Deville - The People's Marx (1893)

Chapter III: Money or the Circulation of Commodities

I. The measure of values. —The price-form.
II. The circulation of commodities. —The currency of money. —Legal-tender or coins and paper-money.
III. Reserves of gold and silver or hoards. —Money as the means of payment. —Universal money.

I.—The Measure of Values.

For simplicity's sake we assume that gold is the money-commodity. In fact, in countries like France, where two commodities, gold and silver, legally perform the function of a measure of value, only one of them maintains that position.

The first function of gold is to furnish to all commodities the material in which they express their values, i.e., to represent their values as magnitudes of the same denomination, qualitatively alike, and, therefore, quantitatively comparable. It thus serves as a universal measure of value.

But it is not gold in its character of money that renders commodities commensurable. On the contrary, it is because they are commensurable, being, as values, of equal quality as materializations of human labor, that they can all measure their magnitude of value in one special commodity transformed into a common measure of value. Money, as a measure of value, is only the outward form which must necessarily be worn by the real measure, immanent in them, which is always labor-time.

The Price-Form

The expression in gold of the magnitude of value of a commodity is its money form or price.

The price of commodities is not a visible thing. Their owner is obliged to fasten labels to them to announce their prices, to represent their equality with gold. There is not a merchant who does not know full well that not a single grain of real gold is needed to estimate in gold the value of millions of commodities. Although in its function as the measure of value, money is employed only as imaginary money, the determination of prices does none the less depend altogether upon the material of money. If this material were copper instead of gold, values would be represented by quantities of copper differing from the quantities of gold that now represent them, in other words by different prices.

In so far as they are varying quantities of one identical thing, gold, commodities may be compared with each other and measured, and this necessitates comparing them with some fixed quantity of gold as a term of comparison or unit of measure. As this quantity of gold must have social authenticity, it is regulated by law. Divided into aliquot parts, this fixed quantity of metal becomes the standard of prices.

Gold here, therefore, fulfills a second function. We know that, as the measure of values, it serves to transform the values of commodities into imaginary quantities of gold or prices. Now, as the standard of price, it measures these various quantities of gold by a fixed quantity, it compares them with one and the same fixed weight of gold. The prices or the quantities of gold into which the imagination transforms commodities are, therefore, expressed by the monetary names of this fixed weight, or unit of measures, and its subdivisions, such as dollars, dimes, etc.

Prices then simultaneously indicate two things, the magnitude of value of commodities, and the fraction or multiple of the weight of gold, that is the unit of measure, for which they are directly exchangeable.

If the price, as the exponent of the magnitude of a commodity's value, is the exponent of its exchange-ratio with money, it does not follow that the exponent of its exchange-ratio with money is necessarily identical with the exponent of its magnitude of value.

The magnitude of value expresses, in fact, the essential relation existing between a commodity and the social labor-time needed to produce it. As soon as value is transformed into price, this relation appears as the exchange-ratio of the commodity with money. But this exchange-ratio may express either the real value of the commodity or the greater or smaller quantity of gold with which, according to circumstances, it may be equated.

Suppose that a sack of wheat is produced in the same labor-time as 13 grammes of gold, and that 2 louis is the monetary name of 13 grammes of gold; then the money expression of the value of the sack of wheat, or its price, is 2 louis.

If, while the conditions of production remain the same demanding the same expenditure of labor, circumstances occur that allow the sack of wheat to be advanced to 3 louis or reduced to 1 louis, then 3 louis and 1 louis are expressions respectively greater or less than the value of the wheat, nevertheless they are its prices, for they express the exchange-ratio of the wheat and money.

The possibility, therefore, of a quantitative difference between the price of a commodity and its magnitude of value is inherent in the two-fold role of the price-form.

In the price, that is to say in the monetary name of commodities, their equivalence with gold is not yet an accomplished fact. For a commodity to act effectively in practice as exchange-value, it must cease to be merely imaginary gold and transform itself into real gold. To give it a price it suffices to declare it equal to purely imaginary gold, but it must be replaced by re gold, if it is to do its owner the service of procuring him, by means of its exchange, the things that he wants.

The price-form simply states that the commodities are for sale and the conditions upon which the owner is willing to part with them. Prices are the amorous glances by which commodities coquet with money. For money to allow itself to be attracted by commodities, their use-value must be recognized. We do not speak of the errors, more or less intentional, made in fixing prices, for they are quickly corrected on the market by the rates of competitors.

II.—The Circulation of Commodities.

Exchange causes commodities to pass from the hands in which they are non-use-values into hands in which they serve as use-values. When once they reach a place where they serve as objects of utility, commodities disappear from the realm of exchange, and fall into the realm of consumption. But this is effected only after a series of changes of form.

Let us observe on the market some trader, say a weaver. He first exchanges his commodity, 20 yards of linen, for instance, for 2 louis in gold; then, these two louis for a coat. In thus acting, the weaver parts with the linen, which is for him only a depository of value, for gold, and the gold, the value-form of the linen, for another commodity, the coat, which will be for him a use-value. The result of this transaction is that the weaver has procured, in place of his first commodity, another commodity of equal value, but of different utility; and in this fashion he procures his means of subsistence and production.

In the last analysis there is only a substitution of one commodity for another, or only an exchange of products.

But this exchange in taking place gives rise to two opposite and complemental transformations: the transformation of the commodity into money and the re-transformation of the money into a commodity. These two transformations represent, from the standpoint of the owner of the commodity, two acts: a sale, an exchange of a commodity for money, and a purchase, an exchange of money for a commodity. The sum of the two acts contained in the operation (linen-money-coat), or, which comes to the same thing (commodity-money-commodity), may be summed up thus: selling in order to purchase.

The same act that is a sale for the weaver is a purchase for the person who gives him 2 louis for his linen; and these two louis were even then the product of a sale when they were in the hands of the buyer of the linen. For, apart from its exchange at its source of production, that is to say there where it is exchanged as the immediate product of labor for another product of the same value, gold represents, in the hands of every trading producer, the realized price of a commodity.

The buyer of the linen has gotten these 2 louis, I assume, from the transformation of a sack of wheat into money; we see, then, that the linen, which, considered as having been sold, is the beginning of the exchange-movement (linen-money-coat), is, when considered as having been bought, the end of another exchange-movement (wheat-money-linen).

On the other hand, the act which is a purchase for the weaver, is a sale for the tailor, who, in his turn, converts the 2 louis coming from the sale of his coat into another commodity, a cask of wine, for instance. The end of the movement (linen-money-coat) is thus the beginning of another (coat-money-wine).

The first transformation of one commodity, linen, is then the last of another, wheat. The last transformation of the same commodity, linen, is the first of another, the coat, and so forth. The whole of these interlinked movements constitutes the circulation of commodities.

The circulation of commodities, leading, as we have just seen, in each of its particular movements, to an exchange of products, is essentially differentiated from their direct exchange. Our weaver has, indeed, exchanged, in the end, his commodity, linen, for another, the coat; but this fact is true only from his point of view. The seller of the coat, to whose establishment the weaver went with the gold, the value-form of his linen, probably had no thought of exchanging his coat for linen. The commodity of the tailor has been substituted for the commodity of the weaver, but weavers and tailors, under the general conditions regulating the circulation of commodities, do not reciprocally exchange their products. They do not look beyond the money, and coins cannot betray the articles for which they have been exchanged.

Moreover, circulation does not end, like direct barter, when the products have exchanged hands. The money does not disappear. In the movement (linen-money-coat), the linen, sold to some one who wishes to use it, drops out of circulation and the money replaces it; the coat drops out afterward, and the money again replaces it, and so on. When the commodity of a trader, in our example, the tailor, replaces that of another, as the weaver, the money always passes into the fingers of a third person, as the wine-merchant.

The purchase is the necessary complement of the sale, but the second of these two complemental operations does not necessarily follow the first immediately; a longer or shorter space of time may separate them. If the separation of the two operations is too prolonged, their intimate connection, their oneness, asserts itself by producing a crisis.

The Currency[1] of Money.

As soon as the seller supplements the sale by a purchase the money slips from his hands. In our example, this money passes from the hands of the weaver into those of the tailor, and from those of the tailor into those of the wine-merchant, realizing successively the prices of their respective commodities. The movement that the circulation of commodities directly imparts to money, is a constant movement away from its starting-point, causing it to pass incessantly from hand to hand. This is what we call the currency of money.

The question is: how much money this movement of circulation is capable of absorbing?

In a given country, there take place every day sales, more or less numerous, of various commodities. The value of the commodities sold was, before their sale, expressed by their prices, that is to say, by definite amounts of ideal gold. Money realizes the prices of these commodities by making them pass from the seller to the buyer. In other words, it really represents the quantity or sum of gold previously expressed in imagination by the sum of the prices of the commodities. The quantity of money requisite for the circulation of all the commodities on the market is determined, then, by the total sum of their prices. Let this total vary, and the quantity of circulating money will vary in the same proportion.

The ultimate source of some of the variations in this quantity is in money or gold itself.

Before gold functions as a measure of value, its own value is determined. It functions as such only because it is, itself, a product of labor, that is to say a variable value. Therefore, let its value change, and the valuation of commodities based upon its value will evidently change also.

If the value of gold rises, if we assume that it doubles, one dollar will be worth as much as two dollars were before, and the commodities that were worth two dollars will, consequently, be worth one; if it falls, by a half for instance, two dollars will be worth no more than one was before, and the commodities that were worth two dollars will be worth four. We assume, naturally, in both cases that the value of the commodities, that is to say the length of time necessary for their production remains constant.

Thus, prices, being the estimate in gold of the value of commodities, vary with the value of gold. If the value of commodities does not change, prices fall if the value of gold rises, and rise if it falls.

The quantity of money in circulation being determined by the sum total of the prices to be realized, every variation in these prices involves a variation in the quantity of circulating money. This variation may arise, as we have seen, from money itself, in so far as it is, not an instrument of circulation, but a measure of value. This being understood, we will assume that the value of gold is given, as in fact it is, momentarily, when the price of a commodity is estimated in it.

Let us observe a number of unrelated sales, the isolated sales, for instance, of a sack of wheat, twenty yards of linen, a coat, and a cask of wine. The price of each article being two louis, to realize the prices of the four, eight louis must be thrown into circulation. If, on the contrary, these same commodities form the links of the chain of transformations described in a former paragraph, a sack of wheat—two louis—twenty yards of linen—two louis—a coat—two louis—a cask of wine—two louis, the same two louis that find resting-place in the pocket of the wine-merchant, cause the four commodities to circu1ate by realizing their prices successively; in this case, the velocity of the currency of the money makes good the deficiency in its quantity.

The displacement four times repeated of the two louis, results from the transformations, fully accomplished—their sale having been followed by a purchase—and linked together, of the wheat, the linen and the coat, which ended in the first transformation of the wine. The mutually complemental movements, which form such a series, take place successively. They require, therefore, more or less time for their accomplishment, and hence the velocity of the currency of money, which, as we have just seen, affects its quantity, is measured by the number of movements of the same coins in a given time. Suppose that the circulation of our four commodities takes a day, the amount of the money circulating, two louis, multiplied by the number of the movements, four, of coins of the same denomination, equals the sum, eight louis, of the prices of the commodities.

The circulation in a given country during a given time is made up of isolated sales or purchases in which the money is displaced only once, and of series of transformations more or less extended in which the same coins go through more or less numerous displacements. The separate coins composing the sum total of the money in circulation, function then with varying activity, but the whole number of pieces of the same denomination realize, during a given time, a certain total aggregate of prices. There is thus established an average velocity of the currency of money. This mean velocity being known, the quantity, of gold that can function as the medium of circulation may be determined, since that quantity multiplied by the average number of its displacements must be equal to the aggregate of the prices to be realized.

The velocity of the currency of money is only the reflex of the velocity of the transformations of commodities, of their more or less rapid disappearance from circulation and of the substitution for them of new commodities.

When the currency of money is rapid, it brings into prominence the intimate union of the sale and purchase as two acts executed alternately by the same traders. Inversely, when the currency of money is slow, it makes apparent the separation of these two operations and the stagnation in the metamorphic changes of commodities. This stagnation is generally attributed to the insufficient quantity of the metal forming the circulating medium; while the fact is, as we have seen, the quantity of the circulating medium, in a given period of time, is determined by the sum total of the prices of all the commodities in circulation and by the average velocity of their transformations into money by means of sales and into other commodities by means of purchases.

Legal-Tender or Coins and Paper-Money.

Legal-tender has its origin in the function that money performs as the circulating medium. The weight of gold adopted as the unit of measure and its subdivisions must confront commodities on the market, under the form of legal-tender or coins. Just as the establishment of a unit of measure, coining is the business of the State. Gold and silver take on thus, in their quality as legal-tender, an official form, a national uniform, which they remove when they enter the market of the world.

In the process of circulation, coins of gold and silver wear away more or less, and consequently lose more or less of their weight. Coins of the same denomination come to be, in this way, of unequal value, having no longer the same weight, but still in circulation they are deemed equal. While losing their weight, they retain their nominal value. Circulation tends, then, to transform legal-tender coins into mere symbols of their official weight of metal.

The legal-tender function of gold, thus detached from its metallic value by the friction incident to its circulation, may be performed by things relatively without any value, such as bits of paper. Being then, considered as legal-tender or circulating-medium, only its own token, money may, in this function, be replaced by simple tokens. The only requisite for this is that the symbol of money, paper money, shall, like money itself, have social validity. This, the action of the State gives it. Moreover, as a substitute for money, it must be proportioned in its emission to the quantity of money that it represents, and that would actually circulate. If it exceeds this legitimate proportion, it in fact, depreciates. If the quantity of paper-money is double what it should be, then a dollar-bill, for instance, represents only fifty cents. We are here speaking only of legal-tender paper-money forced into circulation by the State.

III.—Reserves of Gold and Silver or Hoards.

As soon as the circulation of commodities develops, there develops along with it the necessity and desire to get and hold fast to what is, under the regime of mercantile production, the key to power over all things else, money.

Every producer must provide himself a store of money. In fact, the needs of the producer are of constant recurrence, and keep him constantly buying the commodities of others, while the production and sale of his own commodities requires more or less time, and is dependent upon a thousand hazards. To be able to buy without selling, one must first have sold without buying. Men, therefore, sell commodities, not to buy others at once, but to replace them with money which they save and spend as the need for it occurs. Money is purposely arrested in its circulation and becomes petrified, so to speak, into a hoard, and the seller becomes a hoarder of money. In this way, all along the line of exchange, larger or smaller hoards of money are accumulated.

It has been seen above that the quantity of money in circulation is determined by the aggregate of the prices of the commodities in circulation and by the velocity of their circulation. This quantity rises and falls then with the circulation of commodities. At one time, a larger quantity of money must enter into circulation; at another a portion of the money current must drop out of circulation. It is by the reserves of money that accumulate, or deplete themselves, under the form of hoards, that this condition is fulfilled.

Money as the Means of Payment.

In the form of the circulation of commodities thus far considered, the parties appear, some as the representatives of commodities, others as the representatives of cash. But with the development of circulation, conditions arise that tend to interpose a longer or shorter interval of time between the sale of a commodity and the realization of its price.

Some kinds of commodities require for their production more time than others. Some are produced only at certain suitable seasons of the year. It may happen then that one of the parties will be ready to sell, when the other has not as yet the means to buy. When the same transactions are constantly recurring between the same persons, the conditions of sale are gradually regulated to suit the conditions of production. The one will sell an existing commodity, the other will buy without immediate payment, as a representative of future money. The seller becomes a creditor, the buyer, a debtor; and money acquires a new function, it becomes the means of payment.

The appearance in a sale of the commodity and the money has ceased to be simultaneous. The money functions now, in the first place, as a measure of value in fixing the price of the commodity sold. Established by the contract, this price is the index of the obligation of the purchaser, that is to say the measure of the amount of money he has to pay at a fixed date.

Then again, it functions as an ideal means of purchase. Although it exists only on the promise of the buyer, it nevertheless transfers the commodity to him.

It is only at the expiration of the stated time that it enters the circulation as the means of payment, or in other words that it passes from the hands of the buyer into those of the seller.

The circulating medium, money, became a hoard because the movement of circulation was arrested at the end of its first phase, because the sale was not followed by a purchase. As the means of payment, it enters the circulation only after the commodity has left it. The seller transformed his commodity into money, to satisfy his wants by the purchase of useful objects; the hoarder of money transformed his to preserve it under the form of exchange-value directly commanding every sort of commodity, to keep it in its money-shape; and the purchaser, who went in debt, transformed his, to be able to meet his debt. If he does not effect this transformation, if he does not pay his debt when due, his goods will be sold by the officers of the law. The metamorphosis of the commodity into money becomes, thus, a social necessity which imposes itself upon the producer of commodities, irrespective of his personal needs or inclinations.

The payments to be made may balance each other. In this case, no actual payment is made, but the obligations reciprocally cancel each other. And institutions are organized on purpose to effect these cancellations, which decrease the quantity of money (legal-tender) used. Moreover, there enters into the circulation every day, a certain amount of money to meet the obligations due that day, but which represents commodities long withdrawn from circulation. Under these conditions, the quantity of money in circulation during a given period, if the velocity of the currency of the circulating medium and of the means of payment is given, is equal to the aggregate of the prices of the commodities to be realized, plus the sum of the payments falling due in that period, and minus the sum of the payments that balance each other.

Credit-money (drafts, checks, etc.) springs directly from the function of money as the means of payment. Certificates of debts contracted for goods bought, themselves circulate in their turn, to transfer to others the credits proven by them. With the extension of the credit system, money as the means of payment takes on peculiar forms of existence by the aid of which the great commercial operations are conducted, while coins of gold and silver are for the most part relegated to retail trade.

In every country, there become established certain general settling-days, certain determined seasons, when payments are made on a large scale; and the function of money as the means of payment necessitates the accumulation of the amounts required for these settling-days.

Universal Money.

When metallic money leaves the home sphere of circulation, it strips off the local forms with which it bad clothed itself, to return to its primal form of the bar or ingot.

Within the limits of home circulation, only one commodity can serve as the measure of value. On the markets of the world, a double measure of value holds sway—gold and silver.



[1] Translator's Note.—This word is here used as in the English translation of "Capital", in its original meaning of the course or track followed by money as it changes from hand to band—a course essentially differing from circulation.