Chapter 2: Money or Simple Circulation

• • Preface
  • Chapter 1: The Commodity
  • Note A. Historical Notes on the Analysis of Commodities
  • Chapter 2: Money or Simple Circulation
  • Note B. Theories of the Standard of Money
  • Note C. Theories of the the Medium of Circulation and of Money
  • Appendix: Introduction by Karl Marx
  • Appendix: Index to the 7 Notebooks
  • Appendix: Original text of Second and beginning of Third chapter
  • Appendix: Additional Notes
  • Appendix: Draft Plan of the Chapter on Capital
  • Appendix: References to My Own Notebooks

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Gladstone, speaking in a parliamentary debate on Sir Robert Peel’s Bank Act of 1844 and 1845, observed that even love has not turned more men into fools than has meditation upon the nature of money. He spoke of Britons to Britons. The Dutch, on the other hand, who in spite of Petty’s doubts possessed a divine sense for money speculation from time immemorial, have never lost their senses in speculation about money.

The principal difficulty in the analysis of money is surmounted as soon as it is understood that the commodity is the origin of money. After that it is only a question of clearly comprehending the specific form peculiar to it. This is not so easy because all bourgeois relations appear to be gilded, i.e., they appear to be money relations, and the money form, therefore, seems to possess an infinitely varied content, which is quite alien to this form.

During the following analysis it is important to keep in mind that we are only concerned with those forms of money which arise directly from the exchange of commodities, but not with forms of money, such as credit money, which belong to a higher stage of production. For the sake of simplicity gold is assumed throughout to be the money commodity.

1. Measure of Value

The first phase of circulation is, as it were, a theoretical phase preparatory to real circulation. Commodities, which exist as use-values, must first of all assume a form in which they appear to one another nominally as exchange-values, as definite quantities of materialised universal labour-time. The first necessary move in this process is, as we have seen, that the commodities set apart a specific commodity, say, gold, which becomes the direct reification of universal labour-time or the universal equivalent. Let us return for a moment to the form in which gold is converted into money by commodities.

1 ton of iron	=2 ounces of gold
1 quarter of wheat	=1 ounce of gold
1 hundredweight of Mocha coffee	=¼ ounce of gold
1 hundredweight of potash	=½ ounce of gold
1 ton of Brazil-timber	=1½ ounces of gold
Y commodities	=X ounces of gold

In this series of equations iron, wheat, coffee, potash, etc., appear to one another as materialisation of uniform labour, that is labour materialised in gold, in which all distinctive features of the concrete labour represented in the different use-values are entirely obliterated. They are as values identical, i.e., materialisations of the same labour or the same materialisation of labour – gold. Since they are uniform materialisations of the same labour, they differ only in one way, quantitatively: in other words they represent different magnitudes of value, because their use-values contain unequal amounts of labour-time. These individual commodities can be compared with one another as embodiments of universal labour-time, since they have been compared with universal labour-time in the shape of the excluded commodity, i.e., gold. The same dynamic relation, as a result of which commodities become exchange-values for one another, causes the labour-time contained in gold to represent universal labour-time, a given amount of which is expressed in different quantities of iron, wheat, coffee, etc., in short in the use-values of all commodities, or it may be displayed directly in the infinite series of commodity equivalents. Since the exchange-value of all commodities is expressed in gold, the exchange-value of gold is directly expressed in all commodities. Because the commodities themselves assume the form of exchange-value for one another, they turn gold into the universal equivalent or into money.

Gold becomes the measure of value because the exchange-value of all commodities is measured in gold, is expressed in the relation of a definite quantity of gold and a definite quantity of commodity containing equal amounts of labour-time. To begin with, gold becomes the universal equivalent, or money, only because it thus functions as the measure of value and as such its own value is measured directly in all commodity equivalents. The exchange-value of all commodities, on the other hand, is now expressed in gold. One has to distinguish a qualitative and a quantitative aspect in this expression. The exchange-value of the commodity exists as the embodiment of equal uniform labour-time, the value of the commodity is thus fully expressed, for to the extent that commodities are equated with gold they are equated with one another. Their golden equivalent reflects the universal character of the labour-time contained in them on the one hand, and its quantity on the other hand. The exchange-value of commodities thus expressed in the form of universal equivalence and simultaneously as the degree of this equivalence in terms of a specific commodity, that is a single equation in which commodities are compared with a specific commodity, constitutes price. Price is the converted form in which the exchange-value of commodities appears within the circulation process.

Thus as a result of the same process through which the values of commodities are expressed in gold prices, gold is transformed into the measure of value and thence into money. If the values of all commodities were measured in silver or wheat or copper, and accordingly expressed in terms of silver, wheat or copper prices, then silver, wheat or copper would become the measure of value and consequently universal equivalents. Commodities as exchange-values must be antecedent to circulation in order to appear as prices in circulation. Gold becomes the measure of value only because the exchange-value of all commodities is estimated in terms of gold. The universality of this dynamic relation, from which alone springs the capacity of gold to act as a measure, presupposes however that every single commodity is measured in terms of gold in accordance with the labour-time contained in both, so that the real measure of commodity and gold is labour itself, that is commodity and gold are as exchange-values equated by direct exchange. How this equating is carried through in practice cannot be discussed in the context of simple circulation. It is evident, however, that in countries where gold and silver are produced a definite amount of labour-time is directly incorporated in a definite quantity of gold and silver, whereas countries which produce no gold and silver arrive at the same result in a roundabout way, by direct or indirect exchange of their home products, i.e., of a definite portion of their average national labour, for a definite quantity of labour-time embodied in the gold and silver of countries that possess mines. Gold must be in principle a variable value, if it is to serve as a measure of value, because only as reification of labour-time can it become the equivalent of other commodities, but as a result of changes in the productivity of concrete labour, the same amount of labour-time is embodied in unequal volumes of the same type of use-values. The valuation of all commodities in terms of gold – like the expression of the exchange-value of any commodity in terms of the use-value of another commodity – merely presupposes that at a given moment gold represents a definite quantity of labour-time. The law of exchange-value set forth earlier applies to changes occurring in the value of gold. If the exchange-value of commodities remains unchanged, then a general rise of their prices in terms of gold can only take place when the exchange-value of gold falls. If the exchange-value of gold remains unchanged, then a general rise of prices in terms of gold is only possible if the exchange-values of all commodities rise. The reverse takes place in the case of a general decline in the prices of commodities. If the value of an ounce of gold falls or rises in consequence of a change in the labour-time required for its production, then it will fall or rise equally in relation to all other commodities and will thus for all of them continue to represent a definite volume of labour-time. The same exchange-values will now be estimated in quantities of gold which are larger or smaller than before, but they will be estimated in accordance with their values and will therefore maintain the same value relative to one another. The ratio 2:4:8 remains the same whether it becomes 1:2:4 or 4:8:16. The fact that, because of the changing value of gold, exchange-values are represented by varying quantities of gold does not prevent gold from functioning as the measure of value, any more than the fact that the value of silver is one-fifteenth of that of gold prevents silver from taking over this function. Labour-time is the measure of both gold and commodities, and gold becomes the measure of value only because all commodities are measured in terms of gold; it is consequently merely an illusion created by the circulation process to suppose that money makes commodities commensurable. On the contrary, it is only the commensurability of commodities as materialised labour-time which converts gold into money.

The concrete form in which commodities enter the process of exchange is as use-values. The commodities will only become universal equivalents as a result of their alienation. The establishment of their price is merely their nominal conversion into the universal equivalent, an equation with gold which still has to be put into practice. But because prices convert commodities only nominally into gold or only into imaginary gold – i.e., the existence of commodities as money is indeed not yet separated from their real existence – gold has been merely transformed into imaginary money, only into the measure of value, and definite quantities of gold serve in fact simply as names for definite quantities of labour-time. The distinct form in which gold crystallises into money depends in each case on the way in which the exchange-values of commodities are represented with regard to one another.

Commodities now confront one another in a dual form, really as use-values and nominally as exchange-values. They represent now for one another the dual form of labour contained in them, since the particular concrete labour actually exists as their use-value, while universal abstract labour-time assumes an imaginary existence in their price, in which they are all alike embodiments of the same substance of value, differing only quantitatively.

The difference between exchange-value and price is, on the one hand, merely nominal; as Adam Smith says, labour is the real price of commodities and money their nominal price. Instead of saying that one quarter of wheat is worth thirty days’ labour, one now says it is worth one ounce of gold, when one ounce of gold is produced in thirty working days. The difference is on the other hand so far from being simply a nominal difference that all the storms which threaten the commodity in the actual process of circulation centre upon it. A quarter of wheat contains thirty days’ labour, and it therefore does not have to be expressed in terms of labour-time. But gold is a commodity distinct from wheat, and only circulation can show whether the quarter of wheat is actually turned into an ounce of gold as has been anticipated in its price. This depends on whether or not the wheat proves to be a use-value, whether or not the quantity of labour-time contained in it proves to be the quantity of labour-time necessarily required by society for the production of a quarter of wheat. The commodity as such is an exchange-value, the commodity has a price. This difference between exchange-value and price is a reflection of the fact that the particular individual labour contained in the commodity can only through alienation be represented as its opposite, impersonal, abstract, general – and only in this form social – labour, i.e., money. Whether it can be thus represented or not seems a matter of chance. Although, therefore, the price gives exchange-value a form of existence which is only nominally distinct from the commodity, and the two aspects of the labour contained in the commodity appear as yet only as different modes of expression; while, on the other hand, gold, the embodiment of universal labour-time, accordingly confronts concrete commodities merely as an imaginary measure of value; yet the existence of price as an expression of exchange-value, or of gold as a measure of value, entails the necessity for alienation of commodities in exchange for glittering gold and thus the possibility of their non-alienation. In short, there is here contained in latent form the whole contradiction which arises because the product is a commodity, or because the particular labour of an isolated individual can become socially effective only if it is expressed as its direct opposite, i.e., “abstract universal labour. The utopians who wish to retain commodities but not money, production based on private exchange without the essential conditions for this type of production, are therefore quite consistent when they seek to “abolish” money not only in its palpable state but even in the nebulous, chimerical state that it assumes as the measure of value. For beneath the invisible measure of value lurks hard money.

Given the process by which gold has been turned into the measure of value and exchange-value into price, all commodities when expressed in their prices are merely imagined quantities of gold of various magnitudes. Since they are thus various quantities of the same thing, namely gold, they are similar, comparable and commensurable, and thus arises the technical necessity of relating them to a definite quantity of gold as a unit of measure. This unit of measure then develops into a scale of measure by being divided into aliquot parts which are in turn subdivided into aliquot parts. The quantities of gold themselves, however, are measured by weight. The standard weights generally used for metals accordingly provide ready-made standard measures, which originally also served as standard measures of price wherever metallic currency was in use. Since commodities are no longer compared as exchange-values which are measured in terms of labour-time, but as magnitudes of the same denomination measured in terms of gold, gold, the measure of value, becomes the standard of price. The comparison of commodity-prices in terms of different quantities of gold thus becomes crystallised in figures denoting imaginary quantities of gold and representing gold as a standard measure divided into aliquot parts. Gold as measure of value and as standard of price has quite distinct specific functions, and the confusion of the one with the other has led to the most absurd theories. Gold as materialised labour-time is a measure of value, as a piece of metal of definite weight it is the standard of price. Gold becomes the measure of value because as an exchange-value it is compared with the exchange-values of other commodities; in its aspect as a standard of price a definite quantity of gold serves as a unit for other quantities of gold. Gold is the measure of value because its value is variable; it is the standard of price because it has been established as an invariable unit of weight. Here, as in all cases of measuring quantities of the same denomination, stability and exactitude of the proportions is essential. The necessity of establishing a quantity of gold as the unit of measure and its aliquot parts as subdivisions of this unit has given rise to the idea that a fixed ratio of values has been set up between a definite quantity of gold, whose value is of course variable, and the exchange-values of commodities. But such a view simply ignores the fact that the exchange-values of commodities are turned into prices, into quantities of gold, before gold becomes the standard of price. Quite irrespective of any changes in the value of gold, different quantities of gold will always represent the same ratio of values with regard to one another. lf the value of gold should fall by 1,000 per cent, then the value of twelve ounces of gold would still be twelve times bigger than that of one ounce of gold, and so far as prices are concerned what matters is only the proportion of the different quantities of gold to one another. Since, on the other hand, a rise or fall in the value of an ounce of gold does not in any way affect its weight, the weight of its aliquot parts remains likewise unaffected; gold can thus always serve as a stable standard of price, regardless of any changes in its value.

As a result of an historical process, which, as we shall explain later, was determined by the nature of metallic currency, the names of particular weights were retained for constantly changing and diminishing weights of precious metals functioning as the standard of price. Thus the English pound sterling denotes less than one-third of its original weight, the pound Scots before the Union only 1/36, the French livre 1/74, the Spanish maravedi less than 1/1,000 and the Portuguese rei an even smaller proportion. Historical development thus led to a separation of the money names of certain weights of metals from the common names of these weights. Because the designation of the unit of measure, its aliquot parts and their names is, on the one hand, purely conventional, and on the other hand must be accepted as universal and indispensable within the sphere of circulation, it had to be established by legal means. The purely formal enactment thus devolved upon the government. Which particular metal served as the material of money depended on the given social conditions. The standard of price is of course different in different countries. In England, for example, the ounce as a weight of metal is divided into pennyweights, grains and carats troy; but the ounce of gold as the unit of money is divided into 3 7/8 sovereigns, the sovereign into 20 shillings and the shilling into 12 pence, so that 100 pounds of 22-carat gold (1,200 ounces) equal 4,672 sovereigns and 10 shillings. But in the world market, where state frontiers disappear, such national features of the standards of money disappear as well and are replaced by measures of weight generally used for metals.

The price of a commodity, or the quantity of gold into which it is nominally converted, is now expressed therefore in the monetary names of the standard of gold. Thus, instead of saying a quarter of wheat is worth an ounce of gold, one would say in England it is worth £3 17s. 10/2d. All prices are thus expressed in the same denomination. The specific form which the exchange-value of commodities assumes is converted into denominations of money, by which their value is expressed. Money in turn becomes money of account.

The transformation of commodities into money of account in the mind, on paper or in words takes place whenever the aspect of exchange-value becomes fixed in a particular type of wealth. This transformation needs the material of gold, but only in imagination. Not a single atom of real gold is used to estimate the value of a thousand bales of cotton in terms of a certain number of ounces of gold and then to express this number of ounces in £. s. d., the names of account of the ounce. For instance, not a single ounce of gold was in circulation in Scotland before Sir Robert Peel’s Bank Act of 1845, although the ounce of gold, called £3 17s. 10/2d. as the British standard of account, served as the legal standard of price. Similarly, silver serves as the standard of price in exchange of commodities between Siberia and China, although this trade is in fact merely barter. It makes no difference, therefore, to gold as money of account whether or not its standard unit or its subdivisions are actually coined. During the reign of William the Conqueror, one pound sterling, at that time a pound of pure silver, and the shilling,½0 of a pound, existed in England only as money of account, while the penny,½40 of a pound of silver, was the largest silver coin in existence. On the other hand, there are no shillings or pence in England today, although they are legal names of account for definite fractions of an ounce of gold. Money as money of account may exist only nominally, while actually existing money may be coined according to an entirely different standard. Thus in many of the English colonies in North America, the money in circulation consisted of Spanish and Portuguese coins till late in the eighteenth century, whereas the money of account was everywhere the same as in England.

Because as standard of price gold is expressed by the same names of account as the prices of commodities – for example £3 17s. 10½d. may denote an ounce of gold just as well as a ton of iron – these names of account are called the mint-price of gold. Thus the queer notion arose that gold is estimated in its own material and that, unlike all other commodities, its price is fixed by the State. The establishing of names of account for definite weights of gold was mistaken for the establishing of the value of these weights. Gold has neither a fixed price nor any price at all, when it is a factor in the determination of prices and therefore functions as money of account. In order to have a price, in other words to be expressed in terms of a specific commodity functioning as the universal equivalent, this other commodity would have to play the same exclusive role in the process of circulation as gold. But two commodities which exclude all other commodities would exclude each other as well. Consequently, wherever silver and gold exist side by side as legal money, i.e., as measure of value, the vain attempt has always been made to treat them as one and the same substance. If one assumes that a given labour-time is invariably materialised in the same proportion in silver and gold, then one assumes, in fact, that silver and gold are the same substance, and that silver, the less valuable metal, represents a constant fraction of gold. The history of the monetary system in England from the reign of Edward III up to the time of George II consists of a continuous series of disturbances caused by conflict between the legally established ratio between the values of gold and silver and the actual fluctuations in their value. Sometimes the value of gold was too high, sometimes that of silver. The metal whose value was estimated at too low a rate was withdrawn from circulation, melted down and exported. The value-ratio of the two metals was then once again changed by law; but soon the new nominal value in its turn clashed with the actual value-ratio. In our own time, the slight and short-lived fall in the value of gold as compared with silver, brought about by the Indian and Chinese demand for silver, produced the same phenomenon on a large scale in France – the export of silver and the elimination of silver from the sphere of circulation by gold. During the years 1855, 1856 and 1857, the excess of France’s gold imports over her gold exports amounted to £41,580,000, while the excess of her silver exports over silver imports came to £34,704,000. In countries like France, where both metals are legally sanctioned measures of value and both are accepted as legal tender, where moreover every person can pay in the one or the other metal as he pleases, the metal whose value rises is in fact at a premium, and its price like that of any other commodity is measured in terms of the over-rated metal, which thus serves alone as the measure of value. All historical experience in this sphere simply shows that, where two commodities function as legally valid measures of value, it is always one of them only which actually maintains this position.

2. Medium of Exchange

When, as a result of the establishing of prices, commodities have acquired the form in which they are able to enter circulation and gold has assumed its function as money, the contradictions latent in the exchange of commodities are both exposed and resolved by circulation. The real exchange of commodities, that is the social metabolic process, constitutes a transformation in which the dual nature of the commodity – commodity as use-value and as exchange-value – manifests itself; but the transformation of the commodity itself is, at the same time, epitomised in certain forms of money. To describe this transformation is to describe circulation. Commodities, as we have seen, constitute fully developed exchange-value only when a world of commodities and consequently a really developed system of division of labour is presupposed; in the same manner circulation presupposes that acts of exchange are taking place everywhere and that they are being continuously renewed. It also presupposes that commodities enter into the process of exchange with a determinate price, in other words that in the course of exchange they appear to confront one another in a dual form – really as use-values and nominally (in the price) as exchange-values.

The busiest streets of London are crowded with shops whose show cases display all the riches of the world, Indian shawls, American revolvers, Chinese porcelain, Parisian corsets, furs from Russia and spices from the tropics, but all of these worldly things bear odious, white paper labels with Arabic numerals and then laconic symbols £ s. d. This is how commodities are presented in circulation.

a. The Metamorphosis of Commodities

Closer examination shows that the circulation process comprises two distinct types of circuit. If commodities are denoted by C and money by M, the two circuits may be represented in the following way:

C—M—C

M—C—M

In this section we are solely concerned with the first circuit, that is the one which directly expresses commodity circulation.

The circuit C—M—C may be divided into the movement C—M, the exchange of commodities for money, or sale; the opposite movement M—C, the exchange of money for commodities, or purchase; and the unity of the two movements C—M—C, exchange of commodities for money so as to exchange money for commodities, in other words, selling in order to purchase. The outcome in which the transaction terminates is C—C, i.e., exchange of one commodity for another, actual exchange of matter.

C—M—C, when considered from the point of departure of the first commodity, represents its conversion into gold and its reconversion from gold into commodity; that is to say a movement in which at the outset the commodity appears as a particular use-value, then sheds this form of existence and assumes that of exchange-value or universal equivalent – which is entirely distinct from its natural form – finally it sheds this as well and emerges as a real use-value which can serve particular needs. In this last form it drops out of the sphere of circulation and enters that of consumption. Thus to begin with, the whole circuit of C—M—C represents the entire series of metamorphoses through which every individual commodity passes in order to become a direct use-value for its owner. The first metamorphosis takes place in C—M, the first phase of the circuit; the second in M—C, the other phase, and the entire circuit forms the curriculum vitae of the commodity. But the cycle C—M—C represents the complete metamorphosis of an individual commodity only because it is at the same time an aggregate of definite partial metamorphoses of other commodities. For each metamorphosis of the first commodity is its transformation into another commodity and therefore the transformation of the second commodity into the first; hence it is a double transformation which is carried through during a single stage of the cycle. To start with, we shall separately examine each of the two phases of exchange into which the cycle C—M—C is resolved.

C—M or sale: C, the commodity, enters the sphere of circulation not just as a particular use-value, e.g., a ton of iron, but as a use-value with a definite price, say £3 17s. 10 1/2d. or an ounce of gold. The price while on the one hand indicating the amount of labour-time contained in the iron, namely its value, at the same time signifies the pious wish to convert the iron into gold, that is to give the labour-time contained in the iron the form of universal social labour-time. If this transformation fails to take place, then the ton of iron ceases to be not only a commodity but also a product; since it is a commodity only because it is not a use-value for its owner, that is to say his labour is only really labour if it is useful labour for others, and it is useful for him only if it is abstract general labour. It is therefore the task of the iron or of its owner to find that location in the world of commodities where iron attracts gold. But if the sale actually takes place, as we assume in this analysis of simple circulation, then this difficulty, the salto mortale of the commodity, is surmounted. As a result of this alienation – that is its transfer from the person for whom it is a non-use-value to the person for whom it is a use-value – the ton of iron proves to be in fact a use-value and its price is simultaneously realised, and merely imaginary gold is converted into real gold. The term “ounce of gold” or 3 17s. 10 1/2d., has now been replaced by an ounce of real gold, but the ton of iron has gone. The sale C—M does not merely transform the commodity – which by means of the price was nominally turned into gold – really into gold, but gold, which as measure of value was only nominally gold and in fact functioned only as the money name of commodities, is through the same process transformed into actual money. As gold became nominally the universal equivalent, because the values of all commodities were measured in terms of gold, so now, as a result of the universal alienation of commodities in exchange for it – and the sale C—M is the procedure by which this universal alienation is accomplished – does it become the absolutely alienated commodity, i.e., real money. But gold becomes real money through sale, only because the exchange-values of commodities expressed in prices were already converted into nominal gold.

During the sale C—M, and likewise during the purchase M—C, two commodities, i.e., units of exchange-value and use-value, confront each other; but in the case of the commodity exchange-value exists merely nominally as its price, whereas in the case of gold, although it has real use-value, its use-value merely represents exchange-value and is therefore merely a formal use-value which is not related to any real individual need. The contradiction of use-value and exchange-value is thus polarised at the two extreme points of C—M, so that with regard to gold the commodity represents use-value whose nominal exchange-value, the price, still has to be realised in gold; with regard to the commodity, on the other hand, gold represents exchange-value whose formal use-value still has to acquire a material form in the commodity. The contradictions inherent in the exchange of commodities are resolved only by reason of this duplication of the commodity so that it appears as commodity and gold, and again by way of the dual and opposite relation in which each extreme is nominal where its opposite is real, and real where its opposite is nominal, in other words they are resolved only by means of presenting commodities as bilateral polar opposites.

So far we have regarded C—M as a sale, as the conversion of a commodity into money. But if we consider it from the other side, then the same transaction appears, on the contrary, as M—C, a purchase, the conversion of money into a commodity. A sale is inevitably and simultaneously its opposite, a purchase; it is the former if one looks at the transaction from one side and the latter if one sees it from the other. In other words, the difference between the transactions is in reality merely that in C—M the initiative comes from the side of the commodity or of the seller while in M—C it comes from the side of money or of the purchaser. When we describe the first metamorphosis of the commodity, its transformation into money, as the result of the first phase of the circuit, we simultaneously presuppose that another commodity has already been converted into money and is therefore now in the second phase of the circuit, M—C. We are thus caught up in a vicious circle of presuppositions. This vicious circle is indeed circulation itself. If we do not regard M in C—M as belonging to the metamorphosis of another commodity, then we isolate the act of exchange from the process of circulation. But if it is separated from the process, the phase C—M disappears and there remain only two commodities which confront each other, for instance iron and gold, whose exchange is not a distinct part of the cycle but is direct barter. At the place where gold is produced, it is a commodity like any other commodity. Its relative value and that of iron or of any other commodity is there reflected in the quantities in which they are exchanged for one another. But this transaction is presupposed in the process of circulation, the value of gold is already given in the prices of commodities. It would therefore be entirely wrong to assume that within the framework of circulation, the relation of gold and commodities is that of direct barter and that consequently their relative value is determined by their exchange as simple commodities. It seems as though in the process of circulation gold were exchanged merely as a commodity for other commodities, but this illusion arises simply because a definite quantity of a given commodity is equalised by means of prices with a definite quantity of gold: that is, it is compared with gold as money, the universal equivalent, and consequently it can be directly exchanged for gold. In so far as the price of a commodity is realised in gold, the commodity is exchanged for gold as a commodity, as a particular materialisation of labour-time; but in so far as it is the price of the commodity that is realised in gold, the commodity is exchanged for gold as money and not as a commodity, i.e., for gold as the materialisation of general labour-time. But the quantity of gold for which the commodity is exchanged in the process of circulation is in both cases determined not by means of exchange, but the exchange is determined by the price of the commodity, by its exchange-value calculated in terms of gold.

Within the process of circulation gold seems to be always acquired as the result of a sale C—M. But since C—M, the sale, is simultaneously M—C, a purchase, it is evident that while C the commodity which begins the process undergoes its first metamorphosis, the other commodity which confronts it as M from the opposite extreme undergoes its second metamorphosis and accordingly passes through the second phase of the circuit while the first commodity is still in the first phase of its cycle.

The outcome of the first stage of circulation, of the sale, provides money, the point of departure of the second stage. The first form of the commodity has now been replaced by its golden equivalent. This outcome may to begin with involve a pause, since the commodity has now assumed a specific durable form. The commodity which was not a use-value in the hands of its owner exists now in a form in which it is always useful because it can always be exchanged, and it depends on circumstances when and at which point in the world of commodities it will again be thrown into circulation. The golden chrysalis state forms an independent phase in the life of the commodity, in which it can remain for a shorter or longer period. The separation and independence of the acts of purchase and sale is a general feature of the labour which creates exchange-value, whereas in barter the exchange of one discrete use-value is directly tied to the exchange of another discrete use-value.

The purchase, M—C, is the reverse movement to C—M and at the same time the second or final metamorphosis of the commodity. Regarded as gold or as the general equivalent, the commodity can be directly expressed in terms of the use-values of all other commodities, all of which through their prices seek gold as their hereafter, and simultaneously they indicate the key note which must be sounded so that their bodies, the use-values, should change over to the money side, while their soul, the exchange-value, is turned into gold. The general result of the alienation of commodities is the absolutely alienated commodity. The conversion of gold into commodities has no qualitative limit but only a quantitative limit, the fact that the amount of gold, or the value it represents, is limited. Everything can be obtained with ready money. Whereas the commodity realises its own price and the use-value of someone else’s money through its alienation as a use-value in the movement C—M, it realises its own use-value and the price of the other commodity through its alienation as an exchange-value in the movement M—C. Just as by the realisation of its price, the commodity simultaneously turns gold into real money, so by its retransformation it converts gold into its (the commodity’s) own merely transitory money form. Because commodity circulation presupposes an advanced division of labour and therefore also a diversity of wants on the part of the individual, a diversity bearing an inverse relation to the narrow scope of his own production, the purchase M—C will at times consist of an equation with one commodity as the equivalent, and at other times of a series of commodity equivalents determined by the buyer’s needs and the amount of money at his disposal. Just as a sale must at the same time be a purchase, so the purchase must at the same time be a sale; M—C is simultaneously C—M, but in this case gold or the purchaser takes the initiative.

Returning to the complete circuit C—M—C, we can see that in it one commodity passes through the entire series of its metamorphoses. But at the same time as this commodity begins the first phase of its circuit and undergoes the first metamorphosis, another commodity commences the second phase of the circuit, passes through its second metamorphosis and drops out of circulation; the first commodity, on the other hand, enters the second phase of the circuit, passes through its second metamorphosis and drops out of circulation, while a third commodity enters the sphere of circulation, passes through the first phase of its cycle and accomplishes the first metamorphosis. Thus the total circuit C—M—C representing the complete metamorphosis of a commodity is simultaneously the end of a complete metamorphosis of a second commodity and the beginning of a complete metamorphosis of a third commodity; it is therefore a series without beginning or end. To demonstrate this and to distinguish the commodities we shall use different symbols to denote C in the two extremes, e.g., C'—M—C''. Indeed, the first term C'—M presupposes that M is the outcome of another C—M, and is accordingly itself only the last term of the circuit C—M—C', while the second term M—C'' implies that it will result in C"—M, and constitutes the first term of the circuit C"—M—C''', and so on. It is moreover evident, that, although M is the outcome of a single sale, the last term M—C may take the form of M—C' + M—C'' + M—C''', and so forth; in other words it may be divided into numerous purchases, i.e., into numerous sales and hence numerous first terms of new complete metamorphoses of commodities. While in this way the complete metamorphosis of a single commodity forms not only a link of just one sequence of metamorphoses without beginning or end, but of many such sequences, the circulation of the world of commodities – since every individual commodity goes through the circuit C—M—C – constitutes an infinitely intricate network of such series of movements, which constantly end and constantly begin afresh at an infinite number of different points. But each individual sale or purchase stands as an independent isolated transaction, whose complementary transaction, which constitutes its continuation, does not need to follow immediately but may be separated from it temporally and spatially. Because every particular cycle C—M or M—C representing the transformation of one commodity into use-value and of another into money, i.e., the first and second phase of the circuit, forms a separate interval for both sides, and since on the other hand all commodities begin their second metamorphosis, that is turn up at the starting point of the circuit's second phase, in the form of gold, the general equivalent, a form common to them all, in the real process of circulation any M—C may follow any particular C—M, i.e., the second section of the life cycle of any commodity may follow the first section of the life cycle of any other commodity. For example, A sells iron for £2, and thus C—M or the first metamorphosis of the commodity iron has taken place, but for the time being A does not buy anything else. At the same time B, who had sold two quarters of wheat for £6 two weeks ago, buys a coat and trousers from Moses and Son with the same £6, and thereby completes M—C or the second metamorphosis of the commodity wheat. The two transactions M—C and C—M appear to be parts of the same sequence only because. as M [money or] gold, all commodities look alike and gold does not look any different whether it represents transformed iron or transformed wheat. In the real process of circulation C—M—C, therefore, represents an exceedingly haphazard coincidence and succession of motley phases of various complete metamorphoses. The actual process of circulation appears, therefore, not as a complete metamorphosis of the commodity, i.e., not as its movement through opposite phases, but as a mere accumulation of numerous purchases and sales which chance to occur simultaneously or successively. The process accordingly loses its distinct form, especially as each individual transaction, e.g., a sale, is simultaneously its opposite, a purchase, and vice versa. On the other hand, the metamorphoses in the world of commodities constitute the process of circulation and the former must therefore be reflected in the total movement of circulation. This reflection will be examined in the next section. Here we shall merely observe that the C at each of the two extremes of the circuit C—M—C has a different formal relation to M. The first C is a particular commodity which is compared with money as the universal commodity, whereas in the second phase money as the universal commodity is compared with an individual commodity. The formula C—M—C can therefore be reduced to the abstract logical syllogism P—U—I, where particularity forms the first extreme, universality characterises the common middle term and individuality signifies the final extreme.

The commodity-owners entered the sphere of circulation merely as guardians of commodities. Within this sphere they confront one another in the antithetical roles of buyer and seller, one personifying a sugar-loaf, the other gold. Just as the sugar-loaf becomes gold, so the seller becomes a buyer. These distinctive social characters are, therefore, by no means due to individual human nature as such, but to the exchange relations of persons who produce their goods in the specific form of commodities. So little does the relation of buyer and seller represent a purely individual relationship that they enter into it only in so far as their individual labour is negated, that is to say, turned into money as non-individual labour. It is therefore as absurd to regard buyer and seller, these bourgeois economic types, as eternal social forms of human individuality, as it is preposterous to weep over them as signifying the abolition of individuality. They are an essential expression of individuality arising at a particular stage of the social process of production. The antagonistic nature of bourgeois production is, moreover, expressed in the antithesis of buyer and seller in such a superficial and formal manner that this antithesis exists already in pre-bourgeois social formations, for it requires merely that the relations of individuals to one another should be those of commodity-owners.

An examination of the outcome of the circuit C—M—C shows that it dissolves into the exchange of C—C. Commodity has been exchanged for commodity, use-value for use-value, and the transformation of the commodity into money, or the commodity as money, is merely an intermediary stage which helps to bring about this metabolism. Money emerges thus as a mere medium of exchange of commodities, not however as a medium of exchange in general, but a medium of exchange adapted to the process of circulation, i.e., a medium of circulation.

If, because the process of circulation of commodities ends in C—C and therefore appears as barter merely mediated by money, or because C—M—C in general does not only fall apart into two isolated cycles but is simultaneously their dynamic unity, the conclusion were to be drawn that only the unity and not the separation of purchase and sale exists, this would display a manner of thinking the criticism of which belongs to the sphere of logic and not of economics. The division of exchange into purchase and sale not only destroys locally evolved primitive, traditionally pious and sentimentally absurd obstacles standing in the way of social metabolism, but it also represents the general fragmentation of the associated factors of this process and their constant confrontation, in short it contains the general possibility of commercial crises, essentially because the contradiction of commodity and money is the abstract and general form of all contradictions inherent in the bourgeois mode of labour. Although circulation of money can occur therefore without crises, crises cannot occur without circulation of money. This simply means that where labour based on individual exchange has not yet evolved a monetary system, it is quite unable of course to produce phenomena that presuppose a full development of the bourgeois mode of production. This displays the profundity of the criticism that proposes to remedy the “shortcomings” of the bourgeois system of production by abolishing the “privileges” of precious metals and by introducing a so-called rational monetary system. A proposition reputed to be exceedingly clever may on the other hand serve as an example of economic apologetics. James Mill, the father of the well-known English economist John Stuart Mill, says:

"Whatever... be the amount of the annual produce, it never can exceed the amount of the annual demand.... Of two men who perform an exchange, the one does not come with only a supply, the other with only a demand; each of them comes with both a demand and a supply.... The supply which he brings is the instrument of his demand and his demand and supply are of course exactly equal to one another. It is, therefore, impossible that there should ever be in any country a commodity or commodities in quantity greater than the demand, without there being, to an equal amount, some other commodity or commodities in quantity less than the demand.”

Mill establishes equilibrium by reducing the process of circulation to direct barter, but on the other hand he insinuates buyer and seller, figures derived from the process of circulation, – into direct barter. Using Mill's confusing language one may say that there are times when it is impossible to sell all commodities, for instance in London and Hamburg during certain stages of the commercial crisis of 1857/58 there were indeed more buyers than sellers of one commodity, i.e., money, and more sellers than buyers as regards all other forms of money, i.e, commodities. The metaphysical equilibrium of purchases and sales is confined to the fact that every purchase is a sale and every sale a purchase, but this gives poor comfort to the possessors of commodities who unable to make a sale cannot accordingly make a purchase either.

The separation of sale and purchase makes possible not only commerce proper, but also numerous pro forma transactions, before the final exchange of commodities between producer and consumer takes place. It thus enables large numbers of parasites to invade the process of production and to take advantage of this separation. But this again means only that money, the universal form of labour in bourgeois society, makes the development of the inherent contradictions possible.

b. The Circulation of Money

In the first instance real circulation consists of a mass of random purchases and sales taking place simultaneously. In both purchase and sale commodities and money confront each other in the same way; the seller represents the commodity, the buyer the money. As a means of circulation money therefore appears always as a means of purchase, and this obscures the fact that it fulfils different functions in the antithetical phases of the metamorphosis of commodities.

Money passes into the hands of the seller in the same transaction which transfers the commodity into the hands of the buyer. Commodity and money thus move in opposite directions, and this change of places – in the course of which the commodity crosses over to one side and money to the other – occurs simultaneously at an indefinite number of points along the entire surface of bourgeois society. But the first move of the commodity in the sphere of circulation is also its last move. No matter whether the commodity changes its position because gold is attracted by it (C—M) or because it is attracted by gold (M—C), in consequence of the single move, the single change of place, it falls out of the sphere of circulation into that of consumption. Circulation is a perpetual movement of commodities, though always of different commodities, and each commodity makes but one move. Each commodity begins the second phase of its circuit not as the same commodity, but as a different commodity, i.e., gold. The movement of the metamorphosed commodity is thus the movement of gold. The same coin or the identical bit of gold which in the transaction C—M changed places with a commodity becomes in turn the starting point of M—C, and thus for the second time changes places with another commodity. Just as it passed from the hands of B, the buyer, into those of A, the seller, so now it passes from the hands of A, who has become a buyer, into those of C. The changes in the form of a commodity, its transformation into money and its retransformation from money, in other words the movement of the total metamorphosis of a commodity, accordingly appear as the extrinsic movement of a single coin which changes places twice, with two different commodities. However scattered and fortuitous the simultaneous purchases and sales may be, a buyer is always confronted by a seller in actual circulation, and the money which takes the place of the commodity sold must already have changed places once with another commodity before reaching the hands of the buyer. On the other hand, sooner or later the money will pass again from the hands of the seller who has become a buyer into those of a new seller, and its repeated changes of place express the interlocking of the metamorphoses of commodities. The same coins therefore proceed – always in the opposite direction to the commodities moved – from one point of the circuit to another; some coins move more frequently, others less frequently, thus describing a longer or shorter curve. The different movements of one and the same coin can follow one another only temporally, just as conversely the multiplicity and fragmentation of the purchases and sales are reflected in the simultaneous and spatially concurrent changes of place of commodity and money.

The simple form of commodity circulation, C—M—C, takes place when money passes from the hands of the buyer into those of the seller and from the seller who has become a buyer into the hands of a new seller. This concludes the metamorphosis of the commodity and hence the movement of money in so far as it is the expression of this metamorphosis. But since there are new use-values produced continuously in the form of commodities, which must therefore be thrown continuously afresh into the sphere of circulation, the circuit C—M—C is renewed and repeated by the same commodity-owners. The money they have spent as buyers returns to them when they once more become sellers of commodities. The perpetual renewal of commodity circulation is reflected in the fact that over the entire surface of bourgeois society money not only circulates from one person to another but that at the same time it describes a number of distinct small circuits, starting from an infinite variety of points and returning to the same points, in order to repeat the movement afresh.

As the change of form of the commodity appears as a mere change in place of money, and the continuity of the movement of circulation belongs entirely to the monetary side – because the commodity always makes only one step in the direction opposite to that of money, money however invariably making the second step for the commodity to complete the motion begun by the commodity – so the entire movement appears to be initiated by money, although during the sale the commodity causes the money to move, thus bringing about the circulation of the money in the same way as during the purchase the money brings about the circulation of the commodity. Since moreover money always confronts commodities as a means of purchase and as such causes commodities to move merely by realising their prices, the entire movement of circulation appears to consist of money changing places with commodities by realising their prices either in separate transactions which occur simultaneously, side by side, or successively when the same coin realises the prices of different commodities one after another. If, for example, one examines C—M—C'—M—C''—M—C''', etc., and disregards the qualitative aspects, which become unrecognisable in actual circulation, there emerges only the same monotonous operation. After realising the price of C, M successively realises the prices of C', C'', etc., and the commodities C', C'', C''', etc., invariably take the place vacated by money. It thus appears that money causes the circulation of commodities by realising their prices. While it serves to realise prices, money itself circulates continuously, sometimes moving merely to a different place, at other times tracing a curve or describing a small cycle in which the points of departure and of return are identical. As a medium of circulation it has a circulation of its own. The movement and changing forms of the circulating commodities thus appear as the movement of money mediating the exchange of commodities, which are in themselves immobile. The movement of the circulation process of commodities is therefore represented by the movement of money as the medium of circulation, i.e., by the circulation of money.

Just as commodity-owners presented the products of individual labour as products of social labour, by transforming a thing, i.e., gold, into the direct embodiment of labour-time in general and therefore into money, so now their own universal movement by which they bring about the exchange of the material elements of their labour confronts them as the specific movement of a thing, i.e., as the circulation of gold. The social movement is for the commodity owners on the one hand an external necessity and on the other merely a formal intermediary process enabling each individual to obtain different use-values of the same total value as that of the commodities which he has thrown into circulation. The commodity begins to function as a use-value when it leaves the sphere of circulation, whereas the use-value of money as a means of circulation consists in its very circulation. The movement of the commodity in the sphere of circulation is only an insignificant factor, whereas perpetual rotation within this sphere becomes the function of money. The specific function which it fulfils within circulation gives money as the medium of circulation a new and distinctive aspect, which now has to be analysed in more detail.

First of all, it is evident that the circulation of money is an infinitely divided movement, for it reflects the infinite fragmentation of the process of circulation into purchases and sales, and the complete separation of the complementary phases of the metamorphosis of commodities. It is true that a recurrent movement, real circular motion, takes place in the small circuits of money in which the point of departure and the point of return are identical; but in the first place, there are as many points of departure as there are commodities, and their indefinite multitude balks any attempt to check, measure and compute these circuits. The time which passes between the departure from and the return to the starting point is equally uncertain. It is, moreover, quite irrelevant whether or not such a circuit is described in a particular case. No economic fact is more widely known than that somebody may spend money without receiving it back. Money starts its circuit from an endless multitude of points and returns to an endless multitude of points, but the coincidence of the point of departure and the point of return is fortuitous, because the movement C—M—C does not necessarily imply that the buyer becomes a seller again. It would be even less correct to depict the circulation of money as a movement which radiates from one centre to all points of the periphery and returns from all the peripheral points to the same centre. The so-called circuit of money, as people imagine it, simply amounts to the fact that the appearance of money and its disappearance, its perpetual movement from one place to another, is everywhere visible. When considering a more advanced form of money used to mediate circulation, e.g., bank-notes, we shall find that the conditions governing the issue of money determine also its reflux. But as regards simple money circulation it is a matter of chance whether a particular buyer becomes a seller once again. Where actual circular motions are taking place continuously in the sphere of simple money circulation, they merely reflect the more fundamental processes of production, for instance, with the money which the manufacturer receives from his banker on Friday he pays his workers on Saturday, they immediately hand over the larger part of it to retailers, etc., and the latter return it to the banker on Monday.

We have seen that money simultaneously realises a given sum of prices comprising the motley purchases and sales which coexist in space, and that it changes places with each commodity only once. But, on the other hand, in so far as the movements of complete metamorphoses of commodities and the concatenation of these metamorphoses are reflected in the movement of money, the same coin realises the prices of various commodities and thus makes a larger or smaller number of circuits. Hence, if we consider the process of circulation in a country during a definite period, for instance a day, then the amount of gold required for the realisation of prices and accordingly for the circulation of commodities is determined by two factors: on the one hand, the sum total of prices and, on the other hand, the average number of circuits which the individual gold coins make. The number of circuits or the velocity of money circulation is in its turn determined by, or simply reflects, the average velocity of the commodities passing through the various phases of their metamorphosis, the speed with which the metamorphoses constituting a chain follow one another, and the speed with which new commodities are thrown into circulation to replace those that have completed their metamorphosis. Whereas during the determination of prices the exchange-value of all commodities is nominally turned into a quantity of gold of the same value and in the two separate transactions, M—C and C—M, the same value exists twice, on the one hand in the shape of commodities and on the other in the form of gold; yet gold as a medium of circulation is determined not by its isolated relation to individual static commodities, but by its dynamic existence in the fluid world of commodities. The function of gold is to represent the transformation of commodities by its changes of place, in other words to indicate the speed of their transformation by the speed with which it moves from one point to another. Its function in the process as a whole thus determines the actual amount of gold in circulation, or the actual quantity which circulates.

Commodity circulation is the prerequisite of money circulation; money, moreover, circulates commodities which have prices, that is commodities which have already been equated nominally with definite quantities of gold. The determination of the prices of commodities presupposes that the value of the quantity of gold which serves as the standard measure, or the value of gold, is given. According to this assumption, the quantity of gold required for circulation is in the first place determined therefore by the sum of the commodity-prices to be realised. This sum, however, is in its turn determined by the following factors: 1. the price level, the relative magnitude of the exchange-values of commodities in terms of gold, and 2. the quantity of commodities circulating at definite prices, that is the number of purchases and sales at given prices. If a quarter of wheat costs 60s., then twice as much gold is required to circulate it or to realise its price as would be required if it cost only 30s. Twice as much gold is needed to circulate 500 quarters at 60s. as is needed to circulate 250 quarters at 60s. Finally only half as much gold is needed to circulate 10 quarters at 100s. as is needed to circulate 40 quarters at 50s. It follows therefore that the quantity of gold required for the circulation of commodities can fall despite rising prices, if the mass of commodities in circulation decreases faster than the total sum of prices increases, and conversely the amount of means of circulation can increase while the mass of commodities in circulation decreases provided their aggregate prices rise to an even greater extent. Thus excellent investigations carried out in great detail by Englishmen have shown that in England, for instance, the amount of money in circulation grows during the early stages of a grain shortage, because the aggregate price of the smaller supply of grain is larger than was the aggregate price of the bigger supply of grain, and for some time the other commodities continue to circulate as before at their old prices. The amount of money in circulation decreases, however, at a later stage of the grain shortage, because along with the grain either fewer commodities are sold at their old prices, or the same amount of commodities is sold at lower prices.

But the quantity of money in circulation is, as we have seen, determined not only by the sum of commodity-prices to be realised, but also by the velocity with which money circulates, i.e., the speed with which this realisation of prices is accomplished during a given period. If in one day one and the same sovereign makes ten purchases each consisting of a commodity worth one sovereign, so that it changes hands ten times, it transacts the same amount of business as ten sovereigns each of which makes only one circuit a day. The velocity of circulation of gold can thus make up for its quantity: in other words, the stock of gold in circulation is determined not only by gold functioning as an equivalent alongside commodities, but also by the function it fulfils in the movement of the metamorphoses of commodities. But the velocity of currency can make up for its quantity only to a certain extent, for an endless number of separate purchases and sales take place simultaneously at any given moment.

If the aggregate prices of the commodities in circulation rise, but to a smaller extent than the velocity of currency increases, then the volume of money in circulation will decrease. If, on the contrary, the velocity of circulation decreases at a faster rate than the total price of the commodities in circulation, then the volume of money in circulation will grow. A general fall in prices accompanied by an increase in the quantity of the medium of circulation and a general rise in prices accompanied by a decrease in the quantity of the medium of circulation are among the best documented phenomena in the history of prices. But the causes occasioning a rise in the level of prices and at the same time an even larger rise in the velocity of currency, as also the converse development, lie outside the scope of an investigation into simple circulation. We may mention by way of illustration that in periods of expanding credit the velocity of currency increases faster than the prices of commodities, whereas in periods of contracting credit the velocity of currency declines faster than the prices of commodities. It is a sign of the superficial and formal character of simple money circulation that the quantity of means of circulation is determined by factors – such as the amount of commodities in circulation, prices, increases or decreases of prices, the number of purchases and sales taking place simultaneously, and the velocity of currency – all of which are contingent on the metamorphosis proceeding in the world of commodities, which is in turn contingent on the general nature of the mode of production, the size of the population, the relation of town and countryside, the development of the means of transport, the more or less advanced division of labour, credit, etc., in short on circumstances which lie outside the framework of simple money circulation and are merely mirrored in it.

If the velocity of circulation is given, then the quantity of the means of circulation is simply determined by the prices of commodities. Prices are thus high or low not because more or less money is in circulation, but there is more or less money in circulation because prices are high or low. This is one of the principal economic laws, and the detailed substantiation of it based on the history of prices is perhaps the only achievement of the post-Ricardian English economists. Empirical data show that, despite temporary fluctuations, and sometimes very intense fluctuations, over longer periods the level of metallic currency or the volume of gold and silver in circulation in a particular country may remain on the whole stable, deviations from the average level amounting merely to small oscillations. This phenomenon is simply due to the contradictory nature of the factors determining the volume of money in circulation. Changes occurring simultaneously in these factors neutralise their effects and everything remains as it was.

The law that, if the speed of circulation of money and the sum total of the commodity-prices are given, the amount of the medium of circulation is determined, can also be expressed in the following way: if the exchange-values of commodities and the average speed of their metamorphoses are given, then the quantity of gold in circulation depends on its own value. Thus, if the value of gold, i.e. the labour-time required for its production, were to increase or to decrease, then the prices of commodities would rise or fall in inverse proportion and, provided the velocity remained unchanged, this general rise or fall in prices would necessitate a larger or smaller amount of gold for the circulation of the same amount of commodities. The result would be similar if the previous standard of value were to be replaced by a more valuable or a less valuable metal. For instance, when, in deference to its creditors and impelled by fear of the effect the discovery of gold in California and Australia might have, Holland replaced gold currency by silver currency, 14 to 15 times more silver was required than formerly was required of gold to circulate the same volume of commodities.

Since the quantity of gold in circulation depends upon two variable factors, the total amount of commodity-prices and the velocity of circulation, it follows that it must be possible to reduce and expand the quantity of metallic currency; in short, in accordance with the requirements of the process of circulation, gold must sometimes be put into circulation and sometimes withdrawn from it. We shall see later how these conditions are realized in the process of circulation.

c. Coins and Tokens of Value

Gold functioning as a medium of circulation assumes a specific shape, it becomes a coin. In order to prevent its circulation from being hampered by technical difficulties, gold is minted according to the standard of the money of account. Coins are pieces of gold whose shape and imprint signify that they contain weights of gold as indicated by the names of the money of account, such as pound sterling, shilling, etc. Both the establishing of the mint-price and the technical work of minting devolve upon the State. Coined money assumes a local and political character, it uses different national languages and wears different national uniforms, just as does money of account. Coined money circulates therefore in the internal sphere of circulation of commodities, which is circumscribed by the boundaries of a given community and separated from the universal circulation of the world of commodities.

But the only difference between gold in the form of bullion and gold in the form of coin is that between the denomination of the coin and denomination of its metal weight. What appears as a difference of denomination in the latter case, appears as a difference of shape in the former. Gold coins can be thrown into the crucible and thus turned again into gold sans phrase, just as conversely gold bars have only to be sent to the mint to be transformed into coin. The conversion and reconversion of one form into the other appears as a purely technical operation.

In exchange for 100 pounds or 1,200 ounces troy of 22-carat gold one receives £4,672½ or 4,672½ gold sovereigns from the English mint, and if one puts these sovereigns on one side of a pair of scales and 100 pounds of gold bars on the other, the two will balance. This proves that the sovereign is simply a quantity of gold – with a specific shape and a specific imprint – the weight of which is denoted by this name in the English monetary scale. The 4,672½ gold sovereigns are thrown into circulation at different points and, once in the current, they make a certain number of moves each day, some sovereigns more and others less. If the average number of moves made by one ounce of gold during a day were ten, then the 1,200 ounces of gold would realise a total of commodity-prices amounting to 12,000 ounces or 46,725 sovereigns. An ounce of gold, no matter how one may twist and turn it, will never weigh ten ounces. But here in the process of circulation, one ounce does indeed amount to ten ounces. In the process of circulation a coin is equal to the quantity of gold contained in it multiplied by the number of moves it makes. In addition to its actual existence as an individual piece of gold of a certain weight, the coin thus acquires a nominal existence which arises from the function it performs. But whether the sovereign makes one or ten moves, in each particular purchase or sale it nevertheless acts merely as a single sovereign. The effect is the same as in the case of a general who on the day of battle replaces ten generals by appearing at ten different places at the crucial time, but remains the same general at each point. The nominalisation of the medium of circulation, which arises as a result of the replacement of quantity by velocity, concerns only the functioning of coins within the process of circulation but does not affect the status of the individual coins.

But the circulation of money is an external movement and the sovereign, although non olet, [It does not smell. – Ed.] keeps mixed company. The coin, which comes into contact with all sorts of hands, bags, purses, pouches, tills, chests and boxes, wears away, leaves a particle of gold here and another there, thus losing increasingly more of its intrinsic content as a result of abrasion sustained in the course of its worldly career. While in use it is getting used up. Let us consider a sovereign at a moment when its original solid features are as yet hardly impaired.

“A baker who takes a sovereign one day, and pays it away to his miller the next, does not pay the veritable sovereign itself; it is a little lighter than when he received it.” “It being obvious that the coinage, in the very nature of things, must be for ever, unit by unit, falling under depreciation by the mere action of ordinary and unavoidable abrasion ... it is a physical impossibility at any time, even for a single day, utterly to exterminate light coins from circulation.”

Jacob estimates that of the £380 million which existed in Europe in 1809, £19 million had completely disappeared as a result of abrasion by 1829, that is in the course of 20 years. Whereas the commodity having taken its first step, bringing it into the sphere of circulation, drops out of it again, the coin, after making a few steps in the sphere of circulation, represents a greater metal content than it actually possesses. The longer a coin circulates at a given velocity, or the more rapidly it circulates in a given period of time, the greater becomes the divergence between its existence as a coin and its existence as a piece of gold or silver. What remains is magni nominis umbra, the body of the coin is now merely a shadow. Whereas originally circulation made the coin heavier, it now makes it lighter, but in each individual purchase or sale it still passes for the original quantity of gold. As a pseudo-sovereign, or pseudo-gold, the sovereign continues to perform the function of a legal gold coin. Although friction with the external world causes other entities to lose their idealism, the coin becomes increasingly ideal as a result of practice, its golden or silver substance being reduced to a mere pseudo-existence. This second idealisation of metal currency, that is, the disparity between its nominal content and its real content, brought about by the process of circulation itself, has been taken advantage of both by governments and individual adventurers who debased the coinage in a variety of ways. The entire history of the Monetary System from the early Middle Ages until well into the eighteenth century-is a history of such bilateral and antagonistic counterfeiting, and Custodi’s voluminous collection of works of Italian economists is largely concerned with this subject.

But the “ideal” existence of gold within the confines of its function comes into conflict with its real existence. In the course of circulation some gold coins have lost more of their metal content, others less, and one sovereign is now indeed worth more than another. Since they are however equally valid while they function as coin – the sovereign that weighs a quarter of an ounce is valued no more highly than the sovereign which only represents a quarter of an ounce – some unscrupulous owners perform surgical operations on sovereigns of standard weight to achieve the same result artificially which circulation has brought about spontaneously in the case of lighter coins. Sovereigns are clipped and debased and the surplus gold goes into the melting pot. When 4,672½ gold sovereigns placed on the scales weigh on the average only 800 ounces instead of 1,200, they will buy only 800 ounces of gold on the gold market: in other words, the market-price of gold has risen above the mint-price. All sovereigns, even those retaining the standard weight, would be worth less as coin than in the shape of bars. Sovereigns of standard weight would be reconverted into bars, a form in which a greater quantity of gold has a greater value than a smaller quantity of gold. When the decline of the metal content has affected a sufficient number of sovereigns to cause a permanent rise of the market-price of gold over its mint-price, the coins will retain the same names of account but these will henceforth stand for a smaller quantity of gold. In other words, the standard of money will be changed, and henceforth gold will be minted in accordance with this new standard. Thus, in consequence of its idealisation as a medium of circulation, gold in its turn will have changed the legally established relation in which it functioned as the standard of price. A similar revolution would be repeated after a certain period of time; gold both as the standard of price and the medium of circulation in this way being subject to continuous changes, so that a change in the one aspect would cause a change in the other and vice versa. This accounts for the phenomenon mentioned earlier, namely that, as the history of all modern nations shows, the same monetary titles continued to stand for a steadily diminishing metal content. The contradiction between gold as coin and gold as the standard of price becomes also the contradiction between gold as coin and gold as the universal equivalent, which circulates not only within the boundaries of a given territory but also on the world market. As a measure of value gold has always retained its full weight, because it has served only nominally as gold. When serving as an equivalent in the separate transaction C—M, gold reverts from movement immediately to a state of rest; but when it serves as a coin its natural substance comes into constant conflict with its function. The transformation of gold sovereigns into nominal gold cannot be entirely prevented, but legislation attempts to preclude the establishment of nominal gold as coin by withdrawing it from circulation when the coins in question have lost a certain percentage of their substance. According to English law, for instance, a sovereign which has lost more than 0.747 grain of weight is no longer legal tender. Between 1844 and 1848, 48 million gold sovereigns were weighed by the Bank of England, which possesses scales for weighing gold invented by Mr. Cotton. This machine is not only able to detect a difference between the weights of two sovereigns amounting to one-hundredth of a grain, but like a rational being it flings the light-weight coin onto a board from which it drops into another machine that cuts it into pieces with oriental cruelty.

Under these conditions, however, gold coins would not be able to circulate at all unless they were confined to a definite sphere of circulation where they wear out less quickly. In so far as a gold coin in circulation is worth a quarter of an ounce, whereas it weighs only a fifth of an ounce, it has indeed become a mere token or symbol for one-twentieth of an ounce of gold, and in this way the process of circulation converts all gold coins to some extent into mere tokens or symbols representing their substance. But a thing cannot be its own symbol. Painted grapes are no symbol of real grapes, but are imaginary grapes. Even less is it possible for a light-weight sovereign to be the symbol of a standard-weight sovereign, just as an emaciated horse cannot be the symbol of a fat horse. Since gold thus becomes a symbol of itself but cannot serve as such a symbol it assumes a symbolic existence – quite separate from its own existence – in the shape of silver or copper counters in those spheres of circulation where it wears out most rapidly, namely where purchases and sales of minute amounts go on continuously. A certain proportion of the total number of gold coins, although not always the same coins, perpetually circulate in these spheres. This proportion of gold coins is replaced by silver or copper tokens. Various commodities can thus serve as coin alongside gold, although only one specific commodity can function as the measure of value and therefore also as money within a particular country. These subsidiary means of circulation, for instance silver or copper tokens, represent definite fractions of gold coins within the circulation. The amount of silver or copper these tokens themselves contain is, therefore, not determined by the value of silver or copper in relation to that of gold, but is arbitrarily established by law. They may be issued only in amounts not exceeding those in which the small fractions of gold coin they represent would constantly circulate, either as small change for gold coin of higher denominations or to realise correspondingly low prices of commodities. The silver tokens and copper tokens will belong to distinct spheres of retail trade. It is self-evident that their velocity of circulation stands in inverse ratio to the price they realise in each individual purchase and sale, or to the value of the fraction of the gold coin they represent. The relatively insignificant total amount of subsidiary coins in circulation indicates the velocity with which they perpetually circulate, if one bears in mind the huge volume of retail trade daily transacted in a country like England. A recently published parliamentary report shows, for instance, that in 1857 the English Mint coined gold to the amount of £4,859,000 and silver having a nominal value of £733,000 and a metal value of £363,000. In the ten-year period ending December 31, 1867, the total amount of gold coined came to £5S,239,000 and that of silver to only £2,434,000. The nominal value of copper coins issued in 1857 was only £6,720, while the value of the copper contained in them was £3,492; of this total £3,136 was issued as pennies, £2,464 as halfpennies and £1,120 as farthings. The total nominal value of the copper coin struck during the last ten years came to £141,477, and their metal value to £73,503. Just as gold coin is prevented from perpetually functioning as coin by the statutory provision that on losing a certain quantity of metal it is demonetised, so conversely by laying down the price level which they can legally realize silver and copper counters are prevented from moving into the sphere of gold coin and from establishing themselves as money. Thus for example in England, copper is legal tender for sums up to 6d. and silver for sums up to 40s. The issue of silver and copper tokens in quantities exceeding the requirements of their spheres of circulation would not lead to a rise in commodity-prices but to the accumulation of these tokens in the hands of retail traders, who would in the end be forced to sell them as metal. In 1798, for instance, English copper coins to the amounts of £20, £30 and £50, spent by private people, had accumulated in the tills of shopkeepers and, since their attempts to put the coins again into circulation failed, they finally had to sell them as metal on the copper market.

The metal content of the silver and copper tokens, which represent gold coin in distinct spheres of home circulation, is determined by law; but when in circulation they wear away, just as gold coins do, and, because of the velocity and constancy of their circulation, they are reduced even faster to a merely imaginary, or shadow existence. If one were to establish that silver and copper tokens also, on losing a certain amount of metal, should cease to function as coin, it would be necessary to replace them in turn in certain sections of their own sphere of circulation by some other symbolic money, such as iron or lead; and in this way the representation of one type of symbolic money by other types of symbolic money would go on for ever. The needs of currency circulation itself accordingly compel all countries with a developed circulation to ensure that silver and copper tokens function as coin independently of the percentage of metal they lose. It thus becomes evident that they are, by their very nature, symbols of gold coin not because they are made of silver or copper, not because they have value, but they are symbols in so far as they have no value.

Relatively worthless things, such as paper, can function as symbols of gold coins. Subsidiary coins consist of metal, silver, copper, etc., tokens principally because in most countries the less valuable metals circulated as money – e.g., silver in England, copper in the ancient Roman Republic, Sweden, Scotland, etc. – before the process of circulation reduced them to the status of small coin and put a more valuable metal in their place. It is in the nature of things moreover that the monetary symbol which directly arises from metallic currency should be, in the first place, once again a metal. Just as the portion of gold which would constantly have to circulate as small change is replaced by metal tokens, so the portion of gold which as coin remains always in the sphere of home circulation, and must therefore circulate perpetually, can be replaced by tokens without intrinsic value. The level below which the volume of currency never falls is established in each country by experience. What was originally an insignificant divergence of the nominal content from the actual metal content of metallic currency can therefore reach a stage where the two things are completely divorced. The names of coins become thus detached from the substance of money and exist apart from it in the shape of worthless scraps of paper. In the same way as the exchange-value of commodities is crystallised into gold money as a result of exchange, so gold money in circulation is sublimated into its own symbol, first in the shape of worn gold coin, then in the shape of subsidiary metal coin, and finally in the shape of worthless counters, scraps of paper, mere tokens of value.

But the gold coin gave rise first to metallic and then to paper substitutes only because it continued to function as a coin despite the loss of metal it incurred. It circulated not because it was worn, but it was worn to a symbol because it continued to circulate. Only in so far as in the process of circulation gold currency becomes a mere token of its own value can mere tokens of value be substituted for it.

In so far as the circuit C—M—C is the dynamic unity of the two aspects C—M and M—C, which directly change into each other, or in so far as the commodity undergoes the entire metamorphosis, it evolves its exchange-value into price and into money, but immediately abandons these forms again to become once more a commodity, or rather a use-value. The exchange-value of the commodity thus acquires only a seemingly independent existence. We have seen, on the other hand, that gold, when it functions only as specie, that is when it is perpetually in circulation, does indeed represent merely the interlinking of the metamorphoses of commodities and their ephemeral existence as money. Gold realises the price of one commodity only in order to realise that of another, but it never appears as exchange-value in a state of rest or even a commodity in a state of rest. The reality which in this process the exchange-value of commodities assumes, and which is expressed by gold in circulation, is merely the reality of an electric spark. Although it is real gold, it functions merely as apparent gold, and in this function therefore a token of itself can be substituted for it.

The token of value, say a piece of paper, which functions as a coin, represents the quantity of gold indicated by the name of the coin, and is thus a token of gold. A definite quantity of gold as such does not express a value relation, nor does the token which takes its place. The gold token represents value in so far as a definite quantity of gold, because it is materialised labour-time, possesses a definite value. But the amount of value which the token represents depends in each case upon the value of the quantity of gold represented by it. As far as commodities are concerned, the token of value represents the reality of their price and constitutes a token of their price and a token of their value only because their value is expressed in their price. In the circuit C—M—C, in so far as it expresses merely the dynamic unity of the two metamorphoses or the direct transformation of one metamorphosis into the other – and this is how it appears in the sphere of circulation, within which the token of value operates – the exchange-value of commodities assumes in the price merely a nominal existence and in money merely an imaginary or symbolic existence. Exchange-value thus appears to be something purely conceptual or an imagined entity but possessing no reality except in the commodities, in so far as a definite amount of labour-time is materialised in them. The token of value therefore seems to represent the value of commodities directly, since it appears to be not a token of gold but a token of the exchange-value which exists solely in the commodity and is merely expressed in the price. But the appearance is deceptive. The token of value is directly only a token of price, that is a token of gold, and only indirectly a token of the value of the commodity. Gold, unlike Peter Schlemihl, has not sold its shadow, but uses its shadow as a means of purchase. Thus the token of value is effective only when in the process of exchange it signifies the price of one commodity compared with that of another or when it represents gold with regard to every commodity-owner. First of all custom turns a certain, relatively worthless object, a piece of leather, a scrap of paper, etc., into a token of the material of which money consists, but it can maintain this position only if its function as a symbol is guaranteed by the general intention of commodity-owners, in other words if it acquires a legal conventional existence and hence a legal rate of exchange. Paper money issued by the state and given a legal rate is an advanced form of the token of value, and the only kind of paper money which directly arises from metallic currency or from simple commodity circulation itself. Credit money belongs to a more advanced stage of the social process of production and conforms to very different laws. Symbolic paper money indeed does not differ at all from subsidiary metal coin except in having a wider sphere of circulation. Even the merely technical development of the standard of price, or of the mint-price, and later the external transformation of gold bars into gold coin led to state intervention and consequently to a visible separation of internal circulation from the general circulation of commodities, this division being completed by the transformation of coin into a token of value. Money as a simple medium of circulation can after all acquire an independent existence only within the sphere of internal circulation.

Our exposition has shown that gold in the shape of coin, that is tokens of value divorced from gold substance itself, originates in the process of circulation itself and does not come about by arrangement or state intervention. Russia affords a striking example of a spontaneously evolved token of value. At a time when hides and furs served as money in that country, the contradiction between the perishable and unwieldy material and its function as a medium of circulation led to the custom of substituting small pieces of stamped leather for it; these pieces thus became money orders payable in hides and furs. Later they were called kopeks and became mere tokens representing fractions of the silver ruble and as such were used here and there until 1700, when Peter the Great ordered their replacement by small copper coins issued by the State. In antiquity writers, who were able to observe only the phenomena of metallic currency, among them Plato and Aristotle already understood that gold coin is a symbol or token of value. Paper money with a legal rate of exchange arises early in countries such as China, which have not evolved a credit system. Later advocates of paper money also refer expressly to the transformation of the metal coin into a token of value which is brought about by the circulation process itself. Such references occur in the works of Benjamin Franklin and Bishop Berkeley.

How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they can represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange-value of the commodities and the velocity of their metamorphoses are given. The number of pieces of paper with a denomination of £5 which could be used in circulation would be one-fifth of the number of pieces of paper with a denomination of £1, and if all payments were to be transacted in shilling notes, then twenty times more shilling notes than pound notes would have to circulate. If gold coin were represented by notes of different denomination, e.g., £5 notes, £1 notes and 10s. notes, the number of the different types of tokens of value needed would not just be determined by the quantity of gold required in the sphere of circulation as a whole, but by the quantity needed in the sphere of circulation of each particular type of note. If £14 million were the level below which the circulation of a country never fell (this is the presupposition of English Banking legislation, not however with regard to coin but to credit money), then 14 million pieces of paper, each a token of value representing £1, could circulate. If the value of gold decreased or increased because the labour-time required for its production had fallen or risen then the number of pound notes in circulation would increase or decrease in inverse ratio to the change in the value of gold, provided the exchange-value of the same mass of commodities remained unchanged. Supposing gold were superseded by silver as the standard of value and the relative value of silver to gold were 1:15, then 210 million pound notes would have to circulate henceforth instead of 14 million, if from now on each piece of paper was to represent the same amount of silver as it had previously represented of gold. The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.

The intervention of the State which issues paper money with a legal rate of exchange – and we speak only of this type of paper money – seems to invalidate the economic law. The State, whose mint price merely provided a definite weight of gold with a name and whose mint merely imprinted its stamp on gold, seems now to transform paper into gold by the magic of its imprint. Because the pieces of paper have a legal rate of exchange, it is impossible to prevent the State from thrusting any arbitrarily chosen number of them into circulation and to imprint them at will with any monetary denomination such as £1, £5, or £20. Once the notes are in circulation it is impossible to drive them out, for the frontiers of the country limit their movement, on the one hand, and on the other hand they lose all value, both use-value and exchange-value, outside the sphere of circulation. Apart from their function they are useless scraps of paper. But this power of the State is mere illusion. It may throw any number of paper notes of any denomination into circulation but its control ceases with this mechanical act. As soon as the token of value or paper money enters the sphere of circulation it is subject to the inherent laws of this sphere.

Let us assume that £14 million is the amount of gold required for the circulation of commodities and that the State throws 210 million notes each called £1 into circulation: these 210 million would then stand for a total of gold worth £14 million. The effect would be the same as if the notes issued by the State were to represent a metal whose value was one-fifteenth that of gold or that each note was intended to represent one-fifteenth of the previous weight of gold. This would have changed nothing but the nomenclature of the standard of prices, which is of course purely conventional, quite irrespective of whether it was brought about directly by a change in the monetary standard or indirectly by an increase in the number of paper notes issued in accordance with a new lower standard. As the name pound sterling would now indicate one-fifteenth of the previous quantity of gold, all commodity-prices would be fifteen times higher and 210 million pound notes would now be indeed just as necessary as 14 million had previously been. The decrease in the quantity of gold which each individual token of value represented would be proportional to the increased aggregate value of these tokens. The rise of prices would be merely a reaction of the process of circulation, which forcibly placed the tokens of value on a par with the quantity of gold which they are supposed to replace in the sphere of circulation.

One finds a number of occasions in the history of the debasement of currency by English and French governments when the rise in prices was not proportionate to the debasement of the silver coins. The reason was simply that the increase in the volume of currency was not proportional to its debasement; in other words, if the exchange-value of commodities was in future to be evaluated in terms of the lower standard of value and to be realised in coins corresponding to this lower standard, then an inadequate number of coins with lower metal content had been issued. This is the solution of the difficulty which was not resolved by the controversy between Locke and Lowndes. The rate at which a token of value – whether it consists of paper or bogus gold and silver is quite irrelevant – can take the place of definite quantities of gold and silver calculated according to the mint-price depends on the number of tokens in circulation and by no means on the material of which they are made. The difficulty in grasping this relation is due to the fact that the two functions of money – as a standard of value and a medium of circulation – are governed not only by conflicting laws, but by laws which appear to be at variance with the antithetical features of the two functions. As regards its function as a standard of value, when money serves solely as money of account and gold merely as nominal gold, it is the physical material used which is the crucial factor. Exchange-values expressed in terms of silver, or as silver prices, look of course quite different from exchange-values expressed in terms of gold, or as gold prices. On the other hand, when it functions as a medium of circulation, when money is not just imaginary but must be present as a real thing side by side with other commodities, its material is irrelevant and its quantity becomes the crucial factor. Although whether it is a pound of gold, of silver or of copper is decisive for the standard measure, mere number makes the coin an adequate embodiment of any of these standard measures, quite irrespective of its own material. But it is at variance with common sense that in the case of purely imaginary money everything should depend on the physical substance, whereas in the case of the corporeal coin everything should depend on a numerical relation that is nominal.

The rise or fall of commodity-prices corresponding to an increase or decrease in the volume of paper notes – the latter where paper notes are the sole medium of circulation – is accordingly merely a forcible assertion by the process of circulation of a law which was mechanically infringed by extraneous action; i.e., the law that the quantity of gold in circulation is determined by the prices of commodities and the volume of tokens of value in circulation is determined by the amount of gold currency which they replace in circulation. The circulation process will, on the other hand, absorb or as it were digest any number of paper notes, since, irrespective of the gold title borne by the token of value when entering circulation, it is compressed to a token of the quantity of gold which could circulate instead.

In the circulation of tokens of value all the laws governing the circulation of real money seem to be reversed and turned upside down. Gold circulates because it has value, whereas paper has value because it circulates. If the exchange-value of commodities is given, the quantity of gold in circulation depends on its value, whereas the value of paper tokens depends on the number of tokens in circulation. The amount of gold in circulation increases or decreases with the rise or fall of commodity-prices, whereas commodity-prices seem to rise or fall with the changing amount of paper in circulation. The circulation of commodities can absorb only a certain quantity of gold currency, the alternating contraction and expansion of the volume of money in circulation manifesting itself accordingly as an inevitable law, whereas any amount of paper money seems to be absorbed by circulation. The State which issues coins even 1/100 of a grain below standard weight debases gold and silver currency and therefore upsets its function as a medium of circulation, whereas the issue of worthless pieces of paper which have nothing in common with metal except the denomination of the coinage is a perfectly correct operation. The gold coin obviously represents the value of commodities only after the value has been assessed in terms of gold or expressed as a price, whereas the token of value seems to represent the value of commodities directly. It is thus evident that a person who restricts his studies of monetary circulation to an analysis of the circulation of paper money with a legal rate of exchange must misunderstand the inherent laws of monetary circulation. These laws indeed appear not only to be turned upside down in the circulation of tokens of value but even annulled; for the movements of paper money, when it is issued in the appropriate amount, are not characteristic of it as token of value, whereas its specific movements are due to infringements of its correct proportion to gold, and do not directly arise from the metamorphosis of commodities.

3. Money

Money as distinguished from coin is the result of the circuit C—M—C and constitutes the starting point of the circuit M—C—M, that is the exchange of money for commodities so as to exchange commodities for money. In the form C—M—C it is the commodity that is the beginning and the end of the transaction; in the form M—C—M it is money. Money mediates the exchange of commodities in the first circuit, the commodities mediates the evolution of money into money in the second circuit. Money, which serves solely as a medium in the first circuit, appears as the goal of circulation in the second, whereas the commodity, which was the goal in the first circuit, appears simply as a means in the second. Because money itself is already the result of the circuit C—M—C, the result of circulation appears to be also its point of departure in the form M—C—M. The exchange of material is the content of C—M—C, whereas the real content of the second circuit, M—C—M, is the commodity in the form in which it emerged from the first circuit.

In the formula C—M—C the two extremes are commodities of the same value, which are at the same time however qualitatively different use-values. Their exchange, C— C, is real exchange of material. On the other hand, in the formula M—C—M both extremes are gold and moreover gold of the same value. But it seems absurd to exchange gold for commodities in order to exchange commodities for gold, or if one considers the final result M— M, to exchange gold for gold. But if one translates M—C—M into the formula – to buy in order to sell, which means simply to exchange gold for gold with the aid of an intermediate movement, one will immediately recognise the predominant form of bourgeois production. Nevertheless, in real life people do not buy in order to sell, but they buy at a low price in order to sell at a high price. They exchange money for commodities in order then to exchange these for a larger amount of money, so that the extremes M, M are quantitatively different, even if not qualitatively. This quantitative difference presupposes the exchange of non-equivalents, whereas commodities and money as such are merely antithetical forms of the commodity, in other words, different forms of existence of the same value. Money and commodity in the circuit M—C—M therefore imply more advanced relations of production, and within simple circulation the circuit is merely a reflection of movement of a more complex character. Hence money as distinct from the medium of circulation must be derived from C—M—C, the immediate form of commodity circulation.

Gold, i.e., the specific commodity which serves as standard of value and medium of circulation, becomes money without any special effort on the part of society. Silver has not become money in England, where it is neither the standard of value nor the predominant medium of circulation, similarly gold ceased to be money in Holland as soon as it was deposed from its position of standard of value. In the first place, a commodity in which the functions of standard of value and medium of circulation are united accordingly becomes money, or the unity of standard of value and medium of circulation is money. But as such a unity gold in its turn possesses an independent existence which is distinct from these two functions. As the standard of value gold is merely nominal money and nominal gold; purely as a medium of circulation it is symbolic money and symbolic gold, but in its simple metallic corporeality gold is money or money is real gold.

Let us for a moment consider the commodity gold, that is money, in a state of rest and its relations with other commodities. All prices of commodities signify definite amounts of gold; they are thus merely notional gold or notional money, i.e., symbols of gold, just as, on the other hand, money considered as a token of value appeared to be merely a symbol of the prices of commodities. Since all commodities are therefore merely notional money, money is the only real commodity. Gold is the material aspect of abstract wealth in contradistinction to commodities which only represent the independent form of exchange-value, of universal social labour and of abstract wealth. So far as use-value is concerned, each commodity represents only one element of physical wealth, only one separate facet of wealth, through its relation to a particular need. But money satisfies any need since it can be immediately turned into the object of any need. Its own use-value is realised in the endless series of use-values which constitute its equivalents. All the physical wealth evolved in the world of commodities is contained in a latent state in this solid piece of metal. Thus whereas the prices of commodities represent gold, the universal equivalent or abstract wealth, the use-value of gold represents the use-values of all commodities. Gold is, therefore, the material symbol of physical wealth. It is the "epitome of all things" (Boisguillebert), the compendium of social wealth. As regards its form, it is the direct incarnation of universal labour, and as regards its content the quintessence of all concrete labour. It is universal wealth in an individual form. Functioning as a medium of circulation, gold suffered all manner of injuries, it was clipped and even reduced to a purely symbolical scrap of paper. Its golden splendour is restored when it serves as money The servant becomes the master. The mere underling becomes the god of commodities.

a. Hoarding

Gold as money was in the first place divorced from the medium of circulation because the metamorphosis of the commodity was interrupted and the commodity remained in the form of gold. This happens whenever a sale is not immediately turned into a purchase. The fact that gold as money assumes an independent existence is thus above all a tangible expression of the separation of the process of circulation or of the metamorphosis of commodities into two discrete and separate transactions which exist side by side. The coin itself becomes money as soon as its movement is interrupted. In the hands of the seller who receives it in return for a commodity it is money, and not coin; but when it leaves his hands it becomes a coin once more. Everybody sells the particular commodity which he produces, but he buys all other commodities that he needs as a social being. How often he appears on the market as a seller depends on the labour-time required to produce his commodity, whereas his appearance as a buyer is determined by the constant renewal of his vital requirements. In order to be able to buy without selling, he must have sold something without buying. The circuit C—M—C is indeed the dynamic unity of sale and purchase only in so far as it is simultaneously the continuous process of their separation. So that money as coin may flow continuously, coin must continuously congeal into money. The continual movement of coin implies its perpetual stagnation in larger or smaller amounts in reserve funds of coin which arise everywhere within the framework of circulation and which are at the same time a condition of circulation. The formation, distribution, dissolution and re-formation of these funds constantly changes; existing funds disappear continuously and their disappearance is a continuous fact. This unceasing transformation of coin into money and of money into coin was expressed by Adam Smith when he said that, in addition to the particular commodity he sells, every commodity-owner must always keep in stock a certain amount of the general commodity with which he buys. We have seen that M—C, the second member of the circuit C—M—C, splits up into a series of purchases, which are not effected all at once but successively over a period of time, so that one part of M circulates as coin, while the other part remains at rest as money. In this case, money is in fact only suspended coin and the various component parts of the coinage in circulation appear, constantly changing, now in one form, now in another. The first transformation of the medium of circulation into money constitutes therefore merely a technical aspect of the circulation of money.

The first spontaneously evolved form of wealth consists of an overplus or excess of products, i.e. of the portion of products which are not directly required as use-values, or else of the possession of products whose use-value lies outside the range of mere necessity. When considering the transition from commodity to money, we saw that at a primitive stage of production it is this overplus or excess of products which really forms the sphere of commodity exchange. Superfluous products become exchangeable products or commodities. The adequate form of this surplus is gold and silver, the first form in which wealth as abstract social wealth is kept. It is not only possible to store commodities in the form of gold and silver, i.e., in the material shape of money, but gold and silver constitute wealth in preserved form. Every use-value fulfils its function while it is being consumed, that is destroyed, but the use-value of gold as money is to represent exchange-value, to be the embodiment of universal labour-time as an amorphous raw material. As amorphous metal exchange-value possesses an imperishable form. Gold or silver as money thus immobilised constitutes a hoard. In the case of nations with purely metallic currency, such as the ancients, hoarding becomes a universal practice extending from the individual to the State, which guards its State hoard. In Asia and Egypt, during their early period, these hoards were in the custody of kings and priests and served mainly as evidence of their power. In Greece and Rome the creation of State hoards became a principle of public policy, for excess wealth in this form is always safe and can be used at any moment. The rapid transfer of such hoards by conquerors from one country to another and their sudden effusion in part into the sphere of circulation are characteristics of the economy of antiquity.

As materialised labour-time gold is a pledge for its own magnitude of value, and, since it is the embodiment of universal labour-time, its continuous function as exchange-value is vouched for by the process of circulation. The simple fact that the commodity-owner is able to retain his commodities in the form of exchange-value, or to retain the exchange-value as commodities, makes the exchange of commodities, in order to recover them transformed into gold, the specific motive of circulation. The metamorphosis of commodities C—M takes place for the sake of their metamorphosis, for the purpose of transforming particular physical wealth into general social wealth. Change of form – instead of exchange of matter – becomes an end in itself. Exchange-value, which was merely a form, is turned into the content of the movement. Commodities remain wealth, that is commodities, only while they keep within the sphere of circulation, and they remain in this liquid state only in so far as they ossify into silver and gold. They remain liquid as the crystallisation of the process of circulation. But gold and silver establish themselves as money only in so far as they do not function as means of circulation. They become money as non-means of circulation. The withdrawal of commodities from circulation in the form of gold is thus the only means of keeping them continuously in circulation.

The owner of commodities can recover as money from circulation only as much as he put into it in the form of commodities. Looked at from the standpoint of the circulation of commodities, the first condition of hoarding is constant selling, the incessant throwing of commodities into circulation. On the other hand, money as a medium of circulation constantly disappears in the process of circulation itself, since it is all the time being realised in use-values and dissolved in ephemeral enjoyments. It must, therefore, be withdrawn from the stream of circulation; in other words commodities must be retained in the first stage of their metamorphosis in order to prevent money from functioning as means of purchase. The owner of commodities who has now become a hoarder of money must sell as much as possible and buy as little as possible, as even old Cato preached – patrem familias vendacem, non emacem esse. [The head of the family should be eager to sell, not eager to buy. Cato the Elder, De re rustica. – Ed.] Parsimony is the negative pre-condition of hoarding, just as industry is its positive pre-condition. The smaller the proportion that is withdrawn from circulation as an equivalent for the commodities [thrown into it] consisting of particular commodities or use-values, the larger the proportion that consists of money or exchange-value. The appropriation of wealth in its general form therefore implies renunciation of the material reality of wealth. Hence the motive power of hoarding is avarice, which desires not commodities as use-values, but exchange-value as a commodity. So as to take possession of superfluous wealth in its general form, particular needs must be treated as luxuries and superfluities. For instance, in 1593 the Cortes sent a petition to Philip II, which among other matters contains the following passage:

"The Cortes of Valladolid requested Your Majesty in 1586 not to permit the further importation into this kingdom of candles, glassware, jewellery, knives and similar articles coming from abroad, which, though they are of no use to human life, have to be exchanged for gold, as though the Spaniards were Indians."

The hoarder of money scorns the worldly, temporal and ephemeral enjoyments in order to chase after the eternal treasure which can be touched neither by moths nor by rust, and which is wholly celestial and wholly mundane.

In the above-quoted work Misselden writes: "The general remote cause of our want of money is the great excesse of this Kingdom in consuming the Commodities of Forreine Countries, which prove to us discommodities, in hindering us of so much treasure, which otherwise would bee brought in, in lieu of those toyes.... Wee ... consume amongst us, that great abundance of the Wines of Spaine, of France, of the Rhene, of the Levant ... the Raisins of Spaine, the Corints of the Levant, the Lawnes and Cambricks of Hannaults ... the Silkes of Italie, the Sugers and Tobaco of the West Indies, the Spices of the East Indies: All which are of no necessetie unto us, and yet are bought with ready mony."

Wealth in the shape of gold and silver is imperishable because exchange-value is represented by an indestructible metal and especially because gold and silver are prevented from functioning as means of circulation and thus from becoming a merely transient monetary aspect of commodities. The perishable content is thus sacrificed to the nonperishable form.

"Suppose that Money be taken (by means of Taxation) from one who spendeth the same ... in superfluous eating and drinking, or any other perishing Commodity; and the same transferred to one that bestoweth it on Cloaths. I say, that even in this case the Commonwealth hath some little advantage; because Cloaths do not altogether perish so soon as Meats and Drinks. But if the same be spent in Furniture of Houses, the advantage is yet a little more, if in Building of houses yet more; if in improving of Lands, working of Mines, Fishing, etc. yet more; but most of all, in bringing Gold and Silver into the Country; because those things are not only not perishable, but are esteemed for Wealth at all times and every where; whereas other Commodities [which are perishable, or whose value depends upon the Fashion; or which are contingently scarce and plentiful,] are Wealth, but pro hic et nunc." [At a particular place and a particular time. – Ed.]

An outward expression of the desire to withdraw money from the stream of circulation and to save it from the social metabolism is the burying of it, so that social wealth is turned into an imperishable subterranean hoard with an entirely furtive private relationship to the commodity-owner. Doctor Bernier, who spent some time at Aurangzeb's court at Delhi, relates that merchants, especially non-Moslem heathens, in whose hands nearly the entire commerce and all money are concentrated – secretly bury their money deep in the ground,

"being held in thrall to the belief that the money they hide during their lifetime will serve them in the next world after their death."

Incidentally, in so far as the hoarder of money combines asceticism with assiduous diligence he is intrinsically a Protestant by religion and still more a Puritan.

"It cannot be denied that buying and selling are necessary practices, which cannot be dispensed with and may surely be used in a Christian manner, especially as regards things that serve necessity and honour; for thus cattle, wool, corn, butter, milk and other goods were bought and sold by the patriarchs. These are gifts of God, which He produces from the soil and divides among men. But foreign trade, which brings merchandise from Calicut and India and other places – merchandise such as precious silks and jewellery and spices, which are used only for display and serve no need – and drains money from the country and the people, should not be permitted if we had a government and princes. But I do not want to write of this now, for I consider that in the end when we have no more money, it will have to be abandoned, and finery and gluttony as well; for all writing and preaching will be in vain until we are compelled by necessity and poverty."

Even in advanced bourgeois societies hoards of money are buried at times of upheaval in the social metabolic process. This is an attempt to save social cohesion – for the commodity-owner this cohesion is represented by the commodity and the adequate embodiment of the commodity is money – in its compact form from the social movement. The social sinews of things are buried alongside the body whose sinews they are.

If the hoard were not constantly in tension with circulation, it would now simply be a heap of useless metal, its monetary soul would have disappeared and nothing but burnt-out ashes of circulation, its caput mortuum, would remain. Money, i.e., exchange-value which has assumed an independent existence, is by nature the embodiment of abstract wealth; but, on the other hand, any given sum of money is a quantitatively finite magnitude of value. The quantitative delimitation of exchange-value conflicts with its qualitative universality, and the hoarder regards the limitation as a restriction, which in fact becomes also a qualitative restriction, i.e., the hoard is turned into a merely limited representation of material wealth. Money as the universal equivalent may be directly expressed, as we have seen, in terms of an equation, in which it forms one side while the other side consists of an endless series of commodities. The degree in which the realisation of exchange-value approaches such an infinite series, in other words how far it corresponds to the concept of exchange-value, depends on its magnitude. After all, movement of exchange-value as such, as an automaton, can only be expansion of its quantitative limits. But in passing one set of quantitative limits of the hoard new restrictions are set up, which in turn must be abolished. What appears as a restriction is not a particular limit of the hoard, but any limitation of it. The formation of hoards therefore has no intrinsic limits, no bounds in itself, but is an unending process, each particular result of which provides an impulse for a new beginning. Although the hoard can only be increased by being preserved, on the other hand it can only be preserved by being increased.

Money is not just an object of the passion for enrichment, it is the object of it. This urge is essentially auri sacra fames. [The accursed greed for gold. – Ed.] The passion for enrichment by contrast with the urge to acquire particular material wealth, i.e., use-values, such as clothes, jewellery, herds of cattle, etc., becomes possible only when general wealth as such is represented by a specific thing and can thus be retained as a particular commodity. Money therefore appears both as the object and the source of the desire for riches. The underlying reason is in fact that exchange-value as such becomes the goal, and consequently also an expansion of exchange-value. Avarice clings to the hoard and does not allow money to become a medium of circulation, but greed for gold preserves the monetary soul of the hoard and maintains it in constant tension with circulation.

The activity which amasses hoards is, on the one hand, the withdrawal of money from circulation by constantly repeated sales, and on the other, simple piling up, accumulation. It is indeed only in the sphere of simple circulation, and specifically in the form of hoards, that accumulation of wealth as such takes place, whereas the other so-called forms of accumulation, as we shall see later, are quite improperly, and only by analogy with simple accumulation of money, regarded as accumulation. All other commodities are accumulated either as use-values, and in this case the manner of their accumulation is determined by the specific features of their use-value. Storing of corn, for example, requires special equipment; collecting sheep makes a person a shepherd; accumulation of slaves and land necessitates relations of domination and servitude, and so on. Unlike the simple act of piling things up, the formation of stocks of particular types of wealth requires special methods and develops special traits in the individual. Or wealth in the shape of commodities may be accumulated as exchange-value, and in this case accumulation becomes a commercial or specifically economic operation. The one concerned in it becomes a corn merchant, a cattle-dealer, and so forth. Gold and silver constitute money not as the result of any activity of the person who accumulates them, but as crystals of the process of circulation which takes place without his assistance. He need do nothing but put them aside, piling one lot upon another, a completely senseless activity, which if applied to any other commodity would result in its devaluation.

Our hoarder is a martyr to exchange-value, a holy ascetic seated at the top of a metal column. He cares for wealth only in its social form, and accordingly he hides it away from society. He wants commodities in a form in which they can always circulate and he therefore withdraws them from circulation. He adores exchange-value and he consequently refrains from exchange. The liquid form of wealth and its petrification, the elixir of life and the philosophers' stone are wildly mixed together like an alchemist's apparitions. His imaginary boundless thirst for enjoyment causes him to renounce all enjoyment. Because he desires to satisfy all social requirements, he scarcely satisfies the most urgent physical wants. While clinging to wealth in its metallic corporeality the hoarder reduces it to a mere chimaera. But the accumulation of money for the sake of money is in fact the barbaric form of production for the sake of production, i.e., the development of the productive powers of social labour beyond the limits of customary requirements. The less advanced is the production of commodities, the more important is hoarding – the first form in which exchange-value assumes an independent existence as money – and it therefore plays an important role among ancient nations, in Asia up to now, and among contemporary agrarian nations, where exchange-value has not yet penetrated all relations of production. Before, however, examining the specific economic function that hoarding fulfils in relation to metallic currency, let us note another form of hoarding.

Gold and silver articles, quite irrespective of their aesthetic properties, can be turned into money, since the material of which they consist is the material of money, just as gold coins and gold bars can be transformed into such articles. Since gold and silver are the material of abstract wealth, their employment as concrete use-values is the most striking manifestation of wealth, and although at certain stages of production the commodity-owner hides his treasures, he is impelled to show to other commodity-owners that he is a rich man, whenever he can safely do so. He bedecks himself and his house with gold. In Asia, and India in particular, where the formation of hoards does not play a subordinate part in the total mechanism of production, as it does in bourgeois economy, but where this form of wealth is still considered a final goal, gold and silver articles are in fact merely hoards in an aesthetic form. The law in mediaeval England treated gold and silver articles simply as a kind of treasure-hoard, since the rough labour applied to them added little to their value. They were intended to be thrown again into circulation and the fineness of the metal of which they were made was therefore specified in the same way as that of coin. The fact that increasing wealth leads to an increased use of gold and silver in the form of luxury articles is such a simple matter that ancient thinkers clearly understood it, whereas modern economists put forward the incorrect proposition that the use of silver and gold articles increases not in proportion to the rise in wealth but in proportion to the fall in the value of precious metals. There is therefore always a flaw in their otherwise accurate explanations regarding the use of Californian and Australian gold, for according to their views the increased employment of gold as raw material is not justified by a corresponding fall in its value. As a result of the fight between the American colonies and Spain and the interruption of mining by revolutions, the average annual output of precious metals decreased by more than one-half between 1810 and 1830. The amount of coin circulating in Europe decreased by almost one-sixth in 1829 as compared with 1809. Although the output thus decreased and the costs of production (provided they changed at all) increased, nevertheless an exceptionally rapid rise in the use of precious metals as articles of luxury took place in England even during the war and on the continent following the Treaty of Paris. Their use increased with the growth of wealth in general. It may be regarded as a general law that the conversion of gold and silver coin into luxury goods predominates in times of peace, while their reconversion into bars and also into coin only predominates in turbulent periods. How considerable a proportion of the gold and silver stock exists in the shape of luxury articles compared with the amount used as money is shown by the fact that in 1829, according to Jacob, the ratio was as 2 to 1 in England, while in Europe as a whole and America, 25 per cent more precious metal was used in luxury goods than in coins.

We have seen that the circulation of money is merely a manifestation of the metamorphosis of commodities, or of the transformation which accompanies the social metabolism. The total quantity of gold in circulation must therefore perpetually increase or decrease in accordance with the varying aggregate price of the commodities in circulation, that is in accordance, on the one hand, with the volume of their metamorphoses which take place simultaneously and, on the other hand, with the prevailing velocity of their transformation. This is only possible provided that the proportion of money in circulation to the total amount of money in a given country varies continuously. Thanks to the formation of hoards this condition is fulfilled. If prices fall or the velocity of circulation increases, then the money ejected from the sphere of circulation is absorbed by the reservoirs of hoarders; if prices rise or the velocity of circulation decreases, then these hoards open and a part of them streams back into circulation. The solidification of circulating money into hoards and the flowing of the hoards into circulation is a continuously changing and oscillating movement, and the prevalence of the one or the other trend is solely determined by variations in the circulation of commodities. The hoards thus act as channels for the supply or withdrawal of circulating money, so that the amount of money circulating as coin is always just adequate to the immediate requirements of circulation. If the total volume of circulation suddenly expands and the fluid unity of sale and purchase predominates, so that the total amount of prices to be realised grows even faster than does the velocity of circulation of money, then the hoards dwindle visibly; whenever an abnormal stagnation prevails in the movement as a whole, that is when the separation of sale from purchase predominates, then the medium of circulation solidifies into money to a remarkable extent and the reservoirs of the hoarders are filled far above their average level. In countries which have purely metallic currency or are at an early stage of development of production, hoards are extremely fragmented and scattered throughout the country, whereas in advanced bourgeois countries they are concentrated in the reservoirs of banks. Hoards must not be confused with reserve funds of coin, which form a constituent element of the total amount of money always in circulation, whereas the active relation of hoard and medium of circulation presupposes that the total amount of money decreases or increases. As we have seen, gold and silver articles also act both as channels for the withdrawal of precious metals and latent sources of supply. Under ordinary circumstances only the former function plays an important role in the economy of metallic currency.

b. Means of Payment

Up to now two forms of money which differ from the medium of circulation have been considered, namely suspended coin and hoard. The first form, the temporary transformation of coins into money, reflects the fact that in a certain sphere of circulation, the second term of C—M—C, that is M—C the purchase, must break up into a series of successive purchases. Hoarding, however, is either simply due to the separation of the transaction C—M which does not proceed to M—C, or it is merely an independent development of the first metamorphosis of commodities, money, or the alienated form of existence of all commodities as distinct from means of circulation, which represents the always saleable form of the commodity. Coin held in reserve and hoards constitute money only as non-means of circulation, and are non-means of circulation merely because they do not circulate. The distinctive form of money which we now consider circulates or enters circulation, but does not function as means of circulation. Money as means of circulation was always means of purchase, but now it does not serve in that capacity.

When as a result of hoarding money becomes the embodiment of abstract social wealth and the material representative of physical wealth, this aspect of money acquires specific functions within the process of circulation. When money circulates simply as a means of circulation and hence as a means of purchase, this presupposes that commodity and money confront each other simultaneously; in other words, that the same value is available twice, as a commodity in the hands of the seller at one pole, and as money in the hands of the buyer at the other pole. The simultaneous existence of the two equivalents at opposite poles and their simultaneous change of place, or their mutual alienation, presupposes in its turn that seller and buyer enter into relation with each other only as owners of actually existing commodities. But the metamorphosis of commodities, in the course of which the various distinct forms of money are evolved, transforms the commodity-owners as well, and alters the social role they play in relation to one another. In the course of the metamorphosis of commodities the keeper of commodities changes his skin as often as the commodity undergoes a change or as money appears in a new form. Commodity-owners thus faced each other originally simply as commodity-owners; then one of them became a seller, the other a buyer; then each became alternately buyer and seller; then they became hoarders and finally rich men. Commodity-owners emerging from the process of circulation are accordingly different from those entering the process. The different forms which money assumes in the process of circulation are in fact only crystallisations of the transformation of commodities, a transformation which is in its turn only the objective expression of the changing social relations in which commodity-owners conduct their exchange. New relations of intercourse arise in the process of circulation, and commodity-owners, who represent these changed relations, acquire new economic characteristics. In the same way as within the sphere of internal circulation money becomes nominal, and a mere piece of paper representing gold is able to function as money, so a buyer or seller who comes forward as a mere representative of money or commodities, namely one who represents future money or future commodities, is enabled by the same process to operate as a real buyer or seller.

All the distinct forms evolved by gold as money are merely manifestations of aspects latent in the metamorphosis of commodities, but these aspects did not assume a separate form in the simple circulation of money, in money as it appears as coin and the circuit C—M—C as a dynamic unity, or else they emerged merely as potentialities, as did for example the interruption of the metamorphosis of commodities. We have seen that in the course of the transaction C—M the commodity as a real use-value and nominal exchange-value is brought into relation with money as a real exchange-value and only nominal use-value. By alienating the commodity as use-value the seller realises its exchange-value and the use-value of money. In contrast, by alienating money as exchange-value, the buyer realises its use-value and the price of the commodity. Commodity and money, accordingly, change places. The active process of this bilateral polar antithesis is in its turn separated while it is being carried through. The seller actually alienates the commodity but realises its price in the first place only nominally. He has sold the commodity at its price, but the price will only be realised at a predetermined later date. The buyer buys as the representative of future money, whereas the seller sells as the owner of a commodity available here and now. On the one hand, the seller actually hands over the commodity as use-value without actually realising its price; on the other hand, the buyer actually realises his money in the use-value of the commodity without actually handing over the money as exchange-value. Just as formerly money was represented by a token of value, so now it is symbolically represented by the buyer himself. Just as formerly the value-token as a universal symbol entailed a State guarantee and a legal rate, so now the buyer as a personal symbol gives rise to private, legally enforcible, contracts among commodity-owners.

Conversely, in the transaction M—C, money as a real means of purchase may be alienated, thus realising the price of the commodity before the use-value of the money is realised, or before the commodity is handed over. This happens, for instance, in the well-known form of advance payment; also in the form of payment used by the English government to buy opium from Indian ryots, and is largely used by foreign merchants living in Russia to buy goods produced in that country. In these cases, however, money functions only in the familiar form of means of purchase and therefore requires no new definition, or any further discussion. With regard to the changed form which the two transactions M—C and C—M assume here, we shall only note that the purely conceptual distinction of purchase and sale as it appears directly in circulation becomes now a real distinction, since there is only money in one case and only commodity in the other; in each of them, however, only the extreme is actually available from which the initiative comes. Both forms, moreover, have in common the fact that in each of them one equivalent exists only by common decision of buyer and seller, a decision which is mutually binding and is given a distinct legal form.

Seller and buyer become creditor and debtor. Whereas the commodity-owner as the guardian of a hoard was a rather comical figure, he now becomes terrifying, because he regards, not himself, but his neighbour as the embodiment of a definite sum of money, and turns his neighbour and not himself into a martyr to exchange-value. The former believer becomes a creditor [In German a pun on the words “der Gläubige,” the believer, and “der Gläubiger,” the creditor. – Ed] and turns from religion to Jurisprudence.

"I stay here on my bond!"

In the changed form of C—M, in which the commodity is actually on hand and the money is merely represented, money functions first as the measure of value. The exchange-value of the commodity is assessed in money as its measure, but the exchange-value assessed by contract, that is the price, exists not merely in the mind of the seller, but is also the measure of the liabilities of the buyer. Secondly, money functions here as means of purchase, although it is merely its future existence which casts its shadow before it, for it causes the commodity to move from the hands of the seller into those of the buyer. On the settlement day of the contract, money enters circulation, for it moves from the hands of the former buyer into those of the former seller. But it does not come into the sphere of circulation as means of circulation or means of purchase. It fulfilled these functions before it existed, and it appears on the scene after ceasing to perform these functions. It enters circulation as the only adequate equivalent of the commodity, as the absolute embodiment of exchange-value, as the last word of the exchange process, in short as money, and moreover as money functioning as the universal means of payment. Money functioning as means of payment appears to be the absolute commodity, but it remains within the sphere of circulation, not outside it as with the hoard. The difference between means of purchase and means of payment becomes very conspicuous, and unpleasantly so, at times of commercial crises.

The conversion of products into money in the sphere of circulation appears originally simply as an individual necessity for the commodity-owner when his own product does not constitute use-value for himself, but has still to become a use-value through alienation. In order to make payment on the contractual settlement day, however, he must already have sold commodities. The evolution of the circulation process thus turns selling into a social necessity for him, quite irrespective of his individual needs. As a former buyer of commodities he is forced to become a seller of other commodities so as to obtain money, not as a means of purchase, but as a means of payment, as the absolute form of exchange-value. The conversion of commodities into money as a final act, or the first metamorphosis of commodities as the ultimate goal, which in hoarding appeared to be the whim of the commodity-owner, has now become an economic function. The motive and the content of selling for the sake of payment constitutes the content of the circulation process, a content arising from its very form.

In this type of sale, the commodity moves from one position to another, although its first metamorphosis, its conversion into money, is deferred. On the buyer's side, however, the second metamorphosis is carried through, i.e., money is reconverted into commodities, before the first metamorphosis has taken place, i.e., before the conversion of the commodities into money. In this case, therefore, the first metamorphosis appears to take place later than the second. Hence money, the form of the commodity in its first metamorphosis, acquires a new distinctive aspect. Money, that is the independent development of exchange-value, is no longer an intermediary phase of commodity circulation, but its final result.

No proof in detail is needed to show that such purchases on credit, in which the two poles of the transaction are separated in time, evolve spontaneously on the basis of simple circulation of commodities. At first it happens that in the course of circulation certain commodity-owners confront one another repeatedly as buyers and sellers. Such repeated occurrences do not remain merely accidental, but commodities may, for example, be ordered for a future date at which they are to be delivered and paid for. The sale in this case takes place only nominally, i.e., juridically, without the actual presence of commodities and money. The two forms of money, means of circulation and means of payment, are here still identical, since on the one hand commodities and money change places simultaneously, and on the other, money does not purchase commodities but realises the price of commodities previously sold. Moreover, owing to the specific nature of a number of use-values they are really alienated not by being in fact handed over but only by being leased for a definite period. For example, when one sells the use of a house for a month, its use-value is delivered only at the expiration of the month, although the house changes hands at the beginning of the month. Because in this case the actual transfer of the use-value and its real alienation are separated in time, the realisation of its price also takes place later than the date on which it changes hands. Finally, owing to differences in the period and length of time required for the production of different commodities, one producer comes to the market as a seller before the other can act as a buyer, and if the same commodity-owners repeatedly buy and sell one another's products, the two aspects of the transaction are separated according to the conditions of production of their commodities. This gives rise to relations of creditor and debtor among commodity-owners. These relations can be fully developed even before the credit system comes into being, although they are the natural basis of the latter. It is evident however that the evolution of the credit system, and therefore of the bourgeois mode of production in general, causes money to function increasingly as a means of payment to the detriment of its function both as a means of purchase and even more as an element of hoarding. For instance in England, coin is almost entirely confined to the sphere of retail trade and to petty transactions between producers and consumers, whereas money as means of payment predominates in the sphere of large commercial transactions.

Money as the universal means of payment becomes the universal commodity of contracts, though at first only within the sphere of commodity circulation. But as this function of money develops, all other forms of payment are gradually converted into payments in money. The extent to which money functions as the exclusive means of payment indicates how deep-seated and widespread the domination of production by exchange-value is.

The volume of money in circulation as means of payment is first of all determined by the amount of payments due, that is by the aggregate prices of the commodities which have been sold, not of the commodities that are to be sold as is the case with simple money circulation. But the amount thus determined is subject to modification by two factors: first by the velocity with which a coin repeats the same operation, or the number of payments which constitute a dynamic chain of payments. A pays B, then B pays C and so on. The velocity with which the same coin can act repeatedly as means of payment depends, on the one hand, on the interconnection of the commodity-owners' relations as creditors and debtors, in which the same commodity-owner who is a creditor in relation to one person is a debtor in relation to another, and so forth; and on the other hand, on the period of time separating the various dates on which payments are due. The series of payments, or of first metamorphoses carried out subsequently, is qualitatively different from the series of metamorphoses represented by the movement of money as means of circulation. The second series does not only appear in temporal succession, but it comes into being in this way. A commodity is turned into money, then into a commodity again, thus making it possible for another commodity to be turned into money, and so on: in other words, a seller becomes a buyer and another commodity-owner thereby becomes a seller. This sequence arises fortuitously in the course of commodity exchange itself. But the fact that the money which A pays to B is then used by B to pay C, and then by C to pay D, etc., and that moreover payments rapidly succeed one another – this external relation is but a manifestation of a previously existing social relation. The same coin passes through various hands not because it acts as means of payment; but it is passed on as means of payment because these hands have already been joined. A far more extensive integration of the individual into the process of circulation is accordingly signified by the velocity of money as means of payment, than by the velocity of money as coin or means of purchase.

The aggregate of prices of simultaneous, and therefore spatially coexisting, purchases and sales is the limit beyond which the velocity of currency cannot be substituted for its volume. But this barrier does not exist when money functions as means of payment. If payments falling due simultaneously are concentrated at one place, which occurs at first spontaneously at the large foci of commodity circulation, then payments offset one another like negative and positive quantities: A who has to pay B may receive a payment from C at the same time, and so on. The amount of money required as means of payment thus depends not on the aggregate amount of payments which are due to be made simultaneously, but on the degree of their concentration and on the size of the balance left over after the negative and positive amounts have been offset against one another. Special devices for this type of balancing arise even if no credit system has been evolved, as was the case in ancient Rome. But consideration of them is no more relevant here than is consideration of the usual settlement dates, which in every country become established among people of certain social strata. Here we shall merely note that scholarly investigations of the specific influence exerted by these dates on the periodic variations in the quantity of money in circulation have been undertaken only in recent times.

When payments cancel one another as positive and negative quantities, no money need actually appear on the scene. Here money functions merely as measure of value with respect to both the price of the commodity and the size of mutual obligations. Apart from its nominal existence, exchange-value does not therefore acquire an independent existence in this case, even in the shape of a token of value, in other words money becomes purely nominal money of account. Money functioning as means of payment thus contains a contradiction: on the one hand, when payments balance, it acts merely as a nominal measure; on the other hand, when actual payments have to be made, money enters circulation not as a transient means of circulation, but as the static aspect of the universal equivalent, as the absolute commodity, in short, as money. Where chains of payments and an artificial system for adjusting them have been developed, any upheaval that forcibly interrupts the flow of payments and upsets the mechanism for balancing them against one another suddenly turns money from the nebulous chimerical form it assumed as measure of value into hard cash or means of payment. Under conditions of advanced bourgeois production, when the commodity-owner has long since become a capitalist, knows his Adam Smith and smiles superciliously at the superstition that only gold and silver constitute money or that money is after all the absolute commodity as distinct from other commodities – money then suddenly appears not as the medium of circulation but once more as the only adequate form of exchange-value, as a unique form of wealth just as it is regarded by the hoarder. The fact that money is the sole incarnation of wealth manifests itself in the actual devaluation and worthlessness of all physical wealth, and not in purely imaginary devaluation as for instance in the Monetary System. This particular phase of world market crises is known as monetary crisis. The summum bonum, the sole form of wealth for which people clamour at such times, is money, hard cash, and compared with it all other commodities – just because they are use-values – appear to be useless, mere baubles and toys, or as our Doctor Martin Luther says, mere ornament and gluttony. This sudden transformation of the credit system into a monetary system adds theoretical dismay to the actually existing panic, and the agents of the circulation process are overawed by the impenetrable mystery surrounding their own relations.

Payments in their turn necessitate reserve funds, accumulations of money as means of payment. The formation of reserve funds, unlike hoarding, no longer seems an activity extraneous to circulation, or, as in the case of coin reserves, a purely technical stagnation of coin; on the contrary money has to be gradually accumulated so as to be available at definite dates in the future when payments become due. Although with the development of bourgeois production, therefore, the abstract form of hoarding regarded as enrichment decreases, the form of hoarding necessitated by the exchange process itself increases; a part of the wealth which generally accumulates in the sphere of commodity circulation being drawn into reserve funds of means of payment. The more advanced is bourgeois production, the more these funds are restricted to the indispensable minimum. Locke's work on the lowering of the rate of interest contains interesting information about the size of these reserve funds in his time. It shows how substantial a proportion of the money in circulation in England was absorbed by the reserves of means of payment precisely during the period when banking began to develop.

The law regarding the quantity of money in circulation as it emerged from the examination of simple circulation of money is significantly modified by the circulation of means of payment. If the velocity of money, both as means of circulation and as means of payment, is given, then the aggregate amount of money in circulation during a particular period is determined by the total amount of commodity-prices to be realised [plus] the total amount of payments falling due during this period minus the payments that balance one another. This does not affect at all the general principle that the amount of money in circulation depends upon commodity-prices, for the aggregate amount of payments is itself determined by the prices laid down in the contracts. It is however quite obvious that the aggregate prices of the commodities in circulation during a definite period, say a day, are by no means commensurate with the volume of money in circulation on the same day, even if the velocity of circulation and the economic methods of payment are assumed to remain unchanged; since a certain quantity of commodities is in circulation whose prices will only be realised in money at a later date, and a certain amount of money in circulation corresponds to commodities which have left the sphere of circulation a long time ago. This amount of money depends in its turn on the value of the payments that fall due on this day, although the relevant contracts were concluded at widely varying dates.

We have seen that changes in the value of gold and silver do not affect their functions as measure of value and money of account. But with regard to hoarded money these changes are of decisive importance, since with the rise or fall in the value of gold and silver the value of the hoard of gold or silver will rise or fall. Such changes are of even greater importance for money as means of payment. The payment is effected at a date subsequent to the sale of the commodities; that is to say, money performs two different functions at two different periods, acting first as a measure of value, and then as the means of payment appropriate to this measure. If meanwhile a change has occurred in the value of the precious metals, or in the labour-time needed for their production, the same quantity of gold or silver will have a greater or smaller value when it functions as means of payment than at the time it served as measure of value, when the contract was signed. The function which a specific commodity, such as gold or silver, performs as money, or as exchange-value that has assumed an independent form, comes here into conflict with the nature of the specific commodity, whose value depends on variations in its costs of production. It is well-known that the fall in the value of precious metals in Europe gave rise to a great social revolution, just as the ancient Roman Republic at an early stage of its history experienced a reverse revolution caused by a rise in the value of copper, the metal in which the debts of the plebeians were contracted. Even without further examination of the influence which fluctuations in the value of precious metals exert on the system of bourgeois economy, it is clear that a fall in the value of precious metals favours debtors at the expense of creditors, while a rise in their value favours creditors at the expense of debtors.

c. World Money

Gold becomes money, as distinct from coin, first by being withdrawn from circulation and hoarded, then by entering circulation as a non-means of circulation, finally however by breaking through the barriers of domestic circulation in order to function as universal equivalent in the world of commodities. It thus becomes world money.

In the same way as originally the commonly used weights of precious metals served as measures of value, so on the world market the monetary denominations are reconverted into corresponding denominations of weight. Just as amorphous crude metal (aes rude) was the original form of means of circulation, and originally the coined form was simply the official indication of metallic weight, so precious metal serving as universal coin discards its specific shape and imprint and reverts to neutral bullion form; that is when national coins, such as Russian imperials, Mexican thalers and English sovereigns, circulate abroad their titles become unimportant and what counts is only their substance. Finally, as international money the precious metals once again fulfil their original function of means of exchange: a function which, like commodity exchange itself, originated at points of contact between different primitive communities and not in the interior of the communities. Money functioning as world money reverts to its original natural form. When it leaves domestic circulation, money sheds the particular forms occasioned by the development of exchange within particular areas, or the local forms assumed by money as measure of price – specie, small change, and token of value.

We have seen that only one commodity serves as a measure of value in the internal circulation of any country. But since in one country gold performs this function, in another silver, a double standard of value is recognised on the world market, and all functions of money are duplicated. The translation of the values of commodities from gold prices into silver prices and vice versa always depends on the relative value of the two metals; this relative value varying continuously and its determination appearing accordingly as a continuous process. Commodity-owners in every country are compelled to use gold and silver alternately for foreign commerce thus exchanging the metal current as money within the country for the metal which they happen to require as money in a foreign country. Every nation thus employs both gold and silver as world money.

Gold and silver in the sphere of international commodity circulation appear not as means of circulation but as universal means of exchange. The universal means of exchange act however merely as means of purchase and means of payment, two forms which we have already described, but their relations are reversed on the world market. When in the sphere of internal circulation money was used as coin, i.e., as the intermediary link in the dynamic unity C—M—C or as the merely transitory form of exchange-value during the perpetual motion of commodities – it functioned exclusively as means of purchase. The reverse is the case on the world market. Here gold and silver act as means of purchase if the interchange is only unilateral and therefore purchase and sale are separated. For example, the border trade at Kyakhta is in fact and according to treaty stipulations barter, in which silver is only used as a measure of value. The war of 1857-58 induced the Chinese to sell without buying. Thereupon silver suddenly appeared as means of purchase. In deference to the letter of the treaty, the Russians turned French five-franc coins into crude silver articles which were used as means of exchange. Silver has always served as means of purchase for Europe and America, on the one side, and Asia, where it congeals into hoards, on the other. Precious metals, moreover, serve as international means of purchase when the usual equilibrium in the interchange of products between two nations is suddenly disturbed, e.g., when a bad harvest compels one of them to buy on an extraordinary scale. Precious metals, finally, are used as international means of purchase by the gold and silver producing countries, where they are direct products and also commodities, and not a converted form of commodities. With the development of commodity exchange between different national spheres of circulation, the function which world money fulfils as means of payment for settling international balances develops also.

International circulation, like domestic circulation, requires a constantly changing amount of gold and silver. Part of the accumulated hoards is consequently used by every nation as a reserve fund of world money, a fund which is sometimes diminished, sometimes replenished according to fluctuations in commodity exchange. In addition to particular movements of world money which flows backwards and forwards between national spheres of circulation, there is a general movement of world money; the points of departure being the sources of production, from which gold and silver flow in various directions to all the markets of the world. Thus gold and silver as commodities enter the sphere of world circulation and in proportion to the labour-time contained in them they are exchanged for commodity equivalents before reaching the area of domestic circulation. They accordingly already have a definite value when they turn up in these areas. Their relative value on the world market is therefore uniformly affected by every fall or rise in their costs of production and is quite independent of the degree to which gold or silver is absorbed by the various national spheres of circulation. One branch of the stream of metal which is caught up in a particular area of the world of commodities immediately enters the domestic circulation of money as replacement of worn-out coins; another is diverted into various reservoirs where coin, means of payment and world money accumulate; a third is used to make luxury articles and the rest, finally, is turned simply into hoards. Where the bourgeois mode of production has reached an advanced stage the formation of hoards is reduced to the minimum needed by the different branches of the circulation process for the free action of their mechanism. Under these conditions hoards as such consist only of wealth lying idle, unless they represent a temporary surplus in the balance of payments, the result of an interruption in the interchange of products and therefore commodities congealed in their first metamorphosis.

Just as in theory gold and silver as money are universal commodities, so world money is the appropriate form of existence of the universal commodity. In the same proportion as all commodities are exchanged for gold and silver these become the transmuted form of all commodities and hence universally exchangeable commodities. They are realised as embodiments of universal labour-time in the degree that the interchange of the products of concrete labour becomes world-wide. They become universal equivalents in proportion to the development of the series of particular equivalents which constitute their spheres of exchange. Because the exchange-value of commodities is universally developed in international circulation, it appears transformed into gold and silver as international money. Since as a result of their versatile industry and all-embracing commerce the nations of commodity-owners have turned gold into adequate money, they regard industry and commerce merely as means enabling them to withdraw money in the form of gold and silver from the world market. Gold and silver as international money are therefore both the products of the universal circulation of commodities and the means to expand its scope. Just as the alchemists, who wanted to make gold, were not aware of the rise of chemistry, so commodity-owners, chasing after a magical form of the commodity, are not aware of the sources of world industry and world trade that are coming into being. Gold and silver help to create the world market by anticipating its existence in their concept of money. Their magical effect is by no means confined to the infancy of bourgeois society, but is the inevitable consequence of the inverted way in which their own social labour appears to the representatives of the world of commodities; a proof of this being the remarkable influence which the discovery of gold in various new areas exerted on international trade in the middle of the nineteenth century.

As money develops into international money, so the commodity-owner becomes a cosmopolitan. The cosmopolitan relations of men to one another originally comprise only their relations as commodity-owners. Commodities as such are indifferent to all religious, political, national and linguistic barriers. Their universal language is price and their common bond is money. But together with the development of international money as against national coins, there develops the commodity-owner's cosmopolitanism, a cult of practical reason, in opposition to the traditional religious, national and other prejudices which impede the metabolic process of mankind. The commodity-owner realises that nationality “is but the guinea's stamp,” since the same amount of gold that arrives in England in the shape of American eagles is turned into sovereigns, three days later circulates as napoleons in Paris and may be encountered as ducats in Venice a few weeks later. The sublime idea in which for him the whole world merges is that of a market, the world market.

4. The precious metals

At first the process of bourgeois production takes possession of metallic currency as an existing and ready-made instrument, which, although it has been gradually reorganised, in its basic structure has nevertheless been retained. The question why gold and silver, and not other commodities, are used as the material of money lies outside the confines of the bourgeois system. We shall therefore do no more than summarise the most important aspects.

Because universal labour-time itself can only display quantitative differences, the object to be recognised as its specific embodiment must be able to express purely quantitative differences, thus presupposing identical, homogeneous quality. This is the first condition that has to be fulfilled if a commodity is to function as a measure of value. If, for instance, one evaluates all commodities in terms of oxen, hides, corn, etc., one has in fact to measure them in ideal average oxen, average hides, etc., since there are qualitative differences between one ox and another, one lot of corn and another, one hide and another. Gold and silver, on the other hand, as simple substances are always uniform and consequently equal quantities of them have equal values. Another condition that has to be fulfilled by the commodity which is to serve as universal equivalent and that follows directly from its function of representing purely quantitative differences, is its divisibility into any desired number of parts and the possibility of combining these again, so that money of account can be represented in palpable form too. Gold and silver possess these qualities to an exceptional degree.

As means of circulation gold and silver have an advantage over other commodities in that their high specific gravity – representing considerable weight in a relatively small space – is matched by their economic specific gravity, in containing much labour-time, i.e., considerable exchange-value, in a relatively small volume. This facilitates transport, transfer from one hand to another, from one country to another, enabling gold and silver suddenly to appear and just as suddenly to disappear – in short these qualities impart physical mobility, 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 precious metals, their durability, relative indestructibility, the fact that they do not oxidise when exposed to the air and that gold in particular is insoluble in acids other than aqua regia – all these physical properties make precious metals the natural material for hoarding. Peter Martyr, who was apparently a great lover of chocolate, remarks, therefore, of the sacks of cocoa which in Mexico served as a sort of money.

“Blessed money which furnishes mankind with a sweet and nutritious beverage and protects its innocent possessors from the infernal disease of avarice, since it cannot be long hoarded, nor hidden underground!” (De orbe novo [Alcala, 1530, dec. 5, cap. 4].24)

Metals in general owe their great importance in the direct process of production to their use as instruments of production. Gold and silver, quite apart from their scarcity, cannot be utilised in this way because, compared with iron and even with copper (in the hardened state in which the ancients used it), they are very soft and, therefore, to a large extent lack the quality on which the use:value of metals in general depends. Just as the precious metals are useless in the direct process of production, so they appear to be unnecessary as means of subsistence, i.e., as articles of consumption. Any quantity of them can thus be placed at will within the social process of circulation without impairing production and consumption as such. Their individual use-value does not conflict with their economic function. Gold and silver, on the other hand, are not only negatively superfluous i.e., dispensable objects, but their aesthetic qualities make them the natural material for pomp, ornament, glamour, the requirements of festive occasions, in short, the positive expression of supra abundance and wealth. They appear, so to speak, as solidified light raised from a subterranean world, since all the rays of light in their original composition are reflected by silver, while red alone, the colour of the highest potency, is reflected by gold. Sense of colour, moreover, is the most popular form of aesthetic perception in general. The etymological connection between the names of precious metals and references to colour in various Indo-European languages has been demonstrated by Jakob Grimm (see his History of the German Language).

Finally the fact that it is possible to transform gold and silver from coin into bullion, from bullion into articles of luxury and vice versa, the advantage they have over other commodities of not being confined to the particular useful form they have once been given makes them the natural material for money, which must constantly change from one form into another.

Nature no more produces money than it does bankers or a rate of exchange. But since in bourgeois production, wealth as a fetish must be crystallised in a particular substance, gold and silver are its appropriate embodiment. Gold and silver are not by nature money, but money consists by its nature of gold and silver. Gold or silver as crystallisation of money is, on the one hand, not only the product of the circulation process but actually its sole stable product; gold and silver are, on the other hand, finished primary products, and they directly represent both these aspects, which are not distinguished by specific forms. The universal product of the social process, or the social process itself considered as a product, is a particular natural product, a metal, which is contained in the earth's crust and can be dug up.

We have seen that gold and silver cannot comply with the demand that as money they should have an invariable value. Their value is nevertheless more stable than that of other commodities on the average, as even Aristotle noted. Apart from the general effect of an appreciation or depreciation of the precious metals, variations in the relative value of gold and silver are of particular importance, since both are used side by side as monetary material on the world market. The purely economic reasons of such changes in value – conquests and other political upheavals, which exerted a substantial influence on the value of metals in antiquity, have merely a local and temporary effect – must be attributed to changes in the labour-time required for the production of these metals. This labour-time itself will depend on the relative scarcity of natural deposits and the difficulties involved in procuring them in a purely metallic state. Gold is in fact the first metal that man discovered. On the one hand, it occurs in nature in pure crystalline form, as a separate substance not chemically combined with other substances, or in a virgin state, as the alchemists said; on the other hand, nature herself performs the technical work by washing gold on a large scale in rivers. Only the crudest labour is required on the part of man for extracting gold either from rivers or from alluvial deposits; whereas production of silver requires mining and in general a relatively high level of technical development. The value of silver is therefore originally higher than that of gold, although it is absolutely less scarce. Strabo's statement that an Arabian tribe gave ten pounds of gold for one pound of iron, and two pounds of gold for one pound of silver, is by no means incredible. But the value of silver tends to fall in relation to that of gold, as the productive powers of social labour develop and consequently the product of simple labour becomes more expensive compared with that of complex labour, and with the earth's crust being increasingly opened up the original surface-sources of gold are liable to be exhausted. Finally, at a given stage of development of technology and of the means of communication, the discovery of new territories containing gold or silver plays an important role. The ratio of gold to silver in ancient Asia was 6 to 1 or 8 to 1; the latter ratio was prevalent in China and Japan even in the early nineteenth century; 10 to 1, the ratio obtaining in Xenophon's time, can be regarded as the average ratio of the middle period of antiquity. The working of the Spanish silver mines by Carthage and later by Rome exerted a rather similar influence on the ancient world to that of the discovery of the American mines on modern Europe. During the era of the Roman emperors, 15 or 16 to 1 can be taken as the rough average, although the value of silver in Rome often sank even lower. During the following period reaching from the Middle Ages to modern times, a similar movement which begins with a relative depreciation of gold and ends with a fall in the value of silver takes place. The average ratio in the Middle Ages, as in Xenophon's time, was 10 to l, and as a result of the discovery of mines in America the ratio once again becomes 16 or 15 to 1. The discovery of gold in Australia, California and Colombia will probably lead to another fall in the value of gold.