A Contribution to the Critique of Political Economy/Chapter 2/Note C

by Karl Marx

 

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

As the universal thirst for gold prompted nations and princes in the sixteenth and seventeenth centuries, the period of infancy of modern bourgeois society, to crusades beyond the sea in search of the golden grail,^[1] the first interpreters of the modern world, the founders of the monetary system, of which the mercantile system is but a variation, proclaimed gold and silver, i. e. money, as the only thing that constitutes wealth. They were quite right when, from the point of view of the simple circulation of commodities, they declared that the mission of bourgeois society was to make money, i. e. to build up everlasting treasures which neither moth nor rust could eat. It is no argument with the monetary system to say that a ton of iron whose price is £3 constitutes a value of the same magnitude as £3 worth of gold. The point here is not the magnitude of the exchange value, but as to what constitutes its adequate form. If the monetary and mercantile systems single out international trade and the particular branches of national industry directly connected with that trade as the only true sources of wealth or money, it must be borne in mind, that in that period the greater part of national production was still carried on under forms of feudalism and was the source from which producers drew directly their means of subsistence. Products, as a rule, were not turned into commodities nor, therefore, into money; they did not enter into the general social interchange of matter; did not, therefore, appear as embodiments of universal abstract labor; and did not, in fact, constitute bourgeois wealth. Money as the end and object of circulation is exchange value or abstract wealth, but it is no material element of wealth and does not form the directing goal and impelling motive of production. True to the conditions as they prevailed in that primitive stage of bourgeois production, those unrecognized prophets held fast to the pure, tangible, and resplendent form of exchange value, to its form of a universal commodity as against all special commodities. The proper bourgeois economic sphere of that period was the sphere of the circulation of commodities. Hence, they judged the entire complex process of bourgeois production from the point of view of that elementary sphere and confounded money with capital. The unceasing war of modern economists against the monetary and mercantile system is mostly due to the fact that this system blabs out in brutally naive fashion, the secret of bourgeois production, viz. its subjection to the domination of exchange value. Ricardo, though wrong in the application he makes of it, remarks somewhere that even in times of famine, grain is imported not because the nation is starving, but because the grain dealer is making money. In its criticism of the monetary and mercantile system, political economy, by attacking that system as a mere illusion and as a false theory, fails to recognize in it the barbaric form of its own fundamental principles. Furthermore, this system has not only an historic justification, but within certain spheres of modern economy retains until now the full rights of citizenship. At all stages of the bourgeois system of production in which wealth assumes the elementary form of a commodity, exchange value assumes the elementary form of money and in all phases of the process of production wealth reassumes for a moment the universal elementary commodity form. Even at the most advanced stage of bourgeois economy, the specific functions of gold and silver to serve as money, in contradistinction to their function of mediums of circulation—a function which distinguishes them from all other commodities—is not done away with, but only limited, hence the monetary and mercantile system retains its right of citizenship. The Catholic fact that gold and silver are contrasted with other profane commodities as the direct incarnation of social labor, that is as the expression of abstract wealth, naturally offends the Protestant point d'honneur of bourgeois economy, and out of fear of the prejudices of the monetary system it had lost for a long time its grasp of the phenomena of money circulation, as will be shown presently.

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

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

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

"The dearness of everything," says Hume, "from plenty of money, is a disadvantage, which attends an established commerce, and sets bounds to it in every country, by enabling the poorer states to undersell the richer in all foreign markets."^[4] "Where coin is in greater plenty; as a greater quantity of it is required to represent the same quantity of goods; it can have no effect, either good or bad, taking a nation within itself; any more than it would make an alteration on a merchant's books, if, instead of the Arabian method of notation, which requires few characters, he should make use of the Roman, which requires a great many. Nay, the greater quantity of money, like the Roman characters, is rather inconvenient, and requires greater trouble both to keep and transport it."^[5] In order to prove anything, Hume should have shown that under a given system of notation the quantity of characters used does not depend on the magnitude of the numbers, but that on the contrary, the magnitude of the numbers depends on the quantity of the characters used. It is perfectly true that there is no advantage in estimating or "counting" values of commodities in depreciated gold and silver, and that is the reason why nations have always found it more convenient with the growth of the value of the commodities in circulation to count in silver in preference to copper, and in gold rather than in silver. In proportion as the nations became richer, they converted the less valuable metals into subsidiary coin and the more valuable ones into money. Furthermore, Hume forgets that in order to count values in gold and silver, it is not necessary that either gold or silver should be "on hand." Money of account and the medium of circulation are identical with him and both are "coin." Hume concludes that a rise or fall of prices depends on the quantity of money in circulation, because a change in the value of the measure of value, i. e. of the precious metals which serve as money of account, causes a rise or fall of prices and, consequently, also a change in the amount of money in circulation, the rapidity of the latter remaining the same. That not only the quantity of gold and silver increased in the sixteenth and seventeenth centuries, but that the cost of their production had declined at the same time, Hume could know from the closing up of the European mines. In the sixteenth and seventeenth centuries the prices of commodities increased in Europe with the influx of the mass of American gold and silver; hence the prices of commodities in every land are determined by the mass of gold and silver to be found there. This was Hume's first "necessary consequence."^[6] In the sixteenth and seventeenth centuries prices had not risen uniformly with the increase of the quantity of precious metals; more than half a century passed before any change in prices became perceptible, and even then it took a long time before the exchange values of commodities came to be generally estimated according to the depreciated value of gold and silver, i. e. before the revolution affected the general price level. Hence, concludes Hume, who, quite contrary to the principles of his philosophy, generalizes indiscriminately from imperfectly observed facts, prices of commodities or the value of money depend not on the total amount of money to be found in the country, but rather on the quantity of gold and silver which is actually in circulation; but in the long run all the gold and silver in the country must be sf absorbed by circulation in the form of coin.^[7] It is clear that if gold and silver have a value of their own, then, apart from all other laws of circulation, only a definite quantity of gold and silver can circulate as the equivalent of commodities of a given value. If, therefore, every quantity of gold and silver which happens to be in a country must enter the sphere of exchange of commodities as a medium of circulation without regard to the total value of the commodities, then gold and silver have no intrinsic value and are in fact no real commodities. That is Hume's third "necessary consequence." He makes commodities enter the process of circulation without price and gold and silver without value. That is the reason why he never speaks of the value of commodities and of gold, but only of their relative quantities. Locke had already said that gold and silver had merely an imaginary or conventional value; the first brutal expression of opposition to the assertion of the monetary "system" that gold and silver alone have true value. That gold and silver owe their character of money to the function they perform in the social process of exchange is interpreted to the effect that they owe their own value and therefore the magnitude of their value to a social function.^[8] Gold and silver are thus worthless things, which, however, acquire a fictitious value within the sphere of circulation as representatives of commodities. They are converted by the process of circulation not into money, but into value. This value of theirs is determined by the proportion between their own volume and that of the commodities, since the two must balance each ether. Thus, Hume makes gold and silver enter the world of commodities as non-commodities; but as soon as they appear in the form of coin, he turns them, on the contrary, into mere commodities, which must be exchanged for other commodities by simple barter. In that manner, if the world of commodities consisted of but one commodity, say one million quarters of grain, the idea would work itself out very simply; viz., one quarter of grain would be exchanged for two ounces of gold if there were altogether two million ounces of gold, and for twenty ounces of gold, if there were a total of twenty million ounces, the price of the commodity and the value of money rising or falling in inverse ratio to the quantity of gold in existence.^[9] But the world of commodities consists of an endless variety of use-values, whose relative values are by no means determined by their relative quantities. How, then, does Hume conceive this exchange of the volume of commodities for the volume of gold? He contents himself with the meaningless, hollow idea that every commodity is exchanged as an aliquot part of the entire volume of commodities for a corresponding aliquot part of the volume of gold. The process of the movement of commodities due to the antagonism between exchange value and use-value which commodities bear within themselves, and which manifests itself in the circulation of money, becoming crystallized in different forms of the latter, is thus done away with, giving place to the imaginary mechanical equalization process between the quantity of precious metals to be found in a country and the volume of commodities existing there at the same time.

SIR JAMES STEUART opens his inquiry into the nature of coin and money with an elaborate criticism of Hume and Montesquieu.^[10] He is really the first to ask this question: is the quantity of current money by the prices of commodities, or are the prices of commodities determined by the quantity of current money? Although his analysis is obscured by his fantastic conception of the measure of value, his vacillating view of exchange value and by reminiscences of the mercantile system, he discovers the essential forms of money and the general laws of the circulation of money, because he makes no attempt at a mechanical separation of commodities from money, but proceeds to develop its different functions from the different aspects of the exchange of commodities. Money is used, he says, for two principal purposes: for the payment of debts and for the purchase of what one needs; the two together form "ready money demands." The state of trade and industry, the mode of living, the customary expenditures of the people, taken all together regulate and determine the volume of "ready money demands," i. e. the number of "alienations." In order to effect this multitude of payments, a certain proportion of money is required. This proportion may increase or decrease according to circumstances, even while the number of alienations remains the same. At any rate, the circulation of a country can absorb only a definite quantity of money.^[11] "It is the complicated operations of demand and competition which determines the standard price of everything"; the latter "does not in the least depend on the quantity of gold and silver in the country."^[12] What then will become of the gold and silver that is not required as coin? They are hoarded or used in the manufacture of articles of luxury. If the quantity of gold and silver fall below the level required for circulation, symbolic money or other substitutes take its place. If a favorable rate of exchange brings about a surplus of money in the country and cuts off at the same time the demand for its shipment abroad, it will accumulate in strong-boxes, where the "riches will remain without producing more effect than if they had remained in the mine."

The second law discovered by Steuart is that of the reflux of credit circulation to its starting point. Finally, he works out the effects which the disparity of the rates of interest in different countries produces upon the international export and import of precious metals. The last two points we mention here only for the sake of completeness, since they have but a remote bearing on the subject of our discussion.^[13] Symbolic money or credit money—Steuart does not as yet distinguish between the two forms of money—may take the place of precious metals as a means of purchase or means of payment in the sphere of home circulation, but never in the world market. Paper notes are therefore "money of the society," while gold and silver are "money of the world."^[14]

It is characteristic of nations with an "historical" development, in the sense in which the term is used by the historical school of law, to keep forgetting their own history. Although the controversy as to the relation of prices of commodities to the volume of the circulating medium has been continually agitating Parliament for the last half a century, and has precipitated in England thousands of pamphlets, large and small, Steuart has remained even more of a "dead dog" than Spinoza seemed to be to Moses Mendelson in Lessing's time. Even the latest writer on the history of "currency," Maclaren, makes Adam Smith the original author of Steuart's theory, and Ricardo of Hume's theory.^[15] While Ricardo elaborated Hume's theory, Adam Smith registered the results of Steuart's investigations as dead facts. Adam Smith applied the Scotch saying that "mony mickles mak a muckle" even to his spiritual wealth, and therefore concealed with petty care the sources to which he owed the little out of which he tried to make so much. More than once he prefers to break off the point of the discussion, whenever he feels that an attempt on his part clearly to formulate the question would compel him to settle his accounts with his predecessors. So in the case of the money theory. He tacitly adopts Steuart's theory when he says that the gold and silver existing in a country is partly utilized as coin; partly accumulated in the form of reserve funds for merchants in countries without banks, or of bank reserves in countries with a credit currency; partly serves as a hoard for the settling of international payments; partly is turned into articles of luxury. He passes over without remark the question as to the quantity of coin in circulation, treating money quite wrongly as a mere commodity.^[16] His vulgarizer, the dull J. B. Say, whom the French have proclaimed prince de la science—like Johann Christoph Gottsched, who proclaimed his Schönaich a Homer and himself a Pietro Aretino to the terror principum and lux mundi—has with great pomp raised this not altogether innocent oversight of Adam Smith to a dogma.^[17] It must be said, however, that his hostile attitude to the illusions of the mercantile system prevented Adam Smith from taking an objective view of the phenomena of metallic circulation, while his views on credit money are original and deep. As in the eighteenth century petrification theories there is always felt the presence of an undercurrent which springs from either a critical or apologetic attitude toward the biblical tradition of the flood, so there is concealed behind all the money theories of the eighteenth century a secret struggle with the monetary system, the ghost which had stood guard over the cradle of bourgeois economy and continued to throw its shadow over legislation.

In the nineteenth century, inquiries into the nature of money were not prompted directly by phenomena of metallic circulation, but rather by those of banknote circulation. The former was touched upon only in order to discover the laws governing the latter. The suspension of specie payments by the Bank of England in 1797, the rise of prices of many commodities which followed it, the fall of the mint price of gold below its market price, the depreciation of bank-notes, especially since 1809, furnished the direct practical occasion for a party struggle in parliament and a theoretical tournament outside of it, both conducted with like passion. The historical background for the controversy was furnished by the history of paper money during the eighteenth century: the fiasco of Law's bank; the depreciation of the provincial bank-notes of the English Colonies in North America from the beginning to the middle of the eighteenth century which went hand in hand with the increase in the number of tokens of value; further, the Continental bills issued as legal tender by the American government during the War of Independence; and finally, the experiment with the French assignats carried out on a still larger scale. Most of the English writers of that period confound the circulation of bank-notes, which is governed by quite different laws, with the circulation of tokens of value or government legal tender paper money; and while they claim to explain the phenomena of this legal tender circulation by the laws of metallic circulation, they proceed, as a matter of fact, just the opposite way, viz., deducting laws for the latter from phenomena observed in connection with the former. We omit all the numerous writers of the period of 1800–1809 and turn directly to RICARDO, both because he embodies the views of his predecessors, which he formulates with greater precision, and because the shape he gave to the theory of money governs English bank legislation until this moment. Ricardo, like his predecessors, confounds the circulation of bank-notes, or credit money, with the circulation of mere tokens of value. The fact which impresses him most is the depreciation of paper currency accompanied by the rise of prices of commodities. What the American mines had been to Hume, the paper-bill presses in Threadneedle street were to Ricardo, and he himself expressly identifies the two factors at some place in his works. His first writings, which dealt exclusively with the money question belong to the time of the most violent controversy between the Bank of England, which had on its side the ministers and the war party, and its opponents about whom were centered the parliamentary opposition, the Whigs and the Peace party. They appeared as immediate forerunners of the famous Report of the Bullion Committee of 1810, in which Ricardo's views were adopted.^[18] The singular circumstance, that Ricardo and his adherents, who held money to be merely a token of value, are called bullionists, is due not only to the name of that committee, but also to the nature of their theory. In his work on political economy, Ricardo repeated and developed further the same views, but nowhere has he investigated the nature of money as such, as he had done in the case of exchange value, profit, rent, etc.

To begin with, Ricardo determines the value of gold and silver, like that of all other commodities, by the quantity of labor-time embodied in them.^[19] By means of them, as commodities of a given value, the values of all other commodities are measured.^[20] The volume of the circulating medium in a country is determined by the value of the unit of measure of money on the one hand, and by the sum total of the exchange values of commodities, on the other. This quantity is modified by economy in the method of payment.^[21] Since the quantity of money, of a given value, which can be absorbed by circulation, is thus determined and since the value of money within the sphere of circulation manifests itself only in its quantity, it follows that mere tokens of value, if issued in proportions determined by the value of money, may replace it in circulation, and in fact, "a currency is in its most perfect state when it consists wholly of paper money, but of paper money of an equal value with the gold which it professes to represent."^[22] So far Ricardo determines the volume of the circulating medium by the prices of commodities, assuming the value of money to be given; money as a token of value means with him a token of a definite quantity of gold and not a mere worthless representative of commodities as was the case with Hume.

When Ricardo suddenly gets off the straight path of his presentation and takes the very opposite view, he does so to turn his attention to the international circulation of precious metals and thus brings confusion into the problem by introducing considerations that are foreign to the subject. Let us follow his own course of reasoning, and, in order to remove everything that is artificial and incidental, let us assume that the gold and silver mines are located in the interior of the countries in which the precious metals circulate as money. The only inference which follows from Ricardo's reasoning as so far developed, is that, the value of gold being given, the quantity of money in circulation will be determined by the prices of commodities. Thus, at a given moment, the quantity of gold in circulation in a country is simply determined by the exchange value of the commodities in circulation. Let us suppose now that the sum total of these exchange values has declined either because there are less commodities produced at the old exchange values, or because, in consequence of an increased productivity of labor, the same quantity of commodities has a smaller value. Or, we may assume on the contrary that the sum total of exchange values has increased, either because the quantity of commodities has increased while the cost of their production has remained the same, or because the value of the same or of a smaller quantity of commodities has risen in consequence of a diminished productivity of labor. What becomes in either case of the given quantity of metal in circulation? If gold is money merely because it is current as a medium of circulation; if it is compelled to remain in circulation like government legal tender paper money (and that is what Ricardo has in mind), then the quantity of money in circulation will rise above the normal level, as determined by the exchange value of the metal, in the former case, and fall below that level in the latter. Although possessing a value of its own, gold will become in the former case a token of a metal of lower exchange value than its own, and in the latter, a token of a metal of higher value. In the former ease it will remain as a token of value less than its own, in the latter greater than its own (again an abstract deduction from legal tender paper money). In the former case it is the same as though commodities were estimated in a metal of lower value than gold, in the latter, as though they were estimated in a metal of higher value. In the former case, prices of commodities would rise therefore, in the latter they would fall. In either case the movement of prices, their rise or fall, would appear as the effect of a relative expansion or contraction of the volume of gold in circulation above or below the level corresponding to its own value, i. e. above or below the normal quantity which is determined by the proportion between its own value and that of the commodities in circulation.

The same process would take place if the sum total of the prices of the commodities in circulation remained unchanged, while the volume of gold in circulation came to be below or above the right level: the former in case the gold coin worn out in the course of circulation were not replaced by the production of a corresponding quantity of gold in the mines; the latter, if the output of the mines exceeded the requirements of circulation. In either case it is assumed that the cost of production of gold or its value remain the same.

To sum up: the money in circulation is at its normal level, when its volume is determined by its own bullion value, the exchange value of commodities being given. It rises above that level, bringing about a fall in the value of gold below its own bullion value and a rise of prices of commodities, whenever the sum total of the exchange values of commodities declines, or the output of gold from the mines increases. It sinks below its right level, leading to a rise of gold above its own bullion value and to a fall of prices of commodities, whenever the sum total of the exchange values of the commodities or the gold output of the mines is not sufficient to replace the quantity of outworn gold. In either case the gold in circulation becomes a token of value greater or smaller than that it really possesses. It may become an appreciated or depreciated token of itself. As soon as all commodities would come to be estimated in gold of this new value and the general price level would accordingly rise or fall, the quantity of current gold would again answer the requirements of circulation (a consequence which Ricardo emphasizes with great pleasure), but would be at variance with the cost of production of the precious metals and, therefore, with their relation as commodities to all other commodities. According to the general Ricardian theory of exchange value, the rise of gold above its exchange value, i. e., above the value as determined by the labor-time contained in it, would cause an increase in the production of gold until the increased output of it would reduce its value to the proper magnitude. And in the same manner, a fall of gold below its value would cause a decline in its production until its value rose again to its proper magnitude. By these opposite movements the discrepancy between the bullion value of gold and its value as a medium of circulation would disappear, the normal level of the volume of gold in circulation would be restored, and the price level would again correspond to the measure of value. These fluctuations in the value of gold in circulation would to the same extent affect gold in the form of bullion, because by assumption, all gold that is not utilized as an article of luxury, is supposed to be in circulation. Since gold itself may become, both as coin and bullion, a token of value of greater or smaller magnitude than its bullion value, it is self understood that convertible bank-notes in circulation have to share the same fate. Although bank-notes are convertible, i. e. their real value and nominal value agree, "the aggregate currency consisting of metal and of convertible notes" may appreciate or depreciate according as to whether it rises or falls, for reasons already stated, above or below the level determined by the exchange value of the commodities in circulation and the bullion value of gold. Inconvertible paper money, has, from this point of view, only that advantage as against convertible paper money, that it may depreciate in a two-fold manner. It may fall below the value of the metal which it is supposed to represent, because it has been issued in too great quantity, or it may depreciate because the metal it represents has itself fallen in value. This depreciation, not of paper as compared with gold, but of gold and paper together, or of the aggregate currency of a country, is one of the principal discoveries of Ricardo, which Lord Overstone and Co. pressed into their service and made a fundamental principle of Sir Robert Peelers Bank legislation of 1844 and 1845.

What should have been proven was that the price of commodities or the value of gold depends on the quantity of gold in circulation. The proof consists in the assumption of what is to be proven, viz. that any quantity of the precious metal employed as money must become a medium of circulation or coin, and thereby a token of value for the commodities in circulation, no matter in what proportion to its own intrinsic value and no matter what the total value of those commodities may be. To put it differently, the proof consists in overlooking all the other functions which money performs besides its function of a medium of circulation. When hard pressed, as in his controversy with Bosanquet, Ricardo, completely under the influence of the phenomenon of depreciated tokens of value caused by their quality, takes recourse to dogmatic assurances.^[23]

If Ricardo had built up this theory by abstract reasoning, as we have done it here, without introducing concrete facts and incidental matters which only distract his attention from the main question, its hollowness would be striking. But he takes up the entire subject in its international aspect. It will be easy to prove, however, that the apparent magnitude of scale does not make his fundamental ideas less diminutive.

His first proposition was as follows: the volume of metallic currency is normal when it is determined by the total value of the commodities in circulation estimated in its bullion value. Expressed so as to apply to international conditions, it reads thus: in a normal state of circulation every country possesses a quantity of money "according to the state of its commerce and wealth." Money circulates at a value corresponding to its real value or to its cost of production, i. e. it has the same value in all countries.^[24] That being the case, "there could be no temptation offered to either for their importation or exportation."^[25] There would thus be established a balance of currencies between the different countries. The normal level of a national currency is now expressed in terms of an international balance of currencies, which practically amounts to the statement that nationality does not change anything in a universal economic law. We have reached again the same fatal point as before. How is the normal level disturbed? Or, speaking in terms of the new terminology, how is the international balance of currencies disturbed? Or, how does money cease to have the same value in all countries? Or, finally, how does it cease to pass at its own value in every country? We have seen that the normal level was disturbed by an increase or decrease of the volume of money in circulation while the total value of commodities remained the same; or, because the quantity of money in circulation remained the same while the exchange values of commodities rose or fell. In the same manner, the international level, determined by the value of the metal itself, is disturbed by an increase in the quantity of gold in a country brought about by the discovery of new gold mines,^[26] or by an increase or decrease of the total exchange-value of the circulating commodities in any particular country. Just as in the former case the output of the precious metals decreased or increased according as to whether it was necessary to contract or expand the currency and thereby to lower or raise prices, so are the same effects produced now by export and import from one country to another. In the country in which prices would rise or the value of gold would fall below the bullion value in consequence of a redundant currency, gold would be depreciated, and the prices of commodities would rise as compared with other countries. Gold would, therefore, be exported, while commodities would be imported, and vice versa. Just as in the former case the output of gold, so now the import or export of gold and, with it, the rise or fall of prices of commodities would continue until, as we would have said before, the right value relation would be restored between the metal and commodities, or as we shall say now, the international balance of currencies would be restored. Just as in the former case the production of gold increased or decreased because gold stood above or below its value, so now the international migration of gold would take place for the same reason. Just as in the former case, every change in the production of the circulating metal affected its quantity and, thereby, prices, so would the same effect be produced now by international import and export. As soon as the relative values of gold and commodities or the normal quantity of currency would be restored, no further production would take place in the former case, and no further export or import in the latter, except in so far as would be necessary to replace outworn coin and to meet the demand of manufacturers of articles of luxury. It follows "that the temptation to export money in exchange for goods, or what is termed an unfavorable balance of trade, never arises but from a redundant currency."^[27] "The exportation of the coin is caused by its cheapness, and is not the effect, but the cause of an unfavourable balance."^[28] Since the increase or decrease in the production of gold in the former case and the importation or exportation of gold in the latter, take place only whenever its volume rises above or sinks below its normal level, i. e. whenever gold appreciates or depreciates in comparison with its bullion value, or whenever prices of commodities are too high or too low; it follows that every such movement works as a corrective,^[29] since, through the resultant expansion or contraction of the currency, prices are restored to their true level: in the former case this level represents the balance between the respective values of gold and of commodities; in the latter, the international balance of currencies. To put it in other words: money circulates in different countries only in so far as it circulates as coin in every country. Money is but coin and all the gold existing in a country must therefore enter circulation, i. e. it can rise above or fall below its value as a token of value. Thus we safely land again, by the round-about way of this international complication, at the simple dogma which constituted our starting point.

With what violence to actual facts Ricardo has to explain them in the sense of his abstract theory, a few illustrations will suffice to show. He maintains, e. g. that in years of poor crops, which happened frequently in England during 1800–1820, gold is exported not because com is needed and gold as money is at all times an effectual means of purchase in the world market, but because gold is in such cases depreciated in its value as compared with other commodities and, therefore, the currency of the country in which there has been a failure of crops is depreciated with respect to other national currencies. "In consequence of a bad harvest, a country having been deprived of a part of its commodities . . . the currency which was before at its just level . . . become(s) redundant," and prices of all commodities rise in consequence.^[30] Contrary to this paradoxical interpretation it has been proven statistically that from 1793 to the present time, whenever England had a bad harvest the available supply of currency not only did not become superabundant, but became inadequate and that, therefore, more money circulated and had to circulate on such occasions.^[31]

In the same manner, Ricardo maintained, with reference to Napoleon's Continental System and the English Blockade Decree, that the English exported gold instead of commodities to the Continent, because their money was depreciated with respect to the money on the Continent, that their commodities were, therefore, more high priced, which made it a more profitable commercial speculation to export gold than goods. According to him England was a market in which commodities were dear and money was cheap, while on the Continent commodities were cheap and money was dear. The trouble, according to an English writer, was "the ruinously low prices of our manufactures and of our colonial productions under the operation . . . of the 'Continental System' during the last six years of the war. . . . The prices of sugar and coffee, for instance, on the Continent, computed in gold, were four or five times higher than their prices in England, computed in banknotes. I am speaking . . . of the times in which the French chemists discovered sugar in beet-root, and a substitute for coffee in chicory; and when the English grazier tried experiments upon fattening oxen with treacle and molasses—of the times when we took possession of the island of Heligoland, in order to form there a depot of goods to facilitate, if possible, the smuggling of them into the north of Europe; and when the lighter descriptions of British manufactures found their way into Germany through Turkey. . . . Almost all the merchandise of the world accumulated in our warehouses, where they became impounded, except when some small quantity was released by a French License, for which the merchants at Hamburgh and Amsterdam had, perhaps, given Napoleon such a sum as forty or fifty thousand pounds. They must have been strange merchants . . . to have paid so large a sum for liberty to carry a cargo of goods from a dear market to a cheap one. What was the ostensible alternative the merchant had? . . . Either to buy coffee at 6d. a pound in bank-notes, and send it to a place where it would instantly sell at 3s. or 4s. a pound in gold, or to buy gold with bank-notes at £5 an ounce, and send it to a place where it would be received at £3 17s. 10½d. an ounce. . . . It is too absurd, of course, to say . . . that the gold was remitted instead of the coffee, as a preferable mercantile operation. . . . There was not a country in the world in which so large a quantity of desirable goods could be obtained, in return for an ounce of gold, as in England. . . . Bonaparte . . . was constantly examining the English Price Current. . . . So long as he saw that gold was dear and coffee was cheap in England, he was satisfied that his 'Continental System' worked well."^[32]

At the very time when Ricardo first formulated his theory of money, and the Bullion Committee embodied it in its parliamentary report, namely in 1810, a ruinous fall of prices of all English commodities as compared with those of 1808 and 1809 took place, while gold rose in value accordingly. Only agricultural products formed an exception, because their importation from abroad met with obstacles and their domestic supply was decimated by unfavorable crop conditions.^[33] Ricardo so utterly failed to comprehend the role of precious metals as an international means of payment, that in his testimony before the Committee of the House of Lords in 1819 he could say "that drains for exportation would cease altogether so soon as cash payments should be resumed, and the currency be restored to its metallic level." He died just in time, on the very eve of the crisis of 1825, which belied his prophesies.

The time when Ricardo wrote was generally little adapted for the observation of the function of precious metals as world money. Before the introduction of the Continental System, the balance of trade had almost always been in favor of England, and while that system lasted, the commercial intercourse with the European continent was too insignificant to affect the English rate of exchange. The money transmissions were mostly of a political nature and Ricardo seems to have utterly failed to grasp the part which subsidy payments played at that time in English gold exports.^[34]

Among the contemporaries of Ricardo who formed the school which adopted his economic principles, JAMES MILL was the most important one. He attempted to work out Ricardo's theory of money on the basis of simple metallic circulation, without the irrelevant international complications which served Ricardo to hide the inadequacy of his theory, and without any controversial regard for the operations of the Bank of England. His main arguments are as follows:

"By value of money, is here to be understood the proportion in which it exchanges for other commodities, or the quantity of it which exchanges for a certain quantity of other things. . . . It is the total quantity of the money in any country, which determines what portion of that quantity shall exchange for a certain portion of the goods or commodities of that country. If we suppose that all the goods of the country are on one side, all the money on the other, and that they are exchanged at once against one another, it is evident . . . that the value of money would depend wholly upon the quantity of it. It will appear that the case is precisely the same in the actual state of the facts. The whole of the goods of a country are not exchanged at once against the whole of the money; the goods are exchanged in portions, often in very small portions, and at different times, during the course of the whole year. The same piece of money which is paid in one exchange to-day, may be paid in another exchange tomorrow. Some of the pieces will be employed in a great many exchanges, some in very few, and some, which happen to be hoarded, in none at all. There will, amid all these varieties, be a certain average number of exchanges, the same which, if all the pieces had performed an equal number, would have been performed by each; that average we may suppose to be any number we please; say, for example, ten. If each of the pieces of the money in the country perform ten purchases, that is exactly the same thing as if all the pieces were multiplied by ten, and performed only one purchase each. The value of all the goods in the country is equal to ten times the value of all the money. . . . If the quantity of money instead of performing ten exchanges in the year, were ten times as great, and performed only one exchange in the year, it is evident that whatever addition were made to the whole quantity, would produce a proportional diminution of value, in each of the minor quantities taken separately. As the quantity of goods, against which the money is ail exchanged at once, is supposed to be the same, the value of all the money is no more, after the quantity is augmented, than before it was augmented. If it is supposed to be augmented one-tenth, the value of every part, that of an ounce for example, must be diminished one-tenth. . . . In whatever degree, therefore, the quantity of money is increased or diminished, other things remaining the same, in that same proportion, the value of the whole, and of every part, is reciprocally diminished or increased. This, it is evident, is a proposition universally true. Whenever the value of money has either risen or fallen (the quantity of goods against which it is exchanged and the rapidity of circulation remaining the same), the change must be owing to a corresponding diminution or increase of the quantity; and can be owing to nothing else. If the quantity of goods diminish, while the quantity of money remains the same, it is the same thing as if the quantity of money had been increased;" and vice versa. . . . "Similar changes are produced by any alteration in the rapidity of circulation. . . . An increase in the number of these purchases has the same effect as an increase in the quantity of money; a diminution the reverse. . . . If there is any portion of the annual produce which is not exchanged at all, as what is consumed by the producer; or which it not exchanged for money; that is not taken into the account, because what is not exchanged for money is in the same state with respect to the money, as if it did not exist. . . . Whenever the coining of money . . . is free, its quantity is regulated by the value of the metal. . . . Gold and silver are in reality commodities . . . It is cost of production . . . which determines the value of these, as of other ordinary productions."^[35]

The whole wisdom of Mill resolves itself into a series of arbitrary and absurd assumptions. He wishes to prove that the price of commodities or the value of money is determined by "the total quantity of the money in any country." Assuming that the quantity, and the exchange value of the commodities in circulation remain unchanged and that the same be true of the rapidity of circulation and of the value of precious metals as determined by the cost of production, and assuming at the same time that the quantity of the metallic currency increases or decreases in proportion to the quantity of money existing in a country, it becomes really "evident" that what was to have been proven has been assumed. Mill falls, moreover, into the same error as Hume by assuming that use-values and not commodities with a given exchange value are in circulation, and that vitiates his statement, even if we grant all of his "assumptions." The rapidity of circulation may remain the same; this may also be true of the value of the precious metals and of the quantity of commodities in circulation; and yet a change in the exchange value of the latter may require now a larger and now a smaller quantity of money for their circulation. Mill sees that a part of the money in a country is in circulation, while another is idle. With the aid of a most absurd average calculation he assumes that, although it really appears to be different, yet all the gold in a country does circulate. Assuming that ten million silver thalers circulate in a country twice a year, there could be twenty million such coins in circulation, if each circulated but once. And if the entire quantity of silver to be found in a country in any form amounts to one hundred million thalers, it may be supposed that the entire one hundred million can enter circulation, if each piece of money should circulate once in five years. One could as well assume that all the money of the world circulate in Hempstead, but that each piece of money instead of being employed three times a year, is employed once in 3,000,000 years. The one assumption is as relevant as the other for the purpose of determining the relation between the sum total of prices of commodities and the volume of currency. Mill feels that it is a matter of decisive importance to him to bring the commodities in direct contact not with the money in circulation, but with the entire supply of money existing in a country. He admits that "the whole of the goods of a country are not exchanged at once against the whole of the money," but that the goods are exchanged in different portions and at different times of the year for different portions of money. To do away with this difficulty he assumes that it does not exist. Moreover, this entire idea of direct contact of commodities and money and direct exchange is a mere abstraction from the movement of simple purchase and sale or the function of money as a means of purchase. Already in the movement of money as a means of payment, commodity and money cease to appear simultaneously.

The commercial crises of the nineteenth century, namely, the great crises of 1825 and 1836, did not result in any new developments in the Ricardian theory of money, but they did furnish new applications for it. They were no longer isolated economic phenomena, such as the depreciation of the precious metals in the sixteenth and seventeenth centuries which interested Hume, or the depreciation of paper money in the eighteenth and early nineteenth centuries which confronted Ricardo; they were the great storms of the world market in which the conflict of all the elements of the capitalist process of production discharge themselves, and whose origin and remedy were sought in the most superficial and abstract sphere of this process, the sphere of money circulation. The theoretical assumption from which the school of economic weather prophets proceeds, comes down in the end to the illusion that Ricardo discovered the laws governing the circulation of purely metallic currency. The only thing that remained for them to do was to subject to the same laws the circulation of credit and bank-note currency.

The most general and most palpable phenomenon in commercial crises is the sudden, general decline of prices following a prolonged general rise. The general decline of prices of commodities may be expressed as a rise in the relative value of money with respect to all commodities, and the general rise of prices as a decline of the relative value of money. In either expression the phenomenon is described but not explained. Whether I put the question thus: explain the general periodic rise of prices followed by a general decline of the same, or formulate the same problem by saying: explain the periodic decline and rise of the relative value of money with respect to commodities; the different wording leaves the problem as little changed as would its translation from German into English. Ricardo's theory of money was exceedingly convenient, because it lends a tautology the semblance of a statement of causal connection. Whence comes the periodic general fall of prices? From the periodic rise of the relative value of money. Whence the general periodic rise of prices? From the periodic decline of the relative value of money. It might have been stated with equal truth that the periodic rise and fall of prices is due to their periodic rise and fall. The problem itself is stated under the assumption that the intrinsic value of money, i. e., its value as determined by the cost of production of precious metals remains unchanged. If it is more than a tautology then it is based on a misconception of the most elementary principles. If the exchange value of A measured in terms of B, declines, we know that this may be caused by a decline of the value of A as much as by a rise of the value of B; the same being true of the case of a rise of the exchange value of A measured in terms of B. The tautology once admitted as a statement of cause, the rest follows easily. A rise of prices of commodities is caused by a decline of the value of money and a decline of the value of money is caused, as we know from Ricardo, by a redundant currency, i. e., by a rise of the volume of currency over the level determined by its own intrinsic value and the intrinsic value of the commodities. In the same manner, the general decline of prices of commodities is explained by the rise of the value of money above its intrinsic value in consequence of an inadequate currency. Thus, prices rise and fall periodically, because there is periodically too much or too little money in circulation. Should a rise of prices happen to coincide with a contracted currency, and a fall of prices with an expanded one, it may be asserted in spite of those facts that in consequence of a contraction or expansion of the volume of commodities in the market, which can not be proven statistically, the quantity of money in circulation has, although not absolutely, yet relatively increased or declined. We have seen that according to Ricardo these universal fluctuations must take place even with a purely metallic currency, but that they balance each other through their alternations; thus, e. g., an inadequate currency causes a fall of prices, the fall of prices leads to the export of commodities abroad, this export causes again an import of gold from abroad, which, in its turn, brings about a rise of prices; the opposite movement taking place in case of a redundant currency, when commodities are imported and money is exported. But, since in spite of these universal fluctuations of prices which are in perfect accord with Ricardo's theory of metallic currency, their acute and violent form, their crisis-form, belongs to the period of advanced credit, it is perfectly clear that the issue of bank-notes is not exactly regulated by the laws of metallic currency. Metallic currency has its remedy in the import and export of precious metals which immediately enter circulation and thus, by their influx or efflux, cause the prices of commodities to fall or rise. The same effect on prices must now be exerted by banks by the artificial imitation of the laws of metallic currency. If gold is coming in from abroad it proves that the currency is inadequate, that the value of money is too high and the prices of commodities too low, and, consequently, that bank notes must be put in circulation in proportion to the newly imported gold. On the contrary, notes have to be withdrawn from circulation in proportion to the export of gold from the country. That is to say, the issue of bank notes must be regulated by the import and export of the precious metals or by the rate of exchange. Ricardo's false assumption that gold is only coin, and that therefore all imported gold swells the currency, causing prices to rise, while all exported gold reduces the currency leading to a fall of prices, this theoretical assumption is turned into a practical experiment of putting in every case an amount of currency in circulation equal to the amount of gold in existence. Lord Overstone (the banker Jones Loyd), Colonel Torrens, Norman, Clay, Arbuthnot and a host of other writers, known in England as the adherents of the "currency principle," not only preached this doctrine, but with the aid of Sir Robert Peel succeeded in 1844 and 1845 in making it the basis of the present English and Scotch bank legislation. Its ignominous failure, theoretical as well as practical, following upon experiments on the largest national scale, can be treated only after we take up the theory of credit.^[36] So much can be seen, however, that the theory of Ricardo which isolates money in its fluent form of currency, ends by ascribing to the ebbs and tides in the supply of precious metals an influence on bourgeois economy such as the believers in the superstitions of the monetary system had never dreamt of. Thus did Ricardo, who proclaimed paper currency as the most perfect form of money, become the prophet of the bullionists.

After Hume's theory or the abstract opposition to the monetary system was thus developed to its ultimate conclusions, Steuart's concrete conception of money was finally restored to its rights by THOMAS TOOKE.^[37] Tooke arrives at his principles not from any theory, but by a conscientious analysis of the history of prices of commodities from 1793 to 1856. In the first edition of his History of Prices which appeared in 1823, Tooke is still under the complete influence of the Ricardian theory, and vainly tries to reconcile it with actual facts. His pamphlet "On the Currency," which appeared after the crisis of 1825 might even be considered as the first consistent presentation of the views which were later given the force of law by Overstone. Continued studies in the history of prices forced him, however, to the conclusion that the direct connection between prices and the volume of currency, as it is pictured by the theory, is a mere illusion; that the expansion and contraction of currency which takes place while the value of the precious metals remains unchanged, is always the effect but never the cause of price fluctuations; that the circulation of money is in any event but a secondary movement; and that money assumes quite different forms in the actual process of production in addition to that of a circulating medium. His detailed investigations belong to a sphere outside of that of simple metallic circulation and can be discussed here as little as the investigations of WILSON and FULLARTON which belong to the same class.^[38] None of these writers takes a one-sided view of money, but treat it in its various aspects; the treatment, however, is mechanical, without an attempt to establish an organic connection either between these various aspects themselves, or between them and the combined system of economic categories. They fall, therefore, into the error of confusing money as distinguished from medium of circulation with capital or even with commodity, although they are forced elsewhere to differentiate it from both.^[39] When gold, e. g., is shipped abroad, it practically means that capital is sent abroad, but the same thing takes place when iron, cotton, grain, or any other commodity is exported. Both are capital and are distinguished not as capital, but as money and commodity. The function of gold as the international medium of exchange springs, therefore, not from its being capital, but from its specific character of money. Similarly, when gold, or bank notes in its place, circulate in the home trade as means of payment, they constitute capital at the same time. But they could not be replaced by capital in the form of commodities, as has been demonstrated very palpably by crises, for instance. That is to say, it is the fact that gold is distinguished from commodities in its capacity of money and not in that of capital, that makes it the means of payment. Even when capital is exported directly as capital, as, e. g., when it is done for the purpose of lending abroad a certain amount on interest, it depends on circumstances, whether it will be exported in the form of commodities or in that of gold, and if in the latter form, it is due to the specific destination of the precious metals as distinguished from commodities to serve as money. In general, these writers do not consider money in its abstract form, as it is developed within the sphere of simple circulation of commodities, and as it spontaneously grows out of the relation of the circulating commodities. As a result, they constantly vacillate between the abstract forms of money which distinguish it from commodity and those forms of it beneath which are concealed concrete relations, such as capital, revenue, etc.^[40]

---

circulation of the country: which is regulated . . . by the value of the standard [of money], the amount of payments, and the economy practised in effecting them."

1. "Gold is a wonderful thing! Whoever possesses it, is master of all that he desires. By means of gold even admission to Heaven may be gained for souls." (Columbus in a letter from Jamaica in 1503).
2. The slowness of the process was admitted by Hume, although it but little agrees with his principle. See David Hume "Essays and Treatises on several subjects." London, 1777, v. 1, p. 300.
3. Conf. Steuart, l., c. v. I, p. 394–400.
4. David Hume, l. c. p. 300.
5. David Hume, l. c. p. 303.
6. David Hume, l. c. p. 303.
7. David Hume, l. c. p. 307, 308, 303: "It is evident, that the prices do not so much depend on the absolute quantity of commodities, and that of money, which are in a nation, as on that of the commodities, which can or may come to market, and of the money which circulates. If the coin be locked up in chests, it is the same thing with regard to prices, as if it were annihilated; if the commodities be hoarded in magazines and granaries, a like effect follows. As the money and commodities in these cases, never meet, they cannot affect each other. The whole (of prices) at last reaches a just proportion with the new quantity of specie which is in the kingdom."
8. See Law and Franklin about surplus value which gold and silver are supposed to acquire from their function of money. Also Forbonnais.
9. This fiction is literally advanced by Author:Montesquieu. [The passage from Montesquieu is quoted by Marx in his Capital, v. I. Part 1, Ch. III, section 2, b, foot-note. Note by K. Kautsky to 2nd German edition].
10. Steuart, l. c. v. I., p. 394 seq.
11. Steuart, l. c., v. 2, p. 377–379 passim (not found in the 1767 London edition. Translator).
12. Steuart, l. c., p. 379–380 passim (London, 1767 edition, v. l. p. 400. Transl.).
13. "The additional coin will be locked up, or converted into plate. . . . As for the paper money, so soon as it has served the first purpose of supplying the demand of him who borrowed it, it will return upon the debtor in it and become realized. . . . Let the specie of a country, therefore, be augmented or diminished in ever so great a proportion, commodities will still rise and fall according to the principles of demand and competition, and these will constantly depend upon the inclinations of those who have property or any kind of equivalent whatsoever to give, but never upon the quantity of coin they are possessed of. . . Let it (namely, the quantity of specie in a country) be ever so low, while there is real property of any denomination in the country, a competition to consume in those who possess it, prices will be high, by the means of barter, symbolical money, mutual prestations and a thousand other inventions. . . . If this country has a communication with other nations, there must be a proportion between the prices of many kinds of merchandize there and elsewhere, and a sudden augmentation or diminution of the specie, supposing it could of itself operate the effects of raising or sinking prices, would be restrained in its operation by foreign competition." l. c. v. 1, p. 400–402. "The circulation of every country must be in proportion to the industry of the inhabitants producing the commodities which come to market. . . If the coin of a country, therefore, falls below the proportion of the price of industry offered to sale, inventions, like symbolical money, will be fallen upon, to provide for an equivalent for it. But if the specie be found above the proportion of industry, it will have no effect in raising prices, nor will it enter into circulation: it will be hoarded up in treasures. . . . Whatsoever be the quantity of money in a nation, in correspondence with the rest of the world, there never can remain in circulation, but the quantity nearly proportional to the consumption of the rich and to the labour and industry of the poor inhabitants," and this proportion is not determined "by the quantity of money actually in the country" (l. c. p. 403–408 passim.) "All nations will endeavor to throw their ready money, not necessary for their own circulation, into that country where the interest of money is high with respect to their own." (l. c. v. 2. p. 5). "The richest nation in Europe may be the poorest in circulating specie." l. c., v. 2, p. 6. For the polemics against Steuart see Arthur Young. [In his foot-note in Capital, v. 1, Part 1, ch. III., section 2, b. p. 62, Humboldt ed., Marx says: The theory of Hume was defended against the attacks of J. Steuart and others, by A. Young, in his "Political Arithmetic," London, 1774, in which work there is a special chapter entitled "Prices depend on quantity of money." Note by K. Kautsky to 2nd German edition].
14. Steuart, l. c., v. 2, p. 370. Louis Blanc translates the expression "money of the society" which stands for home or national money, as socialist money, which is perfectly meaningless and makes a Socialist of John Law. (See the first volume of his History of the French Revolution).
15. Maclaren, l. c. p. 43 seq. Patriotism led Gustav Julius, a German writer who met with very early death, to hold up old Büsh as an authority as against the Ricardian school. Honest Büsch rendered Steuart's elegant English into Hamburg Platt and by trying to improve upon the original spoiled it as often as he could.
16. Note to the 2nd edition: This is not an exact statement. Adam Smith expresses the law correctly on many occasions. [See Capital, Humboldt edition, p. 62, ft-note 1, where writing seven years later, Marx makes the following qualification: "This statement applies only in so far as Adam Smith, ex officio, treats of money. Now and then, however, as in his criticism of the earlier systems of political economy, he takes the right view. 'The quantity of coin in every country is regulated by the value of the commodities which are to be circulated by it. . . . The value of the goods annually bought and sold in any country requires a certain quantity of money to circulate and distribute them to their proper consumers, and can give employment to no more. The channel of circulation necessarily draws to itself a sum sufficient to fill it, and never admits any more.' Wealth of Nations, Book iv., ch. I."]
17. The distinction between currency and money is therefore not found in "Wealth of Nations." Deceived by the apparent impartiality of Adam Smith, who knew his Hume and Steuart very well, honest Maclaren remarks: "The theory of the dependence of prices on the extent of the currency had not as yet, attracted attention; and Doctor Smith, like Mr. Locke (Locke undergoes a change in his view), considers metallic money nothing but a commodity." Maclaren, l. c. p. 44.
18. David Ricardo, "The High Price of Bullion, a Proof of the Depreciation of Bank-notes." 4th edition, London, 1811. (The first edition appeared in 1809) . Further, "Reply to Mr. Bosanquet*s Practical Observations on the Report of the Bullion Committee." London, 1811.
19. David Ricardo: "On the Principles of Political Economy etc." p. 77. "Their value [of metals] [like that of all other commodities], depends on the total quantity of labour necessary to obtain the metal, and to bring it to market."
20. l. c. p. 77, 180, 181.
21. Ricardo, l. c. p. 421. "The quantity of money that can be employed in a country must depend on its value: if gold alone were employed for the circulation of commodities, a quantity would be required, one fifteenth only of what would be necessary, if silver were made use of for the same purpose." See also Ricardo's: "Proposals for an Economical and Secure Currency," London, 1816, p. 89, where he says: "The amount of notes in circulation depends on the amount required for the
22. Ricardo, "Principles of Political Economy", p. 432.
23. David Ricardo, "Reply to Mr. Bosanquet's Practical Observations, etc." p. 49. "That commodities would rise or fall in price, in proportion to the increase or diminution of money, I assume as a fact which is incontrovertible."
24. David Ricardo, "The High Price of Bullion," etc. "Money would have the same value in all countries." p. 4. In his Political Economy Ricardo modified this statement, but not in a way to affect what has been said here.
25. l. c. p. 3–4.
26. l. c., p. 4.
27. Ricardo, l. c., p. 11–12.
28. Ricardo, l. c., p. 14.
29. l. c., p. 17.
30. Ricardo, l. c., p. 74–75. "England, in consequence of a bad harvest, would come under the case of a country having been deprived of a part of its commodities, and, therefore, requiring a diminished amount of circulating medium. The currency which was before equal to her payments would now become super-abundant and relatively cheap, in proportion. . . of her diminished production; the exportation of this sum, therefore, would restore the value of her currency to the value of the currencies of other countries." His confusion of money and commodity, and of money and coin borders on the ludicrous in the following passage: "If we can suppose that after an unfavorable harvest, when England has occasion for an unusual importation of corn, another nation is possessed of a super-abundance of that article, but has no wants for any commodity whatever, it would unquestionably follow that such nation would not export its corn in exchange for commodities: but neither would it export corn for money, as that is a commodity which no nation ever wants absolutely, but relatively." l. c., p. 75. Pushkin in his hero poem makes the father of his hero incapable of comprehending that commodities are money. But that money is a commodity, the Russians have understood from times of yore as is proven not only by the English corn imports in 1838–1842, but by the entire history of their commerce.
31. Conf. Thomas Tooke, "History of Prices," and James Wilson, "Capital, Currency and Banking." (The latter work is a reprint of a series of articles which appeared in the London Economist in 1844, 1845 and 1847.)
32. James Deacon Hume: "Letters on the Corn Laws." London, 1834, p. 29–31. [Letter by H. B. T. on the Corn Laws and on the Rights of the Working Classes. Transl.]
33. Thomas Tooke, "History of Prices," etc. London, 1848, p. 110.
34. Conf. W. Blake's above quoted "Observations etc."
35. James Mill: "Elements of Political Economy." [London, 1821, p. 95–101 passim. Transl.]
36. A few months before the outbreak of the commercial crisis of 1857, a committee of the House of Commons was in session to inquire into the effect of the bank-laws of 1844 and 1845. Lord Overstone, the theoretical father of these laws, delivered himself of this boast in his testimony before the committee: "By strict and prompt adherence to the principles of the act of 1844, everything has passed off with regularity and ease; the monetary system is safe and unshaken, the prosperity of the country is undisputed, the public confidence in the wisdom of the act of 1844 is daily gaining strength; and if the committee wish for further practical illustration of the soundness of the principles on which it rests, or of the beneficial results which it has assured, the true and sufficient answer to the committee is, look around you; look at the present state of trade of the country, look at the contentment of the people; look at the wealth and prosperity which pervades every class of the community; and then, having done so, the committee may be fairly called upon to decide whether they will interfere with the continuance of an act under which these results have been developed." Thus did Overstone blow his own horn on the fourteenth of July, 1857; on the twelfth of November of the same year the Ministry had to suspend on its own responsibility the wonderful law of 1844.
37. Tooke was entirely ignorant of Steuart's work, as may be seen from his "History of Prices for 1839–1847," London, 1848, where he reviews the history of the theories of money.
38. Tooke's most important work besides the "History of Prices" which his co-worker Newmarch published in six volumes, is "An Inquiry into the Currency Principle, the Connection of the Currency with Prices" etc., 2nd edition, London, 1844. Wilson's book we have already quoted. Finally there is to be mentioned John Fullarton's "On the Regulation of Currencies," 2d edition, London, 1845.
39. "We ought to . . . distinguish . . . between gold . . . as merchandise, i. e. as capital, and gold. . . as currency" (Tooke, "An Inquiry into the Currency Principle, etc." p. 10). "Gold and silver may be counted upon to realize on their arrival nearly the exact sum required to be provided. . . gold and silver possess an infinite advantage over all other description of merchandize . . . from the circumstance of being universally in use as money. . . It is not in tea, coffee, sugar or indigo that debts, whether foreign or domestic, are usually contracted to be paid, but in coin; and the remittance, therefore, either in the identical coin designated, or in bullion which can be promptly turned into that coin through the mint or market of the country to which it is sent, must always afford to the remitter, the most certain, immediate, and accurate means of affecting this object, without risk of disappointment from the failure of demand or fluctuation of price." (Fullerton, l. c. p. 132–133.) "Any other article (except gold or silver) might in quantity or kind be beyond the usual demand of the country to which it is sent." (Tooke: "An Inquiry, etc.")
40. The transformation of money into capital we shall consider in the third chapter which treats of capital and forms the end of the first book.