The necessary physical properties of the particular commodity in which the money form of all other commodities is to be crystallized—as far as they are directly determined by the nature of exchange value—are: divisibility to any desired extent, homogeneity of its parts, and uniformity of all the specimens of the commodity. As an embodiment of universal labor-time it must be homogeneous in its structure and capable of representing only quantitative differences. Another necessary property is durability of its use-value, as it must last through the process of exchange. The precious metals excel in these qualities. Money not being a result of a scheme or agreement, but having been produced instinctively in the process of exchange, a great variety of more or less unsuited commodities had successively performed its functions. At a certain stage of development of the process of exchange, the necessity arises for a polar distribution of the functions of exchange value and use-value among commodities, so that one commodity e. g. should act as a medium of exchange, while another is being alienated as a use-value. This necessity brings it about that one or even several commodities possessing the most generally accepted use-value, begin, incidentally at first, to play the part of money. Even if not direct means of satisfying existing wants, their being the most considerable material constituent part of wealth, insures to them a more general character than to the other use-values.
Direct barter, the original natural form of exchange, represents rather the beginning of the transformation of use-values into commodities, than that of commodities into money. Exchange value has as yet no form of its own, but is still directly bound up with use-value. This is manifested in two ways. Production, in its entire organization, aims at the creation of use-values and not of exchange values, and it is only when their supply exceeds the measure of consumption that use-values cease to be use-values, and become means of exchange, i. e., commodities. At the same time, they become commodities only within the limits of being direct use-values distributed at opposite poles, so that the commodities to be exchanged by their possessors must be use-values to both,—each commodity to its non-possessor. As a matter of fact, the exchange of commodities originates not within the primitive communities,14 but where they end, on their borders at the few points, where they come in contact with other communities. That is where barter begins, and from here it strikes back into the interior of the community, decomposing it. The various use-values which first become commodities in the barter between different communities, such as slaves, cattle, metals, constitute therefore in most cases the first money within those communities themselves. We have seen how the exchange value of a commodity is manifested the more perfectly as exchange value, the longer the series of its equivalents or the greater the sphere of exchange of that commodity. With the gradual expansion of barter, the increase in the number of exchanges, and the growing diversification of the commodities drawn into exchange, commodities develop into exchange values, which leads to the formation of money and has a destructive effect on direct barter. The economists are in the habit of ascribing the origin of money to the difficulties which are encountered in the way of extensive barter, but they forget that these difficulties arise from the development of exchange value and from the fact that social labor becomes universal labor. E. g., commodities as use-values can not be subdivided at will, a property which they should possess as exchange values. Or, a commodity belonging to A may be a use-value to B, while the commodity belonging to B may not have any use-value to A. Or the owners of the commodities may need each other’s indivisible goods in unequal proportions. In other words, under the pretence of analyzing simple barter, economists bring out certain aspects of the contradiction which is inherent in commodities as entities simultaneously embodying both use-value and exchange value. On the other hand, they consistently cling to the idea that barter is the natural form of exchange, which suffers only from certain technical difficulties, for which money is a cunningly devised expedient. Arguing from this perfectly superficial view, an ingenious English economist has rightly maintained that money is merely a material instrument like a ship or a steam-engine, but not an expression of a social relation in the field of production and consequently not an economic category; and that it is, therefore, wrong to treat the subject in political economy, which really has nothing in common with technology.15
The world of commodities implies the existence of a highly developed division of labor; this division is manifested directly in the great variety of use-values, which confront each other as particular commodities and which embody as many different kinds of labor. The division of labor embracing all the particular kinds of productive occupations, is the complete expression of social labor in its material aspect viewed as labor creating use-values. But from the standpoint of commodities and within the process of exchange, it exists only in its results, in the variety of the commodities themselves.
The exchange of commodities constitutes the social metabolic process, i. e. the process in which the exchange of the special products of private individuals is the result of certain social relations of production into which the individuals enter in this interchange of matter. As they develop, the mutual relations of commodities crystalize into various aspects of the universal equivalent and thus the process of exchange becomes at the same time the process of the formation of money. The whole of this process which takes the form of a succession of processes, constitutes circulation.
The analysis of commodities according to their twofold aspect of use-value and exchange value by which the former is reduced to work or deliberate productive activity; and the latter, to labor time or homogeneous social labor, is the result of a century and a half of critical study by the classical school of political economy which dates from William Petty in England and Boisguillebert in France16 and closes with Ricardo in the former country and Sismondi in the latter.
Petty reduces use-value to labor, without deceiving himself as to the natural limitation of its creative power. As regards concrete labor, he sizes it up in the magnitude of its social aspect, as the division of labor.17 This view of the source of material wealth does not remain more or less fruitless as in the case of his contemporary, Hobbes, but leads up to his Political Arithmetic, the first form in which Political Economy is differentiated as an independent science.
He defines exchange value, however, just as it appears in the process of exchange of commodities, viz. as money; and money he defines as an existing commodity, gold and silver. Laboring under the ideas of the monetary system, he declares the special branch of labor which is devoted to the production of gold and silver as the labor which determines exchange value. What he really means is that the labor of members of society must produce not direct use-values, but commodities or use-values which by means of exchange are capable of assuming the form of gold and silver, i. e. of money, i. e. of exchange value, i. e. of embodiments of universal labor. His example, however, shows strikingly that the recognition of labor as the source of material wealth by no means excludes the misconception of the particular social form in which labor constitutes the source of exchange value.
In his turn, Boisguillebert, if not consciously, at any rate actually reduces the exchange value of a commodity to labor-time, since he determines “true value” (la juste valeur) by the right proportion in which the labor-time of individuals is distributed among the several branches of industry, and defines free competition as the social process which determines these correct proportions. At the same time, however, and in contrast with Petty he wages a fanatical war against money which, by its interference, disturbs the natural equilibrium or harmony of exchange of commodities and, like a wanton Moloch, demands all natural wealth as sacrifice. It is true that this assault on money was called forth by certain historic conditions. Since Boisguillebert attacked18 the blind destructive lust after gold which possessed the court of Louis XIV, his tax collectors, and his nobility; on the other hand, Petty extolled in the greed of gold the mighty impulse which spurred on the nation in her industrial development and in her conquest of the world-market; still, there asserts itself here a deeper antagonism of principles which constantly recurs between true English and true French19 Political Economy. Boisguillebert sees, in fact, only the material substance of wealth, its use-value, the enjoyment20 of it, and considers the capitalistic form of labor, i. e. the production of use-values as commodities and the exchange of those commodities, as the natural social form in which individual labor attains its end. When he is, therefore, confronted with the specific character of capitalistic wealth as in the case of money, he sees in it the usurping interference of extraneous elements and gets into a rage about the capitalist system of labor in one form while utopian-like he praises it in another.21 Boisguillebert furnishes us with proof that one may treat labor-time as the measure of value of commodities, and at the same time confound labor embodied in the exchange value of commodities and measured by time, with the direct natural activity of individuals.
The first sensible analysis of exchange value as labor-time, made so clear as to seem almost commonplace, is to be found in the work of a man of the New World where the bourgeois relations of production imported together with their representatives sprouted rapidly in a soil which made up its lack of historical traditions with a surplus of humus. That man was Benjamin Franklin, who formulated the fundamental law of modern political economy22 in his first work which he wrote when a mere youth and published in 1721.
He declares it necessary to look for another measure of value than precious metals. That measure is labor. “By labor may the value of silver be measured as well as other things. As, suppose one man employed to raise corn, while another is digging and refining silver; at the year’s end, or at any other period of time, the complete produce of corn, and that of silver, are the natural price of each other; and if one be twenty bushels, and the other twenty ounces, then an ounce of that silver is worth the labor of raising a bushel of that corn. Now if by the discovery of some nearer, more easy or plentiful mines, a man may get forty ounces of silver as easily as formerly he did twenty, and the same labor is still required to raise twenty bushels of corn, then two ounces of silver will be worth no more than the same labor of raising one bushel of corn, and that bushel of corn will be as cheap at two ounces, as it was before at one, ceteris paribus. Thus the riches of a country are to be valued by the quantity of labor its inhabitants are able to purchase.”23 Thus Franklin regards labor-time from the one-sided economic point of view, as the measure of value. The transformation of actual products into exchange values is self-evident with him and the only question is as to finding a quantitative measure of value. “Trade,” says he, “in general being nothing else but the exchange of labour for labour, the value of all things is, as I have said before, most justly measured by labour.”24 Substitute the word “work” for “labor” in the above statement, and the confusion of labor in one form and labor in another form becomes at once apparent. Since trade consists e. g. in the exchange of the respective labors of the shoemaker, miner, spinner, painter, etc., does it follow that the value of shoes is most justly measured by the work of a painter? On the contrary, Franklin meant that the value of shoes, mining products, yarn, paintings, etc., is determined by abstract labor which possesses no particular qualities and can, therefore, be measured only quantitatively.25 But since he does not develop the idea that labor contained in exchange value is abstract universal labor which assumes the form of social labor as a result of the universal alienation of the products of individual labor, he necessarily fails to recognize in money the direct embodiment of this alienated labor. For that reason he sees no inner connection between money and labor which creates exchange value, and considers money merely as an instrument introduced from outside into the sphere of exchange for purposes of technical convenience.26 Franklin’s analysis of exchange value did not exert any direct influence on the general trend of science, because he discussed only special questions of political economy whenever there was a definite practical occasion for it.
The contrast between useful work and labor which creates exchange value agitated all Europe during the eighteenth century in the form of this question: what particular kind of labor constitutes the source of bourgeois wealth? It was thus assumed that not every kind of labor which is realized in use-values or yields certain products does thereby directly create wealth. With the physiocrats, however, as well as with their opponents, the burning question was not, what kind of labor creates value, but which is it that creates surplus value. They approached the problem in its complicated form before they had solved it in its elementary form; such is the historical course of all sciences leading them by a labyrinth of intersecting paths to the real starting points. Unlike other builders, science not only erects castles in the air, but constructs separate stories of the building, before it has laid the foundation. Without dwelling any longer on the physiocrats and omitting quite a number of Italian economists who in some more or less ingenious ideas came close to a correct analysis of the nature of commodity,27 we pass at once to the first Briton who elaborated the general system of bourgeois economics, Sir James Steuart.28 His idea of exchange value as well as all the abstract categories of political economy still seem to be with him in the process of differentiation from the material elements they represent and therefore appear quite vague and unsettled. In one place he determines real value by labor-time (“what a workman can perform in a day”), but immediately creates confusion by introducing the elements of wages and raw material.29 In another place his struggle with the material substance of the subject he treats of is revealed even more strikingly. He calls the material of nature contained in a commodity, such as the silver in a silver plate, its “intrinsic worth,” while the labor-time contained in it he calls “useful value.” The former, he says “is ... something real in itself,” while “the value of the second must be estimated according to the labour it has cost to produce it.... The labour employed in the modification [of the substance] represents a portion of a man’s time.”30
What distinguishes Steuart from his predecessors and followers is his keen differentiation between specifically social labor which is represented in exchange value, and concrete labor which produces use-values. Labor, he says, which through its alienation creates a universal equivalent, I call industry. Labor as industry he distinguishes not only from concrete labor, but from all other social forms of labor.31 It is to him the capitalistic form of labor in contrast to its antique and mediaeval forms. He is especially interested in the difference between capitalistic and feudal labor, of which he had observed the latter in its decaying forms both in Scotland and on his extensive travels over the continent. Steuart knew, of course, very well that products took on the form of commodities and commodities, the form of money in pre-capitalistic epochs as well; but he proves conclusively that it is only in the capitalistic period of production that the commodity becomes the elementary and fundamental form of wealth, and alienation [of commodities], the ruling form of acquisition and that consequently labor creating exchange value is specifically capitalistic in its character.32
After different forms of concrete labor, such as agriculture, manufacture, navigation, trade, etc., had each in turn been declared the true source of wealth, Adam Smith proclaimed labor in general, and namely in its general social form of division of labor, to be the only source of material wealth or use-values. While ignoring in connection with the latter the part played by nature, he is troubled by it when he comes to deal with purely social wealth i. e. exchange value. To be sure, Adam determines the value of a commodity by the labor-time contained in it, but relegates the actual application of the principle to pre-Adamic times. In other words, what seems to him true from the standpoint of simple commodity, ceases to be clear as soon as the higher and more complex forms of capital, wage-labor, rent, etc. take its place. This he expresses by saying, that the value of commodities used to be measured by labor-time in the paradise lost of bourgeois society, in which men dealt with each other not as capitalists, wage-workers, landlords, tenants, usurers, etc., but merely as plain producers of commodities which they exchanged. He constantly confuses the determination of the value of commodities by the labor-time contained in them with the determination of their value by the value of labor. He becomes confused in working out the details and fails to see the objective equalization of different kinds of labor which the social process forcibly carries out, mistaking it for the subjective equality of the labors of individuals.33 The transition from concrete labor to labor creating exchange value, i. e. to labor in its fundamental capitalistic form he tries to derive from the division of labor. Yet, while it is true that private exchange implies the division of labor, it is false to maintain that division of labor implies private exchange. Among the Peruvians, e. g., labor was divided to an extraordinary extent, although there was no private exchange, no exchange of products, as commodities.
Contrary to Adam Smith, David Ricardo elaborated with great clearness the determination of the value of a commodity by labor-time and showed that this law governs also such relations of capitalistic production which seem to contradict it most. Ricardo confines his investigations exclusively to the quantitative determination of value and as regards the latter he is at least conscious of the fact that the realization of the law depends upon certain historical conditions. He says, namely, that the determination of value by labor-time holds good for commodities “only as can be increased in quantity by the exertion of human industry, and on the production of which competition operates without restraint.”34 What he really means is that the law of value presupposes for its full development an industrial society in which production is carried on a large scale and free competition prevails, i. e. the modern capitalist society. In all other respects, Ricardo considers the capitalist form of labor as the eternal natural form of social labor. He makes the primitive fisherman and the primitive hunter straightway exchange their fish and game as owners of commodities, in proportion to the labor-time embodied in these exchange values. On this occasion he commits the anachronism of making the primitive fisherman and primitive hunter consult the annuity tables in current use on the London Exchange in the year 1817 in the calculation relating to their instruments. The “parallelograms of Mr. Owen” seem to be the only form of society outside of the bourgeois form with which he was acquainted. Although confined within this bourgeois horizon, Ricardo analyzes the bourgeois economy—which looks quite different to deeper insight than it does on the surface—with such keen power of theoretical penetration that Lord Brougham could say of him: “Mr. Ricardo seemed as if he had dropped from another planet.”
In a direct controversy with Ricardo, Sismondi lays stress upon the specifically social character of labor which creates exchange value,35 and says it is “characteristic of our economic progress” to reduce the magnitude of value to the necessary labor-time, to the relation between the demand of society as a whole and the quantity of labor which is sufficient to satisfy this demand.36 Sismondi is no more laboring under Boisguillebert’s idea, that labor which creates exchange value is adulterated by money; but just as Boisguillebert denounced money, so does Sismondi denounce large industrial capital. In Ricardo political economy reached its climax, after recklessly drawing its ultimate conclusions, while Sismondi supplemented it by impersonating its doubts.
Since Ricardo gave to classical political economy its final shape, having formulated and elaborated with the greatest clearness the law of the determination of exchange value by labor-time, it is natural that all the polemics among economists should center about him. Stripped of its puerile37 form this controversy comes down to the following points:
First: Labor itself has exchange value, and different kinds of labor have different exchange values. We get into a vicious circle by making exchange value the measure of exchange value, because the measuring exchange value needs a measure itself. This objection may be reduced to the following problem: Given labor-time as the intrinsic measure of exchange value, develop from that the determination of wages. The theory of wages gives the answer to that.
Second: If the exchange value of a product is equal to the labor-time contained in it, then the exchange value of one day of labor is equal to the product of that labor. In other words, wages must be equal to the product of labor.38 But the very opposite is actually the case. Ergo. this objection comes down to the following problem: How does production, based on the determination of exchange value by labor-time only, lead to the result that the exchange value of labor is less than the exchange value of its product? This problem is solved by us in the discussion of capital.
Third: The market price of commodities either falls below or rises above its exchange value with the changing relations of supply and demand. Therefore, the exchange value of commodities is determined by the relation of supply and demand and not by the labor-time contained in them. As a matter of fact, this queer conclusion merely amounts to the question, how a market price based on exchange value can deviate from that exchange value; or, better still, how does the law of exchange value assert itself only in its antithesis? This problem is solved in the theory of competition.
Fourth: The last and apparently the most striking objection, if not raised in the usual form of queer examples: If exchange value is nothing but mere labor-time time contained in commodities, how can commodities which contain no labor possess exchange-value, or in other words, whence the exchange value of mere forces of nature? This problem is solved in the theory of rent.
In a parliamentary debate on Sir Robert Peel’s Bank Act of 1844 and 1845, Gladstone remarked that not even love has made so many fools of men as the pondering over the nature of money. He spoke of Britons to Britons. The Dutch, on the contrary, who, from times of yore, have had, Petty’s doubts notwithstanding, “angelical wits” for money speculation have never lost their wits in speculations about money.
The main difficulty in the analysis of money is overcome as soon as the evolution of money from commodity is understood. This point once granted, it only remains to comprehend clearly the particular forms of money, which is to some extent made difficult by the fact that all bourgeois relations, being gilt or silver plated, have the appearance of money relations, and money, therefore, seems to possess an endless variety of forms, which have nothing in common with it.
In the following investigation only those forms of money are treated of which directly grow out of the exchange of commodities; the forms which belong to a higher stage of production, as e. g., credit money will not be discussed here. For the sake of simplicity gold is assumed throughout as the money commodity.
The first process of circulation constitutes, so to say, the theoretical preparatory process to actual circulation. To begin with, commodities which are use-values by nature, acquire a form in which they appear in idea to each other as exchange values, as definite quantities of incorporated universal labor-time. The first necessary step in this process is, as we have seen, the setting apart by the commodities of a specific commodity, say gold, as the direct incarnation of universal labor-time, or the universal equivalent. Let us go back for a moment to the form in which commodities turn gold into money.
1 ton of iron = 2 ounces of gold
1 quarter of wheat = 1 ounce of gold
1 hundred weight of Mocca coffee = 1-1/4 ounce of gold
1 hundred weight of potash = 1/2 ounce of gold
1 ton of Brazil timber = 1-1/2 ounces of gold
Y commodities = X ounces of gold
In the above series of equations iron, wheat, coffee, potash, etc. appear to each other as embodiments, of homogeneous labor, namely, as labor materialized in money, from which all the peculiarities of the different kinds of concrete labor represented in the different use-values are completely eliminated. As value they are all identical, they are the incarnation of the same labor, or the same incarnation of labor, viz., gold. As uniform embodiments of the same labor they display only one difference, a quantitative one, by appearing as different quantities of value, because unequal quantities of labor-time are contained in their use-values. The mutual relation of these separate commodities is that of embodiments of universal labor-time, since they are related to universal labor-time as to an excluded commodity, viz., gold. The same relation the development of which causes commodities to appear to each other as exchange values, causes the labor time contained in gold to appear as universal labor-time, a given quantity of which is expressed in different quantities of iron, wheat, coffee, etc,—in short, in the use-values of all commodities, or is directly unfolded in the endless series of commodity-equivalents. While all commodities express their exchange values in gold, gold expresses its exchange value directly in all commodities. While commodities assume the form of exchange value in relation to each other, they lend to gold the form of the universal equivalent, or of money.
Gold becomes the measure of value, because all commodities measure their exchange values in gold, in proportion as a certain quantity of gold and a certain quantity of the commodity contain the same amount of labor-time; and it is only by virtue of this function of being a measure of value, in which capacity its own value is measured directly in the entire series of commodity equivalents, that gold becomes a universal equivalent or money. On the other hand, the exchange value of all commodities is expressed in gold. In this expression, the qualitative aspect is to be distinguished from the quantitative: there is the exchange value of the commodity as the embodiment of the same uniform labor-time; while the magnitude of value is exhaustively expressed, since in the same proportion in which commodities are equated to gold they are equated to one another. On the one hand the universal character of the labor-time contained in them is revealed; on the other, its quantity is expressed in its golden equivalent. The exchange value of commodities thus expressed in the form of a universal equivalent and, moreover, as a numerical proportion of this equivalent, in terms of one specific commodity, or represented in the form of a series of commodities equated to one specific commodity, is PRICE. Price is the form into which the exchange value of commodities is converted when it appears within the sphere of circulation.
By the same process by which commodities express their values in gold prices, they turn gold into a measure of value i. e. into money. If all of them were to measure their values in silver, wheat, or copper, and therefore express them in the form of silver, wheat or copper prices, then silver, wheat or copper would be measures of value and consequently universal equivalents. In order to appear as prices in circulation, commodities must be exchange values before they enter circulation. Gold becomes the measure of value only because all commodities estimate their exchange value in it.
The universality of this relation which is the result of evolution and from which alone springs the function of gold as the measure of value, implies however, that every single commodity is measured in gold, in proportion to the labor-time contained in both; that the actual common measure of the commodity and of gold is labor; or that commodity and gold are passed for each other in direct barter as equal exchange values. How this equalization actually takes place, can not be discussed here when treating of simple circulation. So much, however, is clear, that in countries producing gold and silver, certain quantities of labor-time are directly embodied in definite quantities of gold and silver, while in countries which do not produce gold and silver the same result is reached in a round-about way, by direct or indirect exchange of the commodities of those countries; i. e. a definite portion of average national labor is given for a definite quantity of labor-time, embodied in the gold and silver of the mine-owning countries. In order to be able to serve as a measure of value, gold must be as far as possible a variable value, because it can become the equivalent of other commodities only as an incarnation of labor-time, and the same labor-time is realized in unequal volumes of use-values with the change in the productive power of concrete labor. In estimating all commodities in gold it is only assumed that gold represents a given quantity of labor at a given moment, as was done when the exchange value of any commodity was expressed in terms of the use-value of any other commodity. As for the variations of the value of gold, the law of exchange value formulated above holds good in its case as well. If the exchange value of commodities remains unchanged, then a general rise in their gold prices is possible only in the case of a fall in the exchange value of gold. If the exchange value of gold remains unchanged, a general rise of gold prices is possible only when the exchange value of all commodities rises. The reverse is true in case of a general fall in the prices of commodities. If the value of an ounce of gold falls or rises in consequence of a change in the labor-time required for its production, then the values of all other commodities fall or rise to an equal extent. Thus, the ounce of gold represents after the change, as it did before, a given quantity of labor-time with regard to all commodities. The same exchange values are now estimated in greater or smaller quantities of gold than before, but they are estimated in proportion to the magnitude of their values, and consequently retain the same proportion to each other. The ratio 2 ÷ 4 ÷ 8 remains the same when expressed as 1 ÷ 2 ÷ 4 or as 4 ÷ 8 ÷ 16. The change in the quantity of gold in which exchange values are estimated with a variation in the value of gold, interferes as little with the function of gold as a measure of value, as the fifteen times smaller value of silver as compared with that of gold interferes with the performance of that function by the latter. Since labor-time is the common measure of gold and commodities, and since gold figures as the measure of value only in so far as all commodities are measured by it, the idea that money makes commodities commensurable, is therefore a mere fiction of the process of circulation.39 It is rather the commensurability of commodities as incorporated labor-time, that turns gold into money.
Commodities enter the process of exchange in the concrete form of use-values. They are yet to be turned into the real universal equivalent through their alienation. The determination of their prices merely amounts to their ideal transformation into the universal equivalent, a process of equation to gold which is yet to be realized. But since commodities are, in their prices, transformed into gold only in imagination, or are converted only into imaginary gold, and since their money form is not differentiated as yet from their concrete selves, it follows that gold has also been turned into money only in imagination; it appears so far but as a measure of value, and in fact definite quantities of gold serve merely as names for certain quantities of labor-time. The form in which gold is crystallized in money always depends upon the way in which commodities express their own exchange value to each other.
Commodities now confront one another in a double capacity: actually as use-values, ideally as exchange values. The twofold aspect of labor contained in them is reflected in their mutual relations; the special concrete labor being virtually present as their use-value, while universal abstract labor-time is ideally represented in their price in which commodities appear as commensurable embodiments of the same value—substance differing merely in quantity.
The difference between exchange value and price appears to be merely nominal or, as Adam Smith says, labor is the real price, and money the nominal price of commodities. Instead of estimating the value of one quarter of wheat in thirty days of labor, it is estimated in one ounce of gold if one ounce of gold is the product of thirty days ‘labor. However, far from this difference being merely nominal, all the storms which threaten commodities in the actual process of circulation center about it. Thirty days of labor are contained in a quarter of wheat and it need not, therefore, be expressed in terms of labor-time. But gold is a commodity distinct from wheat, and only in circulation it can be ascertained, whether the quarter of wheat can be actually turned into an ounce of gold as is anticipated in its price. That will depend on whether or not it proves to be a use-value, whether or not the quantity of labor-time contained in it is the quantity necessarily required by society for the production of a quarter of wheat. The commodity as such is an exchange value, it has a price. In this difference between exchange value and price lies the demonstration of the fact that the particular individual labor contained in a commodity has first to be expressed through the process of alienation in terms of its counterpart, i. e. as impersonal, abstract, universal and, only in that form, social labor, viz. money. Whether it can be so expressed seems to be a matter of chance. Thus, although the exchange value of a commodity finds only ideally a distinct expression in price, and the twofold character of labor contained in the commodity exists as yet merely as two distinct forms of expression, and, although in consequence thereof, the embodiment of universal labor-time, gold, confronts actual commodities only as an imaginary measure of value, yet the fact that exchange value exists as price, or that gold exists as a measure of value implies the necessity of the alienation of commodities for hard cash and the possibility of their non-alienation. In short, here lies latent the entire contradiction which is inherent in the fact that products are commodities or that the particular work of a private individual can be of no account in society until it has taken the very opposite form of abstract universal labor. For that reason, the utopians, who want to have commodities but not money, who want a system of production based on private exchange without the necessary conditions underlying such a system, are consistent when they “destroy” money not in its tangible form but in its nebulous illusory form of a measure of value. Under the invisible measure of value there lurks the hard cash.
The process by which gold has become the measure of value and exchange value has been turned into price, being once assumed, all commodities express in their prices but imagined quantities of gold of various magnitudes. As such various quantities of the same thing, gold, they are equated, compared and measured with each other, and thus arises the technical necessity of referring them to a definite quantity of gold as a unit of measure, a unit which develops into a standard measure by virtue of its divisibility into aliquot parts, which in their turn can be sub-divided into aliquot parts.40 But quantities of gold as such are measured by weight.
The standard of measure is thus found ready in the general measures of weight of metals and, therefore, where-ever metallic circulation is in vogue, these measures serve originally as standards of price. Since commodities no more relate to each other as exchange values to be measured by labor-time, but as magnitudes of the same denomination measured in gold, the latter is transformed from a measure of value into a standard of price. The comparison of prices with each other as different quantities of gold is thus crystallized in figures which correspond to an assumed quantity of gold and represent it as a standard of aliquot parts. Gold as measure of value and as standard of price has entirely different forms of manifestation and the confusing of the two has resulted in the wildest of theories. Gold is a measure of value as incorporated labor-time; it is the standard of price as certain weight of metal. Gold becomes the measure of value by virtue of its relation as exchange value to commodities as exchange values; as 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 is fixed as a constant unit of weight. In this case, as in all cases of measuring quantities of the same denomination, the establishment of a definite and unvarying unit of measure is all-important. The necessity of settling upon a quantity of gold as a unit of measure and upon its aliquot parts as subdivisions of that unit, has given rise to the notion that a certain quantity of gold which has naturally a variable value had been assigned a fixed ratio of value to the exchange values of all commodities; the fact is overlooked that exchange values of commodities are transformed into prices, i. e. into quantities of gold, before gold develops as a standard of price. No matter how the value of gold may vary, the ratios between the values of different quantities of gold remain constant. Let the fall in the value of gold amount to 1000 per cent., still twelve ounces of gold will have a twelve times greater value than one ounce of gold; and in prices the only thing considered is the ratio between different quantities of gold. Since, on the other hand, no rise or fall in the value of an ounce of gold can alter its weight, no alteration can take place in the weight of its aliquot parts. Thus gold always renders the same service as an invariable standard of price, no matter how much its value may vary.41
An historical process which, as we shall explain later, was determined by the nature of metallic circulation, led to the result that the same denomination of weight was retained for a constantly changing and decreasing weight of precious metals in their function of a standard of price. Thus the English pound sterling denotes less than one-third of its original weight; the pound Scot, before the Union, only 1-36; the French livre, 1-74; the Spanish Maravedi, less than 1-1000; the Portuguese Rei, a still smaller fraction. Such was the historical origin of the discrepancy between the current money names of various weights of metals and their weight denominations.42 Since the determination of the unit of measure, of its aliquot parts, and of their names is purely conventional, and since they should possess within the sphere of circulation the character of universality and compulsion, they had to be settled by law. The purely formal operation thus devolved upon the government.43 The metal which was to serve as the money material, was found already adopted in the community. In different countries the legal standard of price is naturally different. In England e. g. 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, the shilling into 12 pence, so that 100 pounds of 22 carat gold (1200 ounces) = 4672 sovereigns and 10 shillings. In the world market, however, where national boundaries disappear, these national characteristics of the measure of money also disappear and give place to the general measures of weight of metals.
The price of a commodity or the quantity of gold into which it is ideally transformed, is, therefore, now expressed in the names of coins of the gold standard. Thus, instead of saying: a quarter of wheat is worth an ounce of gold, it is said in England to be worth 3£ 17s. 10-1/2d. All prices are thus expressed in the same denominations. The peculiar form which commodities lend to their exchange values is transformed into a money-denomination by which commodities tell each other how much they are worth. Money in its turn becomes money of account.44
We transform commodities into money of account, in our mind, on paper, in conversation, whenever it is a question of expressing any kind of wealth in terms of exchange value.45 For that transformation we need the gold substance, but only in imagination. In order to estimate the value of a thousand bales of cotton in a certain number of ounces of gold and then to express this number of ounces in the denominations of the ounce, £. s. d., not a single atom of gold is required. Thus, not a single ounce of gold was in circulation in Scotland before Robert Peel’s Bank Act of 1845, although the gold ounce, expressed in its English standard of account, 3£ 17s. 10-1/2d., served as the legal standard of price. In a similar manner silver serves as standard of price in the trade between Siberia and China, although that trade virtually amounts to barter. It is, therefore, immaterial to money, as money of account, whether or not its entire unit of measure or the fractions thereof are really coined. In England, at the time of William the Conqueror, 1£, then a pound of pure silver, and the shilling, 1-20 of a pound, existed only as money of account, while the penny, 1-240 of a pound of silver, was the largest silver coin in existence. On the other hand, there are no shillings and pence in England to-day, although they are legal denominations for certain parts of an ounce of gold. Money as money of account may exist exclusively in idea, while the money in actual existence may be coined according to an entirely different standard. Thus the money in circulation in many English colonies of North America consisted until late in the eighteenth century of Spanish and Portuguese coins, although the money of account was throughout the same as in England.46
Owing to the fact that money, when serving as the standard of price, appears under the same reckoning names as do the prices of commodities, and that, therefore, the sum of 3£ 17s. l0-1/2d. may signify, on the one hand, an ounce weight of gold, and on the other, the value of a ton of iron, this reckoning name of money has been called its mint-price. Hence, there sprang up the extraordinary notion that the value of gold is estimated in its own material, and that, in contradistinction to all other commodities, its price is fixed by the State. It was erroneously thought that the giving of reckoning names to definite weights of gold is the same thing as fixing the value of those weights.47 In so far as gold serves as one of the elements in determining price, i. e., where it performs the function of money of account, it not only has no fixed price, but has no price whatever. In order to have a price, i. e., in order to express itself in a specific commodity as a universal equivalent that other commodity would have to play the same exclusive role in the process of circulation as gold. But two commodities excluding all other commodities mutually exclude each other. Therefore, wherever gold and silver have by law been made to perform side by side the function of money or of a measure of value it has always been tried, but in vain, to treat them as one and the same material. To assume that there is an invariable ratio between the quantities of gold and silver in which a given quantity of labor-time is incorporated, is to assume, in fact, that gold and silver are of one and the same material, and that a given mass of the less valuable metal, silver, is a constant fraction of a given mass of gold. From the reign of Edward III to the time of George II, the history of money in England consists of one long series of perturbations caused by the clashing of the legally fixed ratio between the values of gold and silver, with the fluctuations in their real values. At one time gold was too high; at another, silver. The metal that for the time being was estimated below its value was withdrawn from circulation, melted and exported. The ratio between the two metals was then again altered by law, but the new nominal ratio soon came into conflict again with the real one. In our own times, the slight and transient fall in the value of gold compared with silver, which was a consequence of the Indo-Chinese demand for silver, produced on a far more extended scale in France the same phenomena, export of silver, and its expulsion from circulation by gold. During the years 1855, 1856 and 1857, the excess in France of gold imports over gold exports amounted to £41,580,000, while the excess of silver exports over silver imports was £14,704,000. In fact, in those countries in which both metals are legally measures of value, and therefore both legal tender, so that every one has the option of paying in either metal, the metal that rises in value is at a premium, and, like every other commodity, measures its price in the over-estimated metal which alone serves in reality as the standard of value. The result of all experience and history with regard to this question is simply that, where two commodities perform by law the functions of a measure of value, in practice one alone maintains that position.48
The circumstance that commodities are converted into gold only in ideas as prices and that gold is therefore turned into money only in idea, gave rise to the theory of the ideal unit of measure of money. Since, in the determination of prices, gold and silver serve only ideally as money of account, it was asserted that the names pound, shilling, pence, thaler, franc, etc., instead of denoting certain weights of gold and silver or labor incorporated in some way, stood rather for ideal atoms of value. Thus, if, e. g., the value of an ounce of silver should rise it would contain more such atoms and would therefore have to be estimated and coined in a greater number of shillings. This doctrine, revived again during the last commercial crisis in England and even voiced in Parliament in two separate reports attached to the report of the select Committee on the Bank Acts sitting in July, 1858, dates from the end of the seventeenth century.
At the time of the accession of William III., the English mint-price of an ounce of silver was 5s. 2d., or 1-62 of an ounce of silver was equal to a penny; 12 of these pence were called a shilling. According to that standard, a piece of silver weighing, say, 6 ounces, would be coined into thirty-one coins, each called a shilling. But the market price of an ounce of silver rose above its mint price, from 5s. 2d. to 6s. 3d., or, in order to buy an ounce of silver bullion 6s. 3d. had to be paid. How could the market price of an ounce of silver rise above its mint price, when the mint price is merely a reckoning name for aliquot parts of an ounce of silver? The riddle was easily solved. Out of £5,600,000 of silver money which was in circulation at that time, four millions were worn out, clipped and debased. A trial disclosed that £57,000 of silver which were supposed to weigh 220,000 ounces, weighed only 141,000 ounces. The mint went on coining according to the same standard, but light-weighted shillings in actual circulation represented smaller parts of an ounce than their name implied. Hence, a greater quantity of these light-weighted shillings had to be paid in the market for an ounce of silver bullion. When a general recoinage was decided upon in consequence of the derangement that had been produced, LOWNDES, the Secretary of the Treasury, declared that the value of an ounce of silver had risen and therefore it must henceforth be coined into 6s. 3d. instead of into 5s. 2d. as heretofore. His argument practically amounted to the assertion that the rise in the value of the ounce caused a fall in the value of its aliquot parts. His false theory, however, served merely as an embellishment for a just, practical purpose. The government debts were contracted in light shillings, were they to be paid in heavy ones? Instead of saying pay back four ounces of silver, when you had received nominally five ounces but virtually only four, he said pay back nominally five ounces but reduce the metallic contents to four ounces and call a shilling what you had called four-fifths of a shilling heretofore. Thus Lowndes practically adhered to the metallic weight while theoretically he clung to the reckoning name. His adversaries who clung only to the name and therefore declared the 25 to 50 per cent. lighter shilling to be identical with the full-weight shilling maintained on the contrary that they adhered to the metallic weight.
JOHN LOCKE, who was an advocate of the new bourgeoisie in all forms, the manufacturers against the working classes and paupers, the commercial class against the old fashioned usurers, the financial aristocracy against the state debtors, and who went so far as to prove in his own work that the bourgeois reason is the normal human reason, also took up the challenge against Lowndes. John Locke carried the day and money borrowed at ten or fourteen shillings to a guinea was repaid in guineas of twenty shillings.49 SIR JAMES STEUART sums up the entire transaction as follows: “ ... the state gained considerably upon the score of taxes, as well as the creditors upon their capitals and interest; and the nation, which was the principal loser, was pleased; because their standard (The standard of their own value) was not debased.”50 Steuart thought that the nation would prove more alert with the further development of commerce. He was mistaken. About 120 years later the same quid pro quo was repeated.
It was just in the order of things that Bishop BERKELEY, the representative of a mystical idealism in English philosophy, should have given a theoretical turn to the doctrine of the ideal unit of measure of money, something which the practical “Secretary to the Treasury” had failed to do. He asks: “Whether the terms Crown, Livre, Pound Sterling, etc., are not to be considered as Exponents or Denominations of such Proportion? [namely proportions of abstract value as such.] And whether Gold, Silver, and Paper are not Tickets or Counters for Reckoning, Recording and Transferring thereof? (of the proportion of value). Whether Power to command the Industry of others be not real Wealth? And whether Money be not in Truth, Tickets or Tokens for conveying and recording such Power, and whether it be of great consequence what Materials the Tickets are made of?”51 Here we find a confusion, first of the measure of value and the standard of price, and secondly of gold and silver as measures on the one hand and mediums of circulation on the other. Because precious metals can be replaced by tokens in the process of circulation Berkeley comes to the conclusion that these tokens represent nothing, i. e., only the abstract idea of value.
SIR JAMES STEUART had so fully developed the theory of the ideal unit of measure of money, that his successors—unconscious successors since they do not know him—have added to it neither a new version nor even a new example. “Money, which I call of account, is no more than an arbitrary scale of equal parts, invented for measuring the respective value of things vendible. Money of account, therefore, is quite a different thing from money coin, which is price52 and might exist, although there was no such thing in the world as any substance which could become an adequate and proportional equivalent, for every commodity.... Money of account ... performs the same office with regard to the value of things, that degrees, minutes, seconds, etc., do with regard to angles, or as scales do to geographical maps, or to plans of any kind. In all these inventions, there is constantly some denomination taken for the unit. ... The usefulness of all those inventions being solely confined to the marking of proportion. Just so the unit in money can have no invariable determinate proportion to any part of value, that is to say, it cannot be fixed to any particular quantity of gold, silver, or any other commodity whatsoever. The unit once fixed, we can, by multiplying it, ascend to the greatest value.... The value of commodities, therefore, depending upon a general combination of circumstances relative to themselves and to the fancies of men, their value ought to be considered as changing only with respect to one another; consequently, anything which troubles or perplexes the ascertaining those changes of proportion by the means of a general, determinate and invariable scale, must be hurtful to trade.... Money ... is an ideal scale of equal parts. If it be demanded what ought to be the standard value of one part? I answer by putting another question: What is the standard length of a degree, a minute, a second? It has none ... but so soon as one part becomes determined by the nature of a scale, all the rest must follow in proportion. Of this kind of money ... we have two examples. The bank of Amsterdam presents us with the one, the coast of Angola with the other.”53
Steuart speaks here simply of the part money plays in circulation as the standard of price and money of account. If different commodities are marked in the price-list at 15s., 20s., 36s., respectively, then I care, in fact, neither for the silver substance, nor for the name of the shilling when comparing the magnitudes of their values. The ratios between the numbers 15, 20, 36, tell everything, and the number 1 has become the only unit of measure. Only the abstract proportion of numbers can at all serve as a purely abstract expression of proportion. In order to be consistent, Steuart should have dropped not only gold and silver, but their legal baptismal names as well. Since he does not understand the nature of the transformation of the measure of value into a standard of price, he naturally believes that the definite quantity of gold which serves as a unit of measure relates as a measure not to other quantities of gold, but to values as such. Since commodities appear as quantities of the same denomination through the conversion of their exchange values into prices, he denies that property of the measure which reduces them to one denomination; and since in this comparison of different quantities of gold the quantity of gold which serves as a unit of measure is conventional, he does not see the necessity of fixing it at all. Instead of calling 1-360 part of a circle degree, he might give that name to 1-180th part; the right angle would then be measured by 45 degrees instead of 90, and acute and obtuse angles would be measured accordingly. Nevertheless, the measure of the angle would remain, then, as before, first a qualitatively definite mathematical figure, the circle, and second a quantitatively definite part of the circle. As for Steuart’s economic illustrations, he refutes his own argument with one and does not prove anything with the other. The bank money of Amsterdam was, in fact, merely the reckoning name for Spanish doubloons, which retained their full weight by lying idly in the bank vaults, while the circulating coins became thinner from hard rubbing against the outer world. And as for the African idealists we have to abandon them to their fate until critical travelers will tell us more about them.54 The French assignat could be called an almost ideal money in Steuart’s sense: “National property. Assignation of 100 francs.” To be sure, the use-value which the assignation was supposed to represent, namely, the confiscated land, was indicated here, but the quantitative definition of the unit of measure was forgotten and “the franc” became a meaningless word. How much or how little land the assignation franc represented depended on the results of the public auctions. In practice, however, the assignation franc circulated as a token of value of silver money and its depreciation was, therefore, measured by this silver standard.
The period of the suspension of cash payments by the Bank of England was hardly more fruitful of war-bulletins than of money theories. The depreciation of bank notes and the rise of the market price of gold above its mint price called forth again the doctrine of the ideal unit of money on the part of some of the advocates of the Bank. Lord Castlereagh found the classical confused expression for the confused idea by speaking of the unit of measure of money as “a sense of value in reference to currency as compared with commodities.” When a few years after the peace of Paris conditions permitted the resumption of cash payments, the same question which had been stirred up by Lowndes under William III., came up, hardly changed in form. An enormous government debt, as well as a mass of private debts, accumulated in twenty years, fixed obligations, etc., had been contracted on the basis of depreciated bank notes. Were they to be paid back in bank notes of which £4672, 10s. nominal, actually represented 100 pounds of 22 carat gold? THOMAS ATTWOOD, a banker of Birmingham, came forth as Lowndes redivivus. The creditors were to receive nominally as many shillings as had been nominally borrowed, but if about 1-78 of an ounce of gold constituted a shilling according to the old standard of coinage, then say 1-90 of an ounce should now be christened a shilling. Attwood’s adherents are known as the Birmingham school of “little shillingmen.” The controversy over the ideal money unit, which had started in 1819, still went on in 1845 between Sir Robert Peel and Attwood, whose own wisdom, as far as the function of money as a measure is concerned, is exhaustively summed up in the following passage, in which, referring to Sir Robert Peel’s controversy with the Birmingham Chamber of Commerce, he says: “The substance of your queries is ... in what sense is the word pound to be used?... To what will the sum one pound be equivalent?... Before I venture a reply I must enquire what constitutes a standard of value?... Is £3 17s. 10-1/2d. an ounce of gold, or is it only of the value of an ounce of gold? If £3 17s. 10-1/2d. be an ounce of gold, why not call things by their proper names, and, dropping the terms pounds, shillings and pence, say ounces, pennyweights and grains?... If we adopt the terms ounces, pennyweights and grains of gold, as our monetary system, we should pursue a direct system of barter.... But if gold be estimated as of the value of £3 17s. 10-1/2d. per ounce ... how is this ... that much difficulty has been experienced at different periods to check gold from rising to £5 4s. per ounce, and we now notice that gold is quoted at £3 17s. 9d. per ounce?... The expression pound has reference to value, but not a fixed standard value.... The term pound is the ideal unit.... Labour is the parent of cost and gives the relative value to gold or iron. Whatever denomination of words are used to express the daily or weekly labour of a man, such words express the cost of the commodity produced.”55
In the last words the hazy conception of the ideal money measure melts away and its real meaning breaks through. The reckoning names of gold, pound sterling, shilling, etc., should be names for definite quantities of labor-time. Since labor-time constitutes the substance and the intrinsic measure of values, these names would then actually represent definite proportions of value. In other words, labor-time is maintained to be the true unit of measure of money. With this we leave the Birmingham school, but should add in passing that the doctrine of the ideal measure of money acquired new importance in the controversy over the question of the convertibility or non-convertibility of bank notes. If paper receives its name from gold or silver, then the convertibility of a note or its exchangeability for gold or silver remains an economic law, no matter what the civil law may be. Thus a Prussian paper thaler, although legally inconvertible, would immediately depreciate if it were worth less than a silver thaler in ordinary trade, i. e., if it were not practically convertible. The consistent advocates of inconvertible paper money in England, therefore, sought refuge in the ideal measure of money. If the reckoning names of money, £, s., etc., are names of certain quantities of atoms of value, of which a commodity absorbs or loses now more, now less in exchange for other commodities, then an English £5 note, e. g., is just as independent of its relation to gold as of that to iron and cotton. Since its title would no more imply its theoretical equality with a certain quantity of gold or any other commodity, the demand for its convertibility, i. e., for its practical equality with a definite quantity of a specified thing would be excluded by the very conception of the note.
The theory of labor-time as the direct measure of money was first systematically developed by JOHN GRAY.56 He makes a National Central Bank ascertain through its branches the labor-time consumed in the production of various commodities. The producer receives an official certificate of value in exchange for his commodity. i. e., he gets a receipt for as much labor-time as his commodity contains,57 and these bank notes of one week’s labor, one day’s labor, one hour’s labor, etc., serve at the same time as a check for an equivalent in all other commodities stored in the bank warehouses.58 This is the fundamental principle carefully worked out in detail and based throughout on existing English institutions. Under this system, says Gray, “to sell for money may be rendered, at all times, precisely as easy as it now is to buy with money; ... production would become the uniform and never-failing cause of demand.”59 The precious metals would lose their “privilege” as against other commodities and “take their proper place in the market beside butter and eggs, and cloth and calico, and then the value of the precious metals will concern us just as little ... as the value of the diamond.”60 “Shall we retain our fictitious standard of value, gold, and thus keep the productive resources of the country in bondage? or, shall we resort to the natural standard of value, labour, and thereby set our productive resources free?”61
Labor-time being the intrinsic measure of value, why should there be another external measure side by side with it? Why does exchange value develop into price? Why do all commodities estimate their value in one exclusive commodity, which is thus converted into a special embodiment of exchange value into money? That was the problem which Gray had to solve. Instead of solving it, he imagined that commodities could be related directly to each other as products of social labor. But they can relate to each other only in their capacity of commodities. Commodities are the direct products of isolated independent private labors, which have to be realized as universal social labor through their alienation in the process of private exchange, that is to say, labor based on the production of commodities becomes social labor only through universal alienation of individual labors. But by assuming that the labor-time contained in commodities is directly social labor-time, Gray assumes it to be common labor-time or labor-time of directly associated individuals. Under such conditions a specific commodity like gold or silver could not confront other commodities as the incarnation of universal labor, and exchange value would not be turned into price; but, on the other hand, use-value would not become exchange value, products would not become commodities and thus the very foundation of the capitalistic system of production would be removed. But that is not what Gray has in mind. Products are to be produced as commodities, but are not to be exchanged as commodities. He entrusts a national bank with the carrying out of this pious wish. On the one hand, society, through the bank, makes individuals independent of the conditions of private exchange, and on the other, it allows them to go on producing on the basis of private exchange. The logic of things, however, compels Gray to do away with one condition of capitalistic production after another, although he wishes to “reform” only the money system which results from the exchange of commodities. Thus he transforms capital into national capital,62 land into national property,63 and if his bank is to be watched closely, it will be found that it not only receives commodities with one hand and issues certificates for work delivered with the other, but that it regulates production as well. In his last work, “Lectures on Money,” in which Gray is anxious to demonstrate that his labor-money is a purely bourgeois reform, he gets tangled up in even more glaring contradictions.