The standard of measure is thus found ready in the general measures of weight of metals and, therefore, where-ever metallic circulation is in vogue, these measures serve originally as standards of price. Since commodities no more relate to each other as exchange values to be measured by labor-time, but as magnitudes of the same denomination measured in gold, the latter is transformed from a measure of value into a standard of price. The comparison of prices with each other as different quantities of gold is thus crystallized in figures which correspond to an assumed quantity of gold and represent it as a standard of aliquot parts. Gold as measure of value and as standard of price has entirely different forms of manifestation and the confusing of the two has resulted in the wildest of theories. Gold is a measure of value as incorporated labor-time; it is the standard of price as certain weight of metal. Gold becomes the measure of value by virtue of its relation as exchange value to commodities as exchange values; as standard of price, a definite quantity of gold serves as a unit for other quantities of gold. Gold is the measure of value, because its value is variable; it is the standard of price, because it is fixed as a constant unit of weight. In this case, as in all cases of measuring quantities of the same denomination, the establishment of a definite and unvarying unit of measure is all-important. The necessity of settling upon a quantity of gold as a unit of measure and upon its aliquot parts as subdivisions of that unit, has given rise to the notion that a certain quantity of gold which has naturally a variable value had been assigned a fixed ratio of value to the exchange values of all commodities; the fact is overlooked that exchange values of commodities are transformed into prices, i. e. into quantities of gold, before gold develops as a standard of price. No matter how the value of gold may vary, the ratios between the values of different quantities of gold remain constant. Let the fall in the value of gold amount to 1000 per cent., still twelve ounces of gold will have a twelve times greater value than one ounce of gold; and in prices the only thing considered is the ratio between different quantities of gold. Since, on the other hand, no rise or fall in the value of an ounce of gold can alter its weight, no alteration can take place in the weight of its aliquot parts. Thus gold always renders the same service as an invariable standard of price, no matter how much its value may vary.[41]
An historical process which, as we shall explain later, was determined by the nature of metallic circulation, led to the result that the same denomination of weight was retained for a constantly changing and decreasing weight of precious metals in their function of a standard of price. Thus the English pound sterling denotes less than one-third of its original weight; the pound Scot, before the Union, only 1-36; the French livre, 1-74; the Spanish Maravedi, less than 1-1000; the Portuguese Rei, a still smaller fraction. Such was the historical origin of the discrepancy between the current money names of various weights of metals and their weight denominations.[42] Since the determination of the unit of measure, of its aliquot parts, and of their names is purely conventional, and since they should possess within the sphere of circulation the character of universality and compulsion, they had to be settled by law. The purely formal operation thus devolved upon the government.[43] The metal which was to serve as the money material, was found already adopted in the community. In different countries the legal standard of price is naturally different. In England e. g. the ounce as a weight of metal is divided into pennyweights, grains and carats Troy, but the ounce of gold as the unit of money is divided into 3 7-8 sovereigns, the sovereign into 20 shillings, the shilling into 12 pence, so that 100 pounds of 22 carat gold (1200 ounces) = 4672 sovereigns and 10 shillings. In the world market, however, where national boundaries disappear, these national characteristics of the measure of money also disappear and give place to the general measures of weight of metals.
The price of a commodity or the quantity of gold into which it is ideally transformed, is, therefore, now expressed in the names of coins of the gold standard. Thus, instead of saying: a quarter of wheat is worth an ounce of gold, it is said in England to be worth 3£ 17s. 10-1/2d. All prices are thus expressed in the same denominations. The peculiar form which commodities lend to their exchange values is transformed into a money-denomination by which commodities tell each other how much they are worth. Money in its turn becomes money of account.[44]
We transform commodities into money of account, in our mind, on paper, in conversation, whenever it is a question of expressing any kind of wealth in terms of exchange value.[45] For that transformation we need the gold substance, but only in imagination. In order to estimate the value of a thousand bales of cotton in a certain number of ounces of gold and then to express this number of ounces in the denominations of the ounce, £. s. d., not a single atom of gold is required. Thus, not a single ounce of gold was in circulation in Scotland before Robert Peel’s Bank Act of 1845, although the gold ounce, expressed in its English standard of account, 3£ 17s. 10-1/2d., served as the legal standard of price. In a similar manner silver serves as standard of price in the trade between Siberia and China, although that trade virtually amounts to barter. It is, therefore, immaterial to money, as money of account, whether or not its entire unit of measure or the fractions thereof are really coined. In England, at the time of William the Conqueror, 1£, then a pound of pure silver, and the shilling, 1-20 of a pound, existed only as money of account, while the penny, 1-240 of a pound of silver, was the largest silver coin in existence. On the other hand, there are no shillings and pence in England to-day, although they are legal denominations for certain parts of an ounce of gold. Money as money of account may exist exclusively in idea, while the money in actual existence may be coined according to an entirely different standard. Thus the money in circulation in many English colonies of North America consisted until late in the eighteenth century of Spanish and Portuguese coins, although the money of account was throughout the same as in England.[46]
Owing to the fact that money, when serving as the standard of price, appears under the same reckoning names as do the prices of commodities, and that, therefore, the sum of 3£ 17s. l0-1/2d. may signify, on the one hand, an ounce weight of gold, and on the other, the value of a ton of iron, this reckoning name of money has been called its mint-price. Hence, there sprang up the extraordinary notion that the value of gold is estimated in its own material, and that, in contradistinction to all other commodities, its price is fixed by the State. It was erroneously thought that the giving of reckoning names to definite weights of gold is the same thing as fixing the value of those weights.[47] In so far as gold serves as one of the elements in determining price, i. e., where it performs the function of money of account, it not only has no fixed price, but has no price whatever. In order to have a price, i. e., in order to express itself in a specific commodity as a universal equivalent that other commodity would have to play the same exclusive role in the process of circulation as gold. But two commodities excluding all other commodities mutually exclude each other. Therefore, wherever gold and silver have by law been made to perform side by side the function of money or of a measure of value it has always been tried, but in vain, to treat them as one and the same material. To assume that there is an invariable ratio between the quantities of gold and silver in which a given quantity of labor-time is incorporated, is to assume, in fact, that gold and silver are of one and the same material, and that a given mass of the less valuable metal, silver, is a constant fraction of a given mass of gold. From the reign of Edward III to the time of George II, the history of money in England consists of one long series of perturbations caused by the clashing of the legally fixed ratio between the values of gold and silver, with the fluctuations in their real values. At one time gold was too high; at another, silver. The metal that for the time being was estimated below its value was withdrawn from circulation, melted and exported. The ratio between the two metals was then again altered by law, but the new nominal ratio soon came into conflict again with the real one. In our own times, the slight and transient fall in the value of gold compared with silver, which was a consequence of the Indo-Chinese demand for silver, produced on a far more extended scale in France the same phenomena, export of silver, and its expulsion from circulation by gold. During the years 1855, 1856 and 1857, the excess in France of gold imports over gold exports amounted to £41,580,000, while the excess of silver exports over silver imports was £14,704,000. In fact, in those countries in which both metals are legally measures of value, and therefore both legal tender, so that every one has the option of paying in either metal, the metal that rises in value is at a premium, and, like every other commodity, measures its price in the over-estimated metal which alone serves in reality as the standard of value. The result of all experience and history with regard to this question is simply that, where two commodities perform by law the functions of a measure of value, in practice one alone maintains that position.[48]
B. THEORIES OF THE UNIT OF MEASURE OF MONEY.
The circumstance that commodities are converted into gold only in ideas as prices and that gold is therefore turned into money only in idea, gave rise to the theory of the ideal unit of measure of money. Since, in the determination of prices, gold and silver serve only ideally as money of account, it was asserted that the names pound, shilling, pence, thaler, franc, etc., instead of denoting certain weights of gold and silver or labor incorporated in some way, stood rather for ideal atoms of value. Thus, if, e. g., the value of an ounce of silver should rise it would contain more such atoms and would therefore have to be estimated and coined in a greater number of shillings. This doctrine, revived again during the last commercial crisis in England and even voiced in Parliament in two separate reports attached to the report of the select Committee on the Bank Acts sitting in July, 1858, dates from the end of the seventeenth century.
At the time of the accession of William III., the English mint-price of an ounce of silver was 5s. 2d., or 1-62 of an ounce of silver was equal to a penny; 12 of these pence were called a shilling. According to that standard, a piece of silver weighing, say, 6 ounces, would be coined into thirty-one coins, each called a shilling. But the market price of an ounce of silver rose above its mint price, from 5s. 2d. to 6s. 3d., or, in order to buy an ounce of silver bullion 6s. 3d. had to be paid. How could the market price of an ounce of silver rise above its mint price, when the mint price is merely a reckoning name for aliquot parts of an ounce of silver? The riddle was easily solved. Out of £5,600,000 of silver money which was in circulation at that time, four millions were worn out, clipped and debased. A trial disclosed that £57,000 of silver which were supposed to weigh 220,000 ounces, weighed only 141,000 ounces. The mint went on coining according to the same standard, but light-weighted shillings in actual circulation represented smaller parts of an ounce than their name implied. Hence, a greater quantity of these light-weighted shillings had to be paid in the market for an ounce of silver bullion. When a general recoinage was decided upon in consequence of the derangement that had been produced, LOWNDES, the Secretary of the Treasury, declared that the value of an ounce of silver had risen and therefore it must henceforth be coined into 6s. 3d. instead of into 5s. 2d. as heretofore. His argument practically amounted to the assertion that the rise in the value of the ounce caused a fall in the value of its aliquot parts. His false theory, however, served merely as an embellishment for a just, practical purpose. The government debts were contracted in light shillings, were they to be paid in heavy ones? Instead of saying pay back four ounces of silver, when you had received nominally five ounces but virtually only four, he said pay back nominally five ounces but reduce the metallic contents to four ounces and call a shilling what you had called four-fifths of a shilling heretofore. Thus Lowndes practically adhered to the metallic weight while theoretically he clung to the reckoning name. His adversaries who clung only to the name and therefore declared the 25 to 50 per cent. lighter shilling to be identical with the full-weight shilling maintained on the contrary that they adhered to the metallic weight.
JOHN LOCKE, who was an advocate of the new bourgeoisie in all forms, the manufacturers against the working classes and paupers, the commercial class against the old fashioned usurers, the financial aristocracy against the state debtors, and who went so far as to prove in his own work that the bourgeois reason is the normal human reason, also took up the challenge against Lowndes. John Locke carried the day and money borrowed at ten or fourteen shillings to a guinea was repaid in guineas of twenty shillings.[49] SIR JAMES STEUART sums up the entire transaction as follows: “ ... the state gained considerably upon the score of taxes, as well as the creditors upon their capitals and interest; and the nation, which was the principal loser, was pleased; because their standard (The standard of their own value) was not debased.”[50] Steuart thought that the nation would prove more alert with the further development of commerce. He was mistaken. About 120 years later the same quid pro quo was repeated.