain dealer is making money. In its criticism of the monetary and mercantile system, political economy, by attacking that system as a mere illusion and as a false theory, fails to recognize in it the barbaric form of its own fundamental principles. Furthermore, this system has not only an historic justification, but within certain spheres of modern economy retains until now the full rights of citizenship. At all stages of the bourgeois system of production in which wealth assumes the elementary form of a commodity, exchange value assumes the elementary form of money and in all phases of the process of production wealth reassumes for a moment the universal elementary commodity form. Even at the most advanced stage of bourgeois economy, the specific functions of gold and silver to serve as money, in contradistinction to their function of mediums of circulation―a function which distinguishes them from all other commodities―is not done away with, but only limited, hence the monetary and mercantile system retains its right of citizenship. The Catholic fact that gold and silver are contrasted with other profane commodities as the direct incarnation of social labor, that is as the expression of abstract wealth, naturally offends the Protestant point d’honneur of bourgeois economy, and out of fear of the prejudices of the monetary system it had lost for a long time its grasp of the phenomena of money circulation, as will be shown presently.

It was quite natural that, contrary to the monetary and mercantile system which knew money only in its form of a crystallized product of circulation, classical political economy should have conceived money first of all in its fluent form of exchange value arising and disappearing within the process of the metamorphosis of commodities. And since the circulation of commodities is regarded exclusively in the form of C―M―C and the latter in its turn, exclusively in its aspect of a dynamic unity of sale and purchase, money comes to be regarded in its capacity of a medium of circulation as opposed to its capacity of money. And when that medium of circulation is isolated in its function of coin, it turns, as we have seen, into a token of value. But since classical political economy had to deal with metallic circulation as the prevailing form of circulation, it defined metallic money as coin, and metallic coin as a mere token of value. In accordance with the law governing the circulation of tokens of value, the proposition was advanced that the prices of commodities depend on the quantity of money in circulation instead of the opposite principle that the quantity of money in circulation depends on the prices of commodities. We find this view more or less clearly expressed by the Italian economists of the seventeenth century; LOCKE now asserts, now denies that principle; it is clearly elaborated in the “Spectator” (of October 19, 1711) by MONTESQUIEU AND HUME. Since Hume was by far the most important representative of this theory in the eighteenth century, we shall commence our review with him.

Under certain assumptions, an increase or decrease in the quantity either of the metallic money in circulation, or of the tokens of value in circulation seems to affect _uniformly_ the prices of commodities. With each fall or rise of the _value_ of gold or silver in which the exchange values of commodities are estimated as prices, there is a rise or fall of prices, because of the change in their measure of value; as a result of the rise or fall of prices, a greater or smaller quantity of gold and silver is circulating as coin. But the apparent phenomenon is the fall in prices―the exchange value of commodities remaining the same―accompanied by an increased or diminished quantity of the medium of circulation. On the other hand, if the quantity of tokens of value rises above or falls below its required level, it is forcibly reduced to the latter by a fall or rise of prices. In either case the same effect seems to be brought about by the same cause, and Hume holds fast to this semblance.

Every scientific inquiry into the relation between the volume of the circulating medium and the movement of prices must assume the value of the money material as given. Hume, on the contrary, considers exclusively periods of revolution in the value of the precious metals, i. e. revolutions in the measure of value. The rise of prices which occurred simultaneously with the increase of metallic money after the discovery of the American mines forms the historical background of his theory, while his polemic against the monetary and mercantile system furnishes its practical motive. The importation of precious metals can naturally increase while their cost of production remains the same. On the other hand, a decrease in their value, i. e. in the labor-time required for their production will reveal itself first of all in their increased imports. Hence, said the later followers of Hume, a decrease in the value of the precious metals, reveals itself in an increased volume of the circulating medium, and the increased volume of the latter is shown in the rise of prices. As a matter of fact, however, the rise in price affects only exported commodities, which are exchanged for gold and silver as commodities and not as mediums of circulation. Thus, the prices of these commodities, which are now estimated in gold and silver of lower value, rise as compared with the prices of all other commodities whose exchange value continues to be estimated in gold or silver according to the standard of their old cost of production. This twofold appraisement of the exchange values of commodities in the same country can naturally be only temporary, and the gold and silver prices must become equalized in the proportions determined by the exchange values themselves, so that finally the exchange values of all commodities come to be estimated according to the new value of the money material. The development of this process, as well as the ways and means in which the exchange value of commodities asserts itself within the limits of the fluctuations of market prices, do not fall within the scope of this work. But that this equalization takes place but gradually in the early periods of development of bourgeois production and extends over long periods of time, never keeping pace with the increase of cash in circulation, has been strikingly demonstrated by new critical investigations of the movement of prices of commodities in the sixteenth century.[117] The favorite references of Hume’s followers to the rise of prices in ancient Rome in consequence of the conquests of Macedonia, Egypt and Asia Minor, are quite irrelevant. The characteristic method of antiquity of suddenly transferring hoarded treasures from one country to another, which was accomplished by violence and thus brought about a temporary reduction of the cost of production of precious metals in a certain country by the simple process of plunder, affects just as little the intrinsic laws of money circulation, as the gratuitous distribution of Egyptian and Sicilian grain in Rome affected the universal law governing the price of grain. Hume, as well as all other writers of the eighteenth century, was not in possession of the material necessary for the detailed observation of the circulation of money. This material, which first becomes available with the full development of banking, includes in the first place a critical history of prices of commodities, and in the second, official and current statistics relating to the expansion and contraction of the circulating medium, the imports and exports of the precious metals, etc. Hume’s theory of circulation may be summed up in the following propositions: 1. The prices of commodities in a country are determined by the quantity of money existing there (real or symbolic money); 2. The money current in a country represents all the commodities to be found there. In proportion “as there is more or less of this representation,” i. e. of money, “there goes a greater or less quantity of the thing represented to the same quantity of it”; 3. If commodities increase in quantity, their price falls or the value of money rises. If money increases in quantity, then, on the contrary, the price of commodities rises and the value of money declines.[118]