The Socialist Forum: The Price of Gold. (1931)

Letter to the Editors from the May 1931 issue of the Socialist Standard

A Canadian reader asks if the price of gold fluctuates.

When the value of commodities is expressed in the form of money, that is their price. Money itself, therefore, has no price, since it would be meaningless to express the value of one sovereign’s worth of gold as being equal to one sovereign. When gold is the money commodity, the price of gold is a fixed relationship between gold as bullion and the unit of currency. For example, if the pound sterling were defined by law as a quarter of an ounce of pure gold, then an ounce would always be worth £4 (putting aside questions of the cost of coining, melting, transporting, and insuring, etc.). Actually, the pound sterling is fixed by law at a quantity and quality of gold which makes an ounce (troy weight) of gold of standard fineness worth £3 17s. 10½d. ; and makes pure gold worth. £4 4s. 11½d. an ounce. Given that the coin is convertible into metal and vice versa, the fixed price except to the extent of the cost of melting, transporting, insuring, etc. Thus, on March 31st, of this year, owing to gold coming into the London market in excess of demand, the price fell from £4 4s 10¾d. to £4 4s. 9¾d., the lowestprice for five years.

If gold were not the money commodity, then its price could fluctuate in just the same way as the prices of other commodities. When gold is the money commodity, changes in the value of gold (due to changes in the amount of labour necessary to produce it) have the effect of changing the prices of all other commodities. Thus, a fall in the cost of producing gold would cause a rise in prices generally. But if gold were not the money commodity, its price would be expressed in the money commodity and could fluctuate just as if it were wheat, or boots, or silver. The money unit may be paper money not convertible into a precious metal, as in Germany and elsewhere after the War. If, in such circumstances, the Government issues paper money in large quantities in order to pay its way, inflation causes all prices to rise. Everyone tries to hold goods, and to get rid of paper money whose purchasing power falls from day to day. Then the paper money price of gold soars with the soaring prices of other commodities.