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As the universal thirst for gold prompted nations and princes in the sixteenth and seventeenth centuries, the period of infancy of modern bourgeois society, to cruPg 216sades beyond the sea in search of the golden grail,116 the first interpreters of the modern world, the founders of the monetary system, of which the mercantile system is but a variation, proclaimed gold and silver, i. e. money, as the only thing that constitutes wealth. They were quite right when, from the point of view of the simple circulation of commodities, they declared that the mission of bourgeois society was to make money, i. e. to build up everlasting treasures which neither moth nor rust could eat. It is no argument with the monetary system to say that a ton of iron whose price is 3 constitutes a value of the same magnitude as 3 worth of gold. The point here is not the magnitude of the exchange value, but as to what constitutes its adequate form. If the monetary and mercantile systems single out international trade and the particular branches of national industry directly connected with that trade as the only true sources of wealth or money, it must be borne in mind, that in that period the greater part of national production was still carried on under forms of feudalism and was the source from which producers drew directly their means of subsistence. Products, as a rule, were not turned into commodities nor, therefore, into money; they did not enter into the general social interchange of matter; did not, therefore, appear as embodiments of universal abstract labor; and did not, Pg 217in fact, constitute bourgeois wealth. Money as the end and object of circulation is exchange value or abstract wealth, but it is no material element of wealth and does not form the directing goal and impelling motive of production. True to the conditions as they prevailed in that primitive stage of bourgeois production, those unrecognized prophets held fast to the pure, tangible, and resplendent form of exchange value, to its form of a universal commodity as against all special commodities. The proper bourgeois economic sphere of that period was the sphere of the circulation of commodities. Hence, they judged the entire complex process of bourgeois production from the point of view of that elementary sphere and confounded money with capital. The unceasing war of modern economists against the monetary and mercantile system is mostly due to the fact that this system blabs out in brutally naive fashion, the secret of bourgeois production, viz. its subjection to the domination of exchange value. Ricardo, though wrong in the application he makes of it, remarks somewhere that even in times of famine, grain is imported not because the nation is starving, but because the grain dealer is making money. In its criticism of the monetary and mercantile system, political economy, by attacking that system as a mere illusion and as a false theory, fails to recognize in it the barbaric form of its own fundamental principles. Furthermore, this system has not only an historic justification, but within certain spheres of modern economy retains until now the full rights of citizenship. At all stages of the bourgeois system of production in which wealth assumes the elePg 218mentary form of a commodity, exchange value assumes the elementary form of money and in all phases of the process of production wealth reassumes for a moment the universal elementary commodity form. Even at the most advanced stage of bourgeois economy, the specific functions of gold and silver to serve as money, in contradistinction to their function of mediums of circulation—a function which distinguishes them from all other commodities—is not done away with, but only limited, hence the monetary and mercantile system retains its right of citizenship. The Catholic fact that gold and silver are contrasted with other profane commodities as the direct incarnation of social labor, that is as the expression of abstract wealth, naturally offends the Protestant point d'honneur of bourgeois economy, and out of fear of the prejudices of the monetary system it had lost for a long time its grasp of the phenomena of money circulation, as will be shown presently.

It was quite natural that, contrary to the monetary and mercantile system which knew money only in its form of a crystallized product of circulation, classical political economy should have conceived money first of all in its fluent form of exchange value arising and disappearing within the process of the metamorphosis of commodities. And since the circulation of commodities is regarded exclusively in the form of C—M—C and the latter in its turn, exclusively in its aspect of a dynamic unity of sale and purchase, money comes to be regarded in its capacity of a medium of circulation as opposed to its capacity of money. And when that medium of circulation is isolated in its function of coin, it turns, asPg 219 we have seen, into a token of value. But since classical political economy had to deal with metallic circulation as the prevailing form of circulation, it defined metallic money as coin, and metallic coin as a mere token of value. In accordance with the law governing the circulation of tokens of value, the proposition was advanced that the prices of commodities depend on the quantity of money in circulation instead of the opposite principle that the quantity of money in circulation depends on the prices of commodities. We find this view more or less clearly expressed by the Italian economists of the seventeenth century; LOCKE now asserts, now denies that principle; it is clearly elaborated in the "Spectator" (of October 19, 1711) by MONTESQUIEU AND HUME. Since Hume was by far the most important representative of this theory in the eighteenth century, we shall commence our review with him.

Under certain assumptions, an increase or decrease in the quantity either of the metallic money in circulation, or of the tokens of value in circulation seems to affect uniformly the prices of commodities. With each fall or rise of the value of gold or silver in which the exchange values of commodities are estimated as prices, there is a rise or fall of prices, because of the change in their measure of value; as a result of the rise or fall of prices, a greater or smaller quantity of gold and silver is circulating as coin. But the apparent phenomenon is the fall in prices—the exchange value of commodities remaining the same—accompanied by an increased or diminished quantity of the medium of circulation. On the other hand, if the quantity of tokens of value risesPg 220 above or falls below its required level, it is forcibly reduced to the latter by a fall or rise of prices. In either case the same effect seems to be brought about by the same cause, and Hume holds fast to this semblance.

Every scientific inquiry into the relation between the volume of the circulating medium and the movement of prices must assume the value of the money material as given. Hume, on the contrary, considers exclusively periods of revolution in the value of the precious metals, i. e. revolutions in the measure of value. The rise of prices which occurred simultaneously with the increase of metallic money after the discovery of the American mines forms the historical background of his theory, while his polemic against the monetary and mercantile system furnishes its practical motive. The importation of precious metals can naturally increase while their cost of production remains the same. On the other hand, a decrease in their value, i. e. in the labor-time required for their production will reveal itself first of all in their increased imports. Hence, said the later followers of Hume, a decrease in the value of the precious metals, reveals itself in an increased volume of the circulating medium, and the increased volume of the latter is shown in the rise of prices. As a matter of fact, however, the rise in price affects only exported commodities, which are exchanged for gold and silver as commodities and not as mediums of circulation. Thus, the prices of these commodities, which are now estimated in gold and silver of lower value, rise as compared with the prices of all other commodities whose exchange value continuesPg 221 to be estimated in gold or silver according to the standard of their old cost of production. This two-fold appraisement of the exchange values of commodities in the same country can naturally be only temporary, and the gold and silver prices must become equalized in the proportions determined by the exchange values themselves, so that finally the exchange values of all commodities come to be estimated according to the new value of the money material. The development of this process, as well as the ways and means in which the exchange value of commodities asserts itself within the limits of the fluctuations of market prices, do not fall within the scope of this work. But that this equalization takes place but gradually in the early periods of development of bourgeois production and extends over long periods of time, never keeping pace with the increase of cash in circulation, has been strikingly demonstrated by new critical investigations of the movement of prices of commodities in the sixteenth century.117 The favorite references of Hume's followers to the rise of prices in ancient Rome in consequence of the conquests of Macedonia, Egypt and Asia Minor, are quite irrelevant. The characteristic method of antiquity of suddenly transferring hoarded treasures from one country to another, which was accomplished by violence and thus brought about a temporary reduction of the cost of Pg 222production of precious metals in a certain country by the simple process of plunder, affects just as little the intrinsic laws of money circulation, as the gratuitous distribution of Egyptian and Sicilian grain in Rome affected the universal law governing the price of grain. Hume, as well as all other writers of the eighteenth century, was not in possession of the material necessary for the detailed observation of the circulation of money. This material, which first becomes available with the full development of banking, includes in the first place a critical history of prices of commodities, and in the second, official and current statistics relating to the expansion and contraction of the circulating medium, the imports and exports of the precious metals, etc. Hume's theory of circulation may be summed up in the following propositions: 1. The prices of commodities in a country are determined by the quantity of money existing there (real or symbolic money); 2. The money current in a country represents all the commodities to be found there. In proportion "as there is more or less of this representation," i. e. of money, "there goes a greater or less quantity of the thing represented to the same quantity of it"; 3. If commodities increase in quantity, their price falls or the value of money rises. If money increases in quantity, then, on the contrary, the price of commodities rises and the value of money declines.118