2. Medium of Exchange

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

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

a. The Metamorphosis of Commodities

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

C — M — C M — C — M.

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

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

C—M—C, when considered from the point of departure of the first commodity, represents its conversion into money and its reconversion from money into commodity; that is to say a movement in which at the outset the commodity appears as a particular use value, then sheds this form of existence and assumes that of exchange value or universal equivalent — which is entirely distinct from its natural form — finally it sheds this as well and emerges as a real use value which can serve particular needs. In this last form it drops out of the sphere of circulation and enters that of consumption. Thus to begin with, the whole circuit of C—M—C represents the entire series of metamorphoses through which every individual commodity passes in order to become a direct use value for its owner. The first metamorphosis takes place in C—M, the first phase of the circuit; the second in M—C, the other phase, and the entire circuit forms the curriculum vitae of the commodity. But the cycle C—M—C represents the complete metamorphosis of an individual commodity only because it is at the same time an aggregate of definite partial metamorphoses of other commodities. For each metamorphosis of the first commodity is its transformation into another commodity and therefore the transformation of the second commodity into the first; hence it is a double transformation which is carried through during a single stage of the cycle. To start with, we shall separately examine each of the two phases of exchange into which the cycle C—M — C is resolved. C—M or sale: C, the commodity, enters the sphere of circulation not just as a particular use value, e.g. a ton of iron, but as a use value with a definite price, say £3 17s. lO'^d., or an ounce of gold. The price while on the one hand indicating the amount of labour time contained in the iron, namely its value, at the same time signifies the pious wish to convert the iron into gold, that is to give the labour time contained in the iron the form of universal social labour time. If this transformation fails to take place, then the ton of iron ceases to be not only a commodity but also a product; since it is a commodity only because it is not a use value for its owner, that is to say his labour is only really labour if it is useful labour for others, and it is useful for him only if it is abstract general labour. It is therefore the task of the iron or of its owner to find that location in the world of commodities where iron attracts gold. But if the sale actually takes place, as we assume in this analysis of simple circulation, then this difficulty, the salto

mortale of the commodity, is surmounted. As a result of this alienation — that is its transfer from the person for whom it is a non-use value to the person for whom it is a use value — the ton of iron proves to be in fact a use value and its price is simultaneously realised, and merely imaginary gold is converted into real gold. The term "ounce of gold", or £3 17s. lO'^d., has now been replaced by an ounce of real gold, but the ton of iron has gone. The sale C—M does not merely transform the commodity — which by means of the price was nominally turned into gold — really into gold, but gold, which as measure of value was only nominally money and in fact functioned only as the money name of commodities, is through the same process transformed into actual money.* As gold became nominally the universal equivalent, because the values of all commodities were measured in terms of gold, so now, as a result of the universal alienation of commodities in exchange for it — and the sale C—M is the procedure by which this universal alienation is accomplished — does it become the absolutely alienated commodity, i.e. real money. But gold becomes real money through sale, only because the exchange values of commodities expressed in prices were already converted into nominal gold.

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

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

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

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

Returning to the complete circuit C—M—C, we can see that in it one commodity passes through the entire series of its metamorphoses. But at the same time as this commodity begins the first phase of its circuit and undergoes the first metamorphosis, another commodity commences the second phase of the circuit, passes through its second metamorphosis and drops out of circulation; the first commodity, on the other hand, enters the second phase of the circuit, passes through its second metamorphosis and drops out of circulation, while a third commodity enters the sphere of circulation, passes through the first phase of its cycle and accomplishes the first metamorphosis. Thus the total circuit C—M—C representing the complete metamorphosis of a commodity is simultaneously the end of a complete metamorphosis of a second commodity and the beginning of a complete metamorphosis of a third commodity; it is therefore a series without beginning or end. To demonstrate this and to distinguish the commodities we shall use different symbols to denote C in the two extremes, e.g. C"—M—C". Indeed, the first term C" — M presupposes that M is the outcome of another C—M, and is accordingly itself only the last term of the circuit C—M — C", while the second term M—C" implies that it will result in C"—M, and constitutes the first term of the circuit C"—M—C", and so on. It is moreover evident, that, although M is the outcome of a single sale, the last term M—C may take the form of M—C'+ M—C"+M—C""+ and so forth; in other words it may be divided into numerous purchases, i.e. into numerous sales and hence numerous first terms of new complete metamorphoses of commodities. While in this way the complete metamorphosis of a single commodity forms not only a link of just one sequence of metamorphoses without beginning or end, but of many such sequences, the circulation of the world of commodities — since every individual commodity goes through the circuit C—M—C— constitutes an infinitely intricate network of such series of movements, which constantly end and constantly begin afresh at an infinite number of different points. But each individual sale or purchase stands as an independent isolated transaction, whose complementary transaction, which constitutes its continuation, does not need to follow immediately but may be separated from it temporally and spatially. Because every particular cycle C—M or

M—C representing the transformation of one commodity into use value and of another into money, i.e. the first and second phase of the circuit, forms a separate interval for both sides, and since on the other hand all commodities begin their second metamorphosis, that is turn up at the starting point of the circuit's second phase, in the form of gold, the general equivalent, a form common to them all, in the real process of circulation any M—C may follow any particular C—M, i.e. the second section of the life cycle of any commodity may follow the first section of the life cycle of any other commodity. For example, A sells iron for £2, and thus C—M or the first metamorphosis of the commodity iron has taken place, but for the time being A does not buy anything else. At the same time B, who had sold two quarters of wheat for £6 two weeks ago, buys a coat and trousers from Moses and Son with the same £6, and thereby completes M—C or the second metamorphosis of the commodity wheat. The two transactions

M—C and C—M appear to be parts of the same sequence only because as M [money or] gold, all commodities look alike and gold does not look any different whether it represents transformed iron or transformed wheat. In the real process of circulation C—M—C, therefore, represents an exceedingly haphazard coincidence and succession of motley phases of various complete metamorphoses. The actual process of circulation appears, therefore, not as a complete metamorphosis of the commodity, i.e. not as its movement through opposite phases, but as a mere accumulation of numerous purchases and sales which chance to occur simultaneously or successively. The process accordingly loses its distinct form, especially as each individual transaction, e.g. a sale, is simultaneously its opposite, a purchase, and vice versa. On the other hand, the metamorphoses in the world of commodities constitute the process of circulation and the former must therefore be reflected in the total movement of circulation. This reflection will be examined in the next section. Here we shall merely observe that the C at each of the two extremes of the circuit C—M—C has a different formal relation to M. The first C is a particular commodity which is compared with money as the universal commodity, whereas in the second phase money as the universal commodity is compared with an individual commodity. The formula C—M—C can therefore be reduced to the abstract logical syllogism P—U—/, where particularity forms the first extreme, universality characterises the common middle term and individuality signifies the final extreme.

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

* The following extract from M. Isaac Péreire's Leçons sur l'industrie et les finances, Paris, 1832, shows that delicate spirits can be deeply hurt even by the quite superficial aspect of antagonism which is represented by purchase and sale. The fact that the same Isaac is the inventor and dictator of the Crédit mobilier'^[71] and as such a notorious wolf of the Paris stock exchange points to the real significance of such sentimental criticism of political economy. M. Péreire, at that time an apostle of St. Simon, says: "Since individuals are isolated and separated from one another, whether in their labour or their consumption, they exchange the products of their respective occupations. The necessity of exchanging things entails the necessity of determining their relative value. The ideas of value and exchange are therefore closely linked and in their present form both are expressions of individualism and antagonism.... The value of products is determined only because there is sale and purchase, in other words, because there is antagonism between different members of society. Preoccupation with price and value exists only where there is sale and purchase, that is to say, where every individual is compelled to fight in order to obtain the things necessary for the maintenance of his existence" (I.e., pp. 2, 3 passim). [Marx quotes in French.] merely that the relations of individuals to one another should be those of commodity owners.

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

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

There can never be a lack of buyers for all commodities. Whoever offers a commodity for sale wants to obtain another in exchange for it, and is therefore a buyer through the mere fact of being a seller. Thus, the buyers and sellers of all commodities taken together must, through a metaphysical necessity, balance each other. Hence if there are more sellers than buyers of one commodity, there must be more buyers than sellers of another commodity.*

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

* A pamphlet by William Spence entitled Britain Independent of Commerce was published in London in November 1807; its thesis was further elaborated by William Cobbett in his Political Register under the more militant heading "Perish Commerce". Against this James Mill wrote his Defence of Commerce/^[2] which appeared in 1808; in that work he already advances the argument which is also contained in the passage quoted above from his Elements of Political Economy. This ingenious invention has been appropriated by J. B. Say, and used in his polemic against Sismondi and Malthus on the question of commercial crises,^[73] and since it was not clear which new idea this comical prince de la science—whose merit consists rather in the impartiality with which he consistently misinterpreted his contem-poraries Malthus, Sismondi and Ricardo — has contributed to political economy, continental admirers have trumpeted him abroad as the discoverer of the invaluable proposition about a metaphysical equilibrium of purchases and sales.

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

b. The Circulation of Money

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

Money passes into the hands of the seller in the same transaction which transfers the commodity into the hands of the buyer. Commodity and money thus move in opposite directions, and this change of places — in the course of which the commodity crosses over to one side and money to the other — occurs simultaneously at an indefinite number of points along the entire surface of bourgeois society. But the first move of the commodity in the sphere of circulation is also its last move.* No matter whether the commodity changes its position because gold is attracted by it (C—M) or because it is attracted by gold (M—C), in consequence of the single move, the single change of place, it falls out of the sphere of circulation into that of consumption. Circulation is a perpetual movement of commodities, though always of different commodities, and each commodity makes but one move. Each commodity begins the second phase of its circuit not as the same commodity, but as a different commodity, i.e. gold. The movement of the metamorphosed commodity is thus

Ed., London, 1844, p. 10). [Marx quotes from Opdyke, Corbet, Bosanquet and Tooke in English.] the movement of gold. The same coin or the identical bit of gold which in the transaction C—M changed places with a commodity becomes in turn the starting point of M—C, and thus for the second time changes places with another commodity. Just as it passed from the hands of B, the buyer, into those of A, the seller, so now it passes from the hands of A, who has become a buyer, into those of C. The changes in the form of a commodity, its transformation into money and its retransformation from money, in other words the movement of the total metamorphosis of a commodity, accordingly appear as the extrinsic movement of a single coin which changes places twice, with two different commodities. However scattered and fortuitous the simultaneous purchases and sales may be, a buyer is always confronted by a seller in actual circulation, and the money which takes the place of the commodity sold must already have changed places once with another commodity before reaching the hands of the buyer. On the other hand, sooner or later the money will pass again from the hands of the seller who has become a buyer into those of a new seller, and its repeated changes of place express the interlocking of the metamorphoses of commodities. The same coins therefore proceed — always in the opposite direction to the commodities moved — from one point of the circuit to another; some coins move more frequently, others less frequently, thus describing a longer or shorter curve. The different movements of one and the same coin can follow one another only temporally, just as conversely the multiplicity and fragmentation of the purchases and sales are reflected in the simultaneous and spatially concurrent changes of place of commodity and money.

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

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

Just as commodity owners presented the products of individual labour as products of social labour, by transforming a thing, i.e. gold, into the direct embodiment of labour time in general and therefore into money, so now their own universal movement by which they bring about the exchange of the material elements of their labour confronts them as the specific movement of a thing, i.e. as the circulation of gold. The social movement is for the commodity owners, on the one hand, an external necessity and, on the other, merely a formal intermediary process enabling each individual to obtain different use values of the same total value as that of the use value which he has thrown into circulation. The commodity begins to function as a use value when it leaves the sphere of circulation, whereas the use value of money as a means of circulation consists in its very circulation. The movement of the commodity in the sphere of circulation is only an insignificant factor, whereas perpetual rotation within this sphere becomes the function of money. The specific function which it fulfils within circulation gives money as the medium of circulation a new and distinctive aspect, which now has to be analysed in more detail. First of all, it is evident that the circulation of money is an infinitely divided movement, for it reflects the infinite fragmentation of the process of circulation into purchases and sales, and the complete separation of the complementary phases of the metamorphosis of commodities. It is true that a recurrent movement, real circular motion, takes place in the small circuits of money in which the point of departure and the point of return are identical; but in the first place, there are as many points of departure as there are commodities, and their indefinite multitude balks any attempt to check, measure and compute these circuits. The time which passes between the departure from and the return to the starting point is equally uncertain. It is, moreover, quite irrelevant whether or not such a circuit is described in a particular case. No economic fact is more widely known than that somebody may spend money without receiving it back. Money starts its circuit from an endless multitude of points and returns to an endless multitude of points, but the coincidence of the point of departure and the point of return is fortuitous, because the movement C—M—C does not necessarily imply that the buyer becomes a seller again. It would be even less correct to depict the circulation of money as a movement which radiates from one centre to all points of the periphery and returns from all the peripheral points to the same centre. The so-called circuit of money, as people imagine it, simply amounts to the fact that the appearance of money and its disappearance, its perpetual movement from one place to another, is everywhere visible. When considering a more advanced form of money used to mediate circulation, e.g. bank notes, we shall find that the conditions governing the issue of money determine also its reflux. But as regards simple money circulation it is a matter of chance whether a particular buyer becomes a seller once again.

Where actual circular motions are taking place continuously in the sphere of simple money circulation, they merely reflect the more fundamental processes of production, for instance, with the money which the manufacturer receives from his banker on Friday he pays his workers on Saturday, they immediately hand over the larger part of it to retailers, etc., and the latter return it to the banker on Monday.

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

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

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

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

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

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

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

c. Coins. Tokens of Value

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

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

In exchange for 100 pounds or 1,200 ounces troy of 22-carat gold one receives £4,672'/2 o r 4,672'/2 gold sovereigns from the English mint, and if one puts these sovereigns on one side of a pair of scales and 100 pounds of gold bars on the other, the two will balance. This proves that the sovereign is simply a quantity of gold — with a specific shape and a specific imprint — the weight of which is denoted by this name in the English monetary scale. The 4,672'/2 gold sovereigns are thrown into circulation at different points and, once in the current, they make a certain number of moves each day, some sovereigns more and others less. If the average number of moves made by one ounce of gold during a day were ten, then the 1,200 ounces of gold would realise a total of commodity prices amounting to 12,000 ounces or 46,725 sovereigns. An ounce of gold, no matter how one may twist and turn it, will never weigh ten ounces. But here in the process of circulation, one ounce does indeed amount to ten ounces. In the process of circulation a coin is equal to the quantity of gold contained in it multiplied by the number of moves it makes. In addition to its actual existence as an individual piece of gold of a certain weight, the coin thus acquires a nominal existence which arises from the function it performs. But whether the sovereign makes one or ten moves, in each particular purchase or sale it nevertheless acts merely as a single sovereign. The effect is the same as in the case of a general who on the day of battle replaces ten generals by appearing at ten different places at the crucial time, but remains the same general at each point. The nominalisa-tion of the medium of circulation, which arises as a result of the replacement of quantity by velocity, concerns only the functioning of coins within the process of circulation but does not affect the status of the individual coins.

But the circulation of money is an external movement and the sovereign, although non olet," keeps mixed company. The coin, which comes into contact with all sorts of hands, bags, purses, pouches, tills, chests and boxes, wears away, leaves a particle of gold here and another there, thus losing increasingly more of its intrinsic content as a result of abrasion sustained in the course of its worldly career. While in use it is getting used up. Let us consider a sovereign at a moment when its original solid features are as yet hardly impaired.

"A baker who receives a brand-new sovereign straight from the bank today, and pays it away to the miller tomorrow, does not pay the same veritable sovereign; it is lighter than when he received it...." *

"It being obvious that the coinage, in the very nature of things, must be for ever, unit by unit, falling under depreciation by the mere action of ordinary and unavoidable abrasion. It is a physical impossibility at any time, even for a single day, utterly to eliminate light coins from circulation."**

Jacob estimates that of the £380 million which existed in Europe in 1809, £19 million had completely disappeared as a result of abrasion by 1829, that is in the course of 20 years.*** Whereas the commodity having taken its first step, bringing it into the sphere of circulation, drops out of it, the coin, after making a few steps in the sphere of circulation, represents a greater metal content than it actually possesses. The longer a coin circulates at a given velocity, or the more rapidly it circulates in a given period of time, the greater becomes the divergence between its existence as a coin and its existence as a piece of gold or silver. What remains is magni nominis umbra,⁽¹⁾ the body of the coin is now merely a shadow. Whereas originally circulation made the coin heavier, it now makes it lighter, but in each individual purchase or sale it still passes for the original quantity of gold. As a j!weudo-sovereign, or pseudo-gold, the sovereign continues to perform the function of a legal gold coin. Although friction with the external world causes other entities to lose their idealism, the coin becomes increasingly ideal as a result of practice, its golden or silver substance being reduced to a mere pseudo-existence. This second idealisation of metal currency, that is, the disparity between its nominal content and its real content, brought about by the process of circulation itself, has been taken advantage of both by governments and individual adventurers who debased the coinage in a variety of ways. The entire history of the monetary system from the early Middle Ages until well into the eighteenth century is a history of such bilateral and antagonistic counterfeiting, and Custodi's voluminous collection of works of Italian economists is largely concerned with this subject.

But the "ideal" existence of gold within the confines of its function comes into conflict with its real existence. In the course of circulation some gold coins have lost more of their metal content, others less, and one sovereign is now indeed worth more than another. Since they are however equally valid while they function as coin — the sovereign that weighs a quarter of an ounce is valued no more highly than the sovereign which only represents a quarter of an ounce — some unscrupulous owners perform surgical operations on sovereigns of standard weight to achieve the same result artificially which circulation has brought about spontaneously in the case of lighter coins. Sovereigns are clipped and debased and the surplus gold goes into the melting pot. When 4,672 V2 gold sovereigns placed on the scales weigh on the average only 800 ounces instead of 1,200, they will buy only 800 ounces of gold on the gold market: in other words, the market price of gold has risen above the mint price. All sovereigns, even those retaining the standard weight, would be worth less as coin than in the shape of bars. Sovereigns of standard weight would be reconverted into bars, a form in which a greater quantity of gold has a greater value than a smaller quantity of gold. When the decline of the metal content has affected a sufficient number of sovereigns to cause a permanent rise of the market price of gold over its mint price, the coins will retain the same names of account but these will henceforth stand for a smaller quantity of gold. In other words, the standard of money will be changed, and henceforth gold will be minted in accordance with this new standard. Thus, in consequence of its idealisation as a medium of circulation, gold in its turn will have changed the legally established relation in which it functioned as the standard of price. A similar revolution would be repeated after a certain period of time; gold both as the standard of price and the medium of circulation in this way being subject to continuous changes, so that a change in the one aspect would cause a change in the other and vice versa. This accounts for the phenomenon mentioned earlier, namely that, as the history of all modern nations shows, the same monetary titles continued to stand for a steadily diminishing metal content. The contradiction between gold as coin and gold as the standard of price becomes also the contradiction between gold as coin and gold as the universal equivalent, which circulates not only within the boundaries of a given territory but also on the world market. As a measure of value gold has always retained its full weight, because it has served only nominally as gold. When serving as an equivalent in the separate transaction C—M, gold reverts from movement immediately to a state of rest; but when it serves as a coin its natural substance comes into constant conflict with its function. The transformation of gold sovereigns into nominal gold cannot be entirely prevented, but legislation attempts to preclude the establishment of nominal gold as coin by withdrawing it from circulation when the coins in question have lost a certain percentage of their substance. According to English law, for instance, a sovereign which has lost more than 0.747 grain of weight is no longer legal tender. Between 1844 and 1848, 48 million gold sovereigns were weighed by the Bank of England, which possesses scales for weighing gold invented by Mr. Cotton. This machine is not only able to detect a difference between the weights of two sovereigns amounting to one-hundredth of a grain, but like a rational being it flings the light-weight coin onto a board from which it drops into another machine that cuts it into pieces with oriental cruelty.

Under these conditions, however, gold coins would not be able to circulate at all unless they were confined to a definite sphere of circulation where they wear out less quickly. In so far as a gold coin in circulation is worth a quarter of an ounce, whereas it weighs only a fifth of an ounce, it has indeed become a mere token or symbol for one-twentieth of an ounce of gold, and in this way the process of circulation converts all gold coins to some extent into mere tokens or symbols representing their substance. But a thing cannot be its own symbol. Painted grapes are no symbol of real grapes, but are imaginary grapes. Even less is it possible for a light-weight sovereign to be the symbol of a standard-weight sovereign, just as an emaciated horse cannot be the symbol of a fat horse. Since gold thus becomes a symbol of itself but cannot serve as such a symbol it assumes a symbolic existence — quite separate from its own existence — in the shape of silver or copper counters in those spheres of circulation where it wears out most rapidly, namely where purchases and sales of minute amounts go on continuously. A certain proportion of the total number of gold coins, although not always the same coins, perpetually circulate in these spheres. This proportion of gold coins is replaced by silver or copper tokens. Various commodities can thus serve as coin alongside gold, although only one specific commodity can function as the measure of value and therefore also as money within a particular country. These subsidiary means of circulation, for instance silver or copper tokens, represent definite fractions of gold coins within the circulation. The amount of silver or copper these tokens themselves contain is, therefore, not determined by the value of silver or copper in relation to that of gold, but is arbitrarily established by law. They may be issued only in amounts not exceeding those in which the small fractions of gold coin they represent would constantly circulate, either as small change for gold coin of higher denominations or to realise correspondingly low prices of commodities. The silver tokens and copper tokens will belong to distinct spheres of retail trade. It is self-evident that their velocity of circulation stands in inverse ratio to the price they realise in each individual purchase and sale, or to the value of the fraction of the gold coin they represent. The relatively insignificant total amount of subsidiary coins in circulation indicates the velocity with which they perpetually circulate, if one bears in mind the huge volume of retail trade daily transacted in a country like England. A recently published parliamentary report⁽²⁾ shows, for instance, that in 1857 the English Mint coined gold to the amount of £4,859,000 and silver having a nominal value of £373,000 and a metal value of £363,000. In the ten-year period ending December 31, 1857, the total amount of gold coined came to £55,239,000 and that of silver to only £2,434,000. The nominal value of copper coins issued in 1857 was only £6,720, while the value of the copper contained in them was £3,492; of this total £3,136 was issued as pennies, £2,464 as halfpennies and £1,120 as farthings. The total nominal value of the copper coin struck during the last ten years came.to £141,477, and their metal value to £73,503. Just as gold coin is prevented from perpetually functioning as coin by the statutory pyovision that on losing a certain quantity of metal it is demonetised, so conversely by laying down the price level which they can legally realise silver and copper counters are prevented from moving into the sphere of gold coin and from establishing themselves as money. Thus for example in England, copper is legal tender for sums up to 6d. and silver for sums up to 20s. The issue of silver and copper tokens in quantities exceeding the requirements of their spheres of circulation would not lead to a rise in commodity-prices but to the accumulation of these tokens in the hands of retail traders, who would in the end be forced to sell them as metal. In 1798, for instance, English copper coins to the amounts of £20, £30 and £50, spent by private people, had accumulated in the tills of shopkeepers and, since their attempts to put the coins again into circulation failed, they finally had to sell them as metal on the copper market.*

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

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

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

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

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

Sign of price.— Ed.

from the general circulation of commodities, this division being completed by the transformation of coin into a token of value. Money as a simple medium of circulation can after all acquire an independent existence only within the sphere of internal circulation.

Our exposition has shown that gold in the shape of coin, that is tokens of value divorced from gold substance itself, originates in the process of circulation itself and does not come about by arrangement or state intervention. Russia affords a striking example of a spontaneously evolved token of value. At a time when hides and furs served as money in that country, the contradiction between the perishable and unwieldy material and its function as a medium of circulation led to the custom of substituting small pieces of stamped leather for it; these pieces thus became money orders payable in hides and furs. Later they were called kopeks and became mere tokens representing fractions of the silver ruble and as such were used here and there until 1700, when Peter the Great ordered their replacement by small copper coins issued by the State.* In antiquity writers, who were able to observe only the phenomena of metallic currency, among them Plato** and Aristotle,*** already understood that gold coin

* Henry Storch, Cours d'économie politique etc. avec des notes par J. B. Say, Paris, 1823, tome IV, p. 79. Storch published his work in French in St. Petersburg, J. B. Say immediately brought out a reprint in Paris, supplemented by so-called notes, which in fact contain nothing but platitudes. Storch's reaction to the annexation of his work by the "prince de la science" was not at all polite (see his

Considérations sur la nature du revenu national, Paris, 1824).

** Plato, De Republica, 1. II. "The coin is a token of exchange" (Opera omnia etc., ed. G. Stallbaumius, London, 1850, p. 304). [Marx quotes in Greek.] Plato analyses only two aspects of money, i.e. money as a standard of value and a token of value; apart from the token of value circulating within the country he calls for another token of value serving in the commerce of Greece with other countries (cf. book 5 of his Laws).

is a symbol or token of value. Paper money with a legal rate of exchange arises early in countries such as China, which have not evolved a credit system.* Later advocates of paper money also refer expressly to the transformation of the metal coin into a token of value which is brought about by the circulation process itself. Such references occur in the works of Benjamin Franklin ** and Bishop Berkeley.***

How many reams of paper cut into fragments can circulate as money? In this form the question is absurd. Worthless tokens become tokens of value only when they represent gold within the process of circulation, and they represent it only to the amount of gold which would circulate as coin, an amount which depends on the value of gold if the exchange value of the commodities and

and easily applicable to the purposes of life, for example, iron, silver and the like." (Aristoteles, De Republica, 1. I, c. 9, I.e. [p. 14]. [The English translation is from Aristotle, Politico, by Benjamin Jowett, Oxford, 1966, 1257a.) Michel Chevalier, who has either not read or not understood Aristotle, quotes this passage to show that according to Aristotle the medium of circulation must be a substance which is itself valuable. Aristotle, however, states plainly that money regarded simply as medium of circulation is merely a conventional or legal entity, as even its name (v6p.uTu.a) indicates, and its use value as specie is in fact only due to its function and not to any intrinsic use value. "Others maintain that coined money is a mere sham, a thing not natural, but conventional only, because, if the users substitute another commodity for it, it is worthless, and because it is not useful as a means to any of the necessities of life." (Aristoteles, De Republica [p. 15]. [The English translation is from Aristotle, Politico, 1257b.])

* Sir John Mandeville, Voyages and Travels, London, 1705, p. 105: "This Emperor (of Cattay or China) may dispende ols muche as he wile withouten estymacion. For he despendenthe not, nor makethe no money, but of lether emprendeth, or of papyre. And when that money hathe ronne so longe that it begynethe to waste, then men beren it to the Emperoures Tresorye, and then they taken newe Money for the old. And that money gothe thorghe out all the contrée, and thorge out all his Provynces... They make no money nouther of Gold nor of Sylver", and Mandeville adds, "therefore he may despende ynew and outrageous-ly." [Marx quotes in English.] the velocity of their metamorphoses are given. The number of pieces of paper with a denomination of £5 which could be used in circulation would be one-fifth of the number of pieces of paper with a denomination of £1, and if all payments were to be transacted in shilling notes, then twenty times more shilling notes than pound notes would have to circulate. If gold coin were represented by notes of different denomination, e.g. £5 notes, £1 notes and 10s. notes, the number of the different types of tokens of value needed would not just be determined by the quantity of gold required in the sphere of circulation as a whole, but by the quantity needed in the sphere of circulation of each particular type of note. If £14 million were the level below which the circulation of a country never fell (this is the presupposition of English Banking legislation, not however with regard to coin but to credit money), then 14 million pieces of paper, each a token of value representing £1, could circulate. If the value of gold decreased or increased because the labour time required for its production had fallen or risen, then the number of pound notes in circulation would increase or decrease in inverse ration to the change in the value of gold, provided the exchange value of the same mass of commodities remained unchanged. Supposing gold were superseded by silver as the standard of value and the relative value of silver to gold were 1 : 15, then 210 million pound notes would have to circulate henceforth instead of 14 million, if from now on each piece of paper was to represent the same amount of silver as it had previously represented of gold. The number of pieces of paper is thus determined by the quantity of gold currency which they represent in circulation, and as they are tokens of value only in so far as they take the place of gold currency, their value is simply determined by their quantity. Whereas, therefore, the quantity of gold in circulation depends on the prices of commodities, the value of the paper in circulation, on the other hand, depends solely on its own quantity.

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

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

One finds a number of occasions in the history of the debasement of currency by English and French governments when the rise in prices was not proportionate to the debasement of the silver coins. The reason was simply that the increase in the volume of currency was not proportional to its debasement; in other words, if the exchange value of commodities was in future to be evaluated in terms of the lower standard of value and to be realised in coins corresponding to this lower standard, then inadequate number of coins with lower metal content had been issued. This is the solution of the difficulty which was not resolved by the controversy between Locke and Lowndes. The rate at which a token of value — whether it consists of paper or bogus gold and silver is quite irrelevant — can take the place of definite quantities of gold and silver calculated according to the mint price depends on the number of tokens in circulation and by no means on the material of which they are made. The difficulty in grasping this relation is due to the fact that the two functions of money — as a standard of value and a medium of circulation — are governed not only by conflicting laws, but by laws which appear to be at variance with the antithetical features of the two functions. [As regards its function⁽³⁾] as a standard of value, when money serves solely as money of account and gold merely as nominal gold, it is the physical material used which is the crucial factor. Exchange values expressed in terms of silver, or as silver prices, look of course quite different from exchange values expressed in terms of gold, or as gold prices. On the other hand, when it functions as a medium of circulation, when money is not just imaginary but must be present as a real thing side by side with other commodities, its material is irrelevant and its quantity becomes the crucial factor. Although whether it is a pound of gold, of silver or of copper is decisive for the standard measure, mere number makes the coin an adequate embodiment of any of these standard measures, quite irrespective of its own material. But it is at variance with common sense that in the case of purely imaginary money everything should depend on the physical substance, whereas in the case of the corporeal coin everything should depend on a numerical relation that is nominal.

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

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

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Endnotes

* See, e.g., W. Thompson, An Inquiry into the Distribution of Wealth etc., London, 1824; Bray, Labour's Wrongs and Labour's Remedy, Leeds, 1839. ** Alfred Darimon, De la réforme des banques, Paris, 1856, can be regarded as a compendium of this melodramatic monetary theory.

* "Money is of two kinds: ideal and real; and it is used for two different purposes: to valuate things and to buy them. For valuation, ideal money is just as

good as real money, and probably even better. The other use of money is to buy the very things for the pricing of which it serves.... Prices and contracts are estimated in ideal money and are realised in real money" (Galiani, I.e., p. 112 et seq.). [Marx quotes in Italian.]

* This does not, of course, prevent the market price of commodities from rising above or falling below their value. But this consideration lies outside the sphere of simple circulation and belongs to quite a different sphere to be examined later, in which context we shall discuss the relation of value and market price.

[71] The Credit mobilier (Société générale du Crédit mobilier)—a big French joint-stock bank founded by the Péreire brothers in 1852. It was notorious for its speculation. The Crédit mobilier took an active part in building railways and setting up industrial enterprises. Though closely linked with and enjoying the protection of Napoleon Ill's government, it went bankrupt in 1867. In 1856 and 1857, Marx wrote a series of articles about its speculative activities for the Chartist The People's Paper, in London, and the New-York Daily Tribune.—331

* "Money is only the medium and the agency, whereas commodities that benefit life are the aim and purpose." Boisguillebert, Le detail de la France, 1697, in Eugène Daire's Economistes financiers du XVIIIe siècle, Vol. I, Paris, 1843, p. 210. [Marx quotes in French.]

[2] Marx dealt with the circuit and turnover of capital in the preceding part of Section Two of the "Chapter on Capital" (see present edition, Vol. 28, pp. 439-72), but then he interrupted his exposition of these problems and wrote a section about bourgeois theories of surplus value and profit (see Vol. 28, pp. 473-537). He did, however, return to the topic.— 7

[73] Marx is referring to Say's treatise Lettres à M. Malthus, sur différens sujets d'économie politique, notamment sur les causes de la stagnation générale du commerce, Paris-London, 1820. It contains the proposition (p. 46) that "products are bought only for products"; elsewhere the author's idea, that products produced must always find demand, is being repeated in a variety of ways.—333

** The way in which economists describe the different aspects of the commodity may be seen from the following examples: "With money in possession, we have but one exchange to make in order to secure the object of desire, while with other surplus products we have two, the first of which (securing the money) is infinitely more difficult than the second" (G. Opdyke, A Treatise on Political Economy, New York, 1851, pp. 287-88). "The superior saleableness of money is the exact effect or natural consequence of the less saleableness of commodities" (Thomas Corbet, An Inquiry into the Causes and Modes of the Wealth of Individuals, etc., London 1841, p. 117). "Money has the quality of being always exchangeable for what it measures" (Bosanquet, Metallic, Paper, and Credit Currency, etc., London, 1842, p. 100). "Money can always buy other commodities, wheareas other commodities can not always buy money" (Thomas Tooke, An Inquiry into the Currency Principle, Second

* A commodity may be several times bought and sold again. It circulates, in this case, not as a mere commodity, but fulfils a function which does not yet exist from the standpoint of simple circulation and of the simple antithesis of commodity and money.

* The amount of money is a matter of indifference "provided there is enough of it to maintain the prices determined by the commodities". Boisguillebert, Le détail de la France, p. 209. [Marx quotes in French.] "If the circulation of commodities of four hundred millions required a currency of forty millions, and ... this proportion of one-tenth was the due level, ... then, if the value of commodities to be circulated increased to four hundred and fifty millions, from natural causes ... the currency, in order to continue at its level, must be increased to forty-five millions." William Blake, Observations on the Effects Produced by the Expenditure of Government, etc., London, 1823, p. 80.

* "It is the velocity of the circulation of money and not the quantity of the metals, that causes the amount of money to be large or small" (Galiani, I.e., p. 99). [Marx quotes in Italian.]

* An example of a remarkable fall of the metallic currency below its average level occurred in England in 1858 as the following passage from the London Economist shows: "From the nature of the case" (i.e. owing to the fragmentation of simple circulation) "very exact data cannot be procured as to the amount of cash that is fluctuating in the market, and in the hands of the not banking classes. But, perhaps, the activity or the inactivity of the mints of the great commercial nations is one of the most likely indications in the variations of that amount. Much will be manufactured when it is wanted; and little when litde is wanted.... At the English mint the coinage was in 1855: £9,245,000; 1856: £6,476,000; 1857: £5,293,858. During 1858 the mint had scarcely anything to do." Economist, July 10, 1858. [Marx quotes in English.] But at the same time about eighteen million pounds sterling were lying in the bank vaults.

a It does not smell (Vespasian).— Ed.

* Dodd, The Curiosities of Industry etc., London, 1854 [p. 16]. ** The Currency Question Reviewed etc. By a Banker, Edinburgh, 1845, p. 69 etc. "If a slighdy worn ecu were to be considered to be worth somewhat less than a quite new one, circulation would be continually checked, and every payment would provide an occasion for dispute" (G. Gamier, Histoire de la monnaie, tome I, p. 24). [Marx quotes in French.] *** W. Jacob, An Historical Inquiry into the Production and Consumption of the Precious Metals, London, 1831, Vol. II, Chapter XXVI [p. 322].

(1) The mere shadow of a mighty name (Lucanus, "De bello civili", Pharsalia, I, 135).— Ed.

13-785

(2) The Economat, No. 763, April 10, 1858, p. 401.— Ed. 13*

* David Buchanan, Observations on the Subjects Treated of in Doctor Smith's Inquiry on the Wealth of Nations etc., Edinburgh, 1814, p. 31.

*** Aristoteles, Ethica Nicomachea, 1. V, c. 8 [p. 98]. "But money has become by convention a sort of representative of demand; and this is why it has the name 'money' [V6(JU.O-(JWX]—because it exists not by nature but by 'law' [V6U.(J>], and it is in our power to change it and make it useless." [The English translation is from Aristotle, Ethica Nicomachea, Oxford, 1925, 1133a.] [Here and below Marx quotes from Aristotle in Greek.] Aristotle's conception of money was considerably more complex and profound than that of Plato. In the following passage he describes very well how as a result of barter between different communities the necessity arises of turning a specific commodity, that is a substance which has itself value, into money. "When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use ... and hence men agreed to employ in their dealings with each other something which was intrinsically useful

** Benjamin Franklin, Remarks and Facts Relative to the American Paper Money, 1764, p. 348, I.e.: "At this very time, even the silver money in England is obliged to the legal tender for part of its value; that part which is the difference between its real weight and its denomination. Great part of the shillings and sixpences now current are by wearing become 5, 10, 20, and some of the sixpences even 50%, too light. For this difference between the real and the nominal you have no intrinsic value; you have not so much as paper, you have nothing. It is the legal tender, with the knowledge that it can easily be repassed for the same value, that makes three pennyworth of silver pass for a sixpence." [Marx quotes in English.] *** Berkeley, I.e. [p. 3]. "Whether the denominations being retained, although the bullion were gone ... might not nevertheless ... a circulation of commerce (be) maintained?"

(3) These words are missing in the original. Marx added them in his own copy.— Ed.