A Contribution to the Critique of Political Economy

by Karl Marx

The change of form on the part of commodities appears as a mere change of place on the part of money and the continuity of the circulation movement is all on the side of money, since the commodity always makes but one step in the direction opposite to money, while the latter makes in each case the second step for the commodity; the entire movement seems, therefore, to proceed from money, although in the case of a sale the commodity draws money out of its place, i. e., it circulates money as much as it is circulated by the latter in the case of a purchase. Furthermore, owing to the fact that money always confronts commodities in its capacity of a means of purchase, and in that capacity moves commodities only by realizing their price, the entire movement of circulation appears as a change of place between money and commodities, the former realizing the prices of the latter either by separate acts of circulation taking place simultaneously and side by side, or by successive transactions when the same coin realizes the prices of different commodities one after another. If we consider, e. g., the series C—M—C’—M—C”—M—C’”, etc., without regard to the qualitative aspects which become indistinguishable in the process of circulation, we witness the same monotonous operation. After realizing the price of C, M successively realizes those of C’, C”, etc., and commodities C’, C”, C’”, etc., constantly take the place which money has left. Money thus appears to keep commodities in circulation by realizing their prices. In discharging this function of realization of prices, money is itself constantly circulating, now changing its place, now describing a curve of circulation, now completing a small circuit where the starting and returning points coincide. As a medium of circulation, money is subject to a circulation of its own. The change of form of the circulating commodities appears, therefore, as a movement of money which furthers the exchange of commodities, motionless in themselves. The movement of the circulation process of commodities thus takes on the form of the movement of gold as a medium of circulation, i. e. of the circulation of money.

Since owners of commodities give the products of their individual labor the appearance of products of social labor by turning one object, viz. gold, into the direct expression of universal labor-time and therefore into money, their own movement by which all of them effect the interchange of the material products of their labor now appears to them as the direct movement of that one object, as the circulation of gold. The social movement itself appears to the owners of commodities partly as an outward necessity and partly as a mere formal intermediary process which enables every individual who puts any use-value into circulation to get other use-values out of it of an equal value. The use-value of commodities comes into play with their disappearance from the sphere or circulation, while the use-value of money as a medium of circulation is in its very circulation. The movement of a commodity in the sphere of circulation is of a transitory kind, while ceaseless motion in that sphere constitutes the function of money. Through this special function which it performs within the sphere of circulation money acquires a new capacity, which we have to consider now more closely.

In the first place, we see that the circulation of money forms an endlessly split up movement, since it reflects the splitting up of the process of circulation into an infinitely large number of purchases and sales and the independent separation of the mutually supplementary phases of metamorphoses of commodities. In the small cycles described by money, where the starting and returning points coincide, we do find a return movement, i. e., an actual circular movement, but the fact that there are as many starting points as there are commodities and that the number of these cycles is infinitely large puts them beyond all control, measurement, or computation. The time between the start and the return of a commodity is just as indefinite. Moreover, it is immaterial whether or not such a circuit has been actually described in a given case. No economic fact is more generally known than that one can spend money with one hand without getting it back with the other. Money proceeds from an endless number of points and returns to as many different points, but the coincidence of the starting and returning points is a matter of chance, because in the movement C—M—C the turning of the buyer again into a seller is not a necessary condition. Still less does the circulation of money resemble a movement radiating from a common centre to all points of the periphery and back from the peripheral points to the centre. The so-called cycle described by money, as it is pictured, amounts simply to this, that at all points we observe its appearance and disappearance, its never ceasing transition from place to place. In a higher, more involved form of money circulation, e. g. bank-note circulation, we shall find that the conditions of emission of money include those for its return. But in the simple money circulation it is a matter of chance for the same buyer to become again a seller. Where we really see constant cycle motions taking place, they are only reflections of deeper forces in the sphere of production, e. g., the manufacturer draws money from his banker on Friday, pays it out to his working-men on Saturday, the men immediately pay out the greater part of it to the storekeepers, etc., and the latter turn it in on Monday back to the banker.

We have seen that money realizes simultaneously a certain number of prices in the variegated purchases and sales which take place side by side at the same time. On the other hand, in so far as its movement represents the movement of the combined metamorphoses of commodities and the interlacing of these metamorphoses, the same coin realizes the prices of different commodities and thus makes a larger or smaller number of moves. If we take the circulation of a country for a given length of time, say a day, the quantity of gold required for the realization of prices and, consequently, for the circulation of commodities, will be determined by two conditions: first, the sum total of the prices; second, the average number of moves made by one coin. This number of moves or the rapidity of circulation of money is in its turn determined by or expresses the average rapidity with which commodities go through the different phases of their metamorphoses, the rapidity with which these metamorphoses succeed one another, and with which those commodities that have gone through their metamorphoses are replaced by new commodities in the process of circulation. We have seen that in the process of the determination of prices the exchange value of all commodities is ideally converted into a certain quantity of gold of the same value and that the same amount of value is present in a double form in either of the isolated acts of circulation M—C and C—M, first embodied in the commodity, and second, in gold; yet gold enjoys the capacity of a medium of circulation not by virtue of its isolated relation to separate commodities in a state of rest, but owing to its active presence in the dynamic world of commodities, viz., its function of expressing the change of form of commodities by its change of place and expressing the rapidity of their change of form by the rapidity of its change of place. The extent to which it is present in the sphere of circulation, i. e., the actual quantity of gold in circulation, is thus determined by the extent to which it is discharging its function throughout the entire process.

The circulation of money implies the circulation of commodities; money circulates commodities which have prices, i. e., which are beforehand ideally equated to certain quantities of gold. In the determination of the prices of commodities, the value of the quantity of gold which serves as a unit of measure, or the value of gold, is assumed to be given. Under that assumption the quantity of gold necessary for circulation is determined first of all by the sum total of the prices of commodities that are to be realized. But this sum is itself determined: 1. By the level of prices, the relatively high or low exchange value of commodities estimated in gold; and 2. By the mass of commodities circulating at fixed prices, i. e. by the number of purchases and sales at given prices.[73] If one quarter of wheat is worth 60 shillings, then twice as much gold is required to circulate it or to realize its price as would be the case if it were worth only 30 shillings. To circulate 500 quarters of wheat at 60 shillings, twice as much gold is necessary as for the circulation of 250 quarters at the same price. Finally, to circulate 10 quarters at 100 shillings only half as much money is necessary as when circulating 40 quarters at 50 shillings. It follows that the quantity of gold required for circulation may fall in spite of a rise in price, if the mass of commodities in circulation declines in a greater ratio than the rise of the combined sum of prices; and, inversely, the quantity of the circulating medium may rise in spite of a decline of the mass of commodities in circulation, if the sum total of prices rises in a greater ratio. Thorough and minute English investigations have demonstrated e. g. that in the early stages of a dearth of grain in England the quantity of money in circulation increases, because the total price of the diminished supply of grain is greater than the former total price of a larger supply of grain, while the circulation of the other commodities continues undisturbed for some time at their old prices. At a later stage of the dearth of grain, there is a decline in the quantity of circulating money, either because less goods are sold at old prices besides grain, or the same quantity of those goods is sold at lower prices.

But, as we have seen, the quantity of money in circulation is determined not only by the sum total of prices of commodities that are to be realized, but also by the rapidity with which money circulates or with which it completes this work of realization. If the same sovereign makes ten purchases a day, each of a commodity having a price of one sovereign, and thus changes hands ten times, it does as much work as would be accomplished by ten sovereigns each performing but a single act of circulation a day.[74] Consequently, rapidity of gold circulation can make up for its quantity, or the presence of gold in the sphere of circulation is determined not only by its presence as an equivalent of a commodity side by side with it, but also by its participation in the movement of metamorphoses of commodities. The rapidity of the circulation of money, however, can serve as a substitute for its quantity only to a limited extent, since at any given moment an endless number of isolated purchases and sales takes places in different localities.

If the total price of the commodities in circulation rises, but in a smaller ratio than the increase in the rapidity of circulation of money, the volume of the circulating medium will diminish. If on the contrary the rapidity of circulation decreases in a greater ratio than the total price of the commodities in circulation, the volume of currency will increase. An increasing volume of currency combined with a general fall of prices or a diminishing volume of currency in connection with a general rise of prices is one of the best known phenomena in the history of prices. But the consideration of the causes which bring about a simultaneous rise in the level of prices and a still greater rise in the rate of velocity of circulation of money, or the opposite phenomenon, falls outside of the sphere of simple circulation. By way of illustration, it may be mentioned that in periods of prevailing credit, the rapidity of circulation of money grows faster than the prices of commodities, while in times of declining credit the prices of commodities fall slower than the rapidity of circulation. The shallow and artificial character of the simple circulation of money is manifested in the fact that all the elements which have a determining influence on the volume of currency, such as the volume of commodities in circulation, prices, the rise or fall of prices, the number of simultaneous purchases and sales, the rapidity of the circulation of money,—depend on the metamorphic process which takes place in the world of commodities, and that again depends on the general character of the methods of production, the size of population, the relation between city and country, the development of the means of transportation, the greater or less division of labor, credit, etc.; in short, on circumstances all of which lie outside of the sphere of simple circulation of money and are only reflected in it.

The rapidity of circulation being given, the volume of currency is simply determined by the prices of commodities. Hence, prices are not high or low, because there is more or less money in circulation, but on the contrary, there is more or less money in circulation, because prices are high or low. This is one of the most important laws, whose demonstration in detail by means of the history of prices constitutes perhaps the only merit of the post-Ricardian English Political Economy. If experience shows, that the level of metallic circulation or the mass of gold and silver in circulation in a given country is subject to temporary ebbs and tides and very violent ones at times,[75] but on the whole remains stationary for long periods, the deviations forming but small oscillations about the average level, this is explained by the antagonistic nature of the circumstances which determine the quantity of money in circulation. Their simultaneous modifications neutralize their effects and leave everything where it was before.

The law, that with a given rapidity of circulation of money and a given total sum of prices of commodities the quantity of the circulating medium is determined, may also be expressed as follows. If the exchange values of commodities and the average rapidity of their metamorphoses are given, the quantity of gold in circulation depends on its own value. If, therefore, the value of gold, i. e. the labor-time necessary for its production, should rise or fall, the prices of commodities will rise or fall in inverse ratio, and corresponding to that rise or fall of prices, the rapidity of circulation remaining the same, a larger or smaller quantity of gold would be required to keep the same volume of commodities in circulation. The same change would occur, if the old standard of value were superseded by a more or less valuable metal. Thus, Holland required from fourteen to fifteen times as much silver as it had previously required gold, in order to circulate the same volume of commodities, when out of tender regard for the government creditors and out of fear of the effects of the discoveries in California and Australia it substituted silver for gold money.

From the fact that the quantity of gold in circulation depends on the variable sum total of prices of commodities and the varying rapidity of circulation, it follows that the volume of the circulating medium must be capable of contraction and expansion; in short, that according to the requirements of circulation, gold must now enter, now leave the sphere of circulation in its capacity of a medium of circulation. How the circulation process itself realizes these conditions, we shall see later on.