Letter: Money and price. (1927)

Letter to the Editors from the December 1927 issue of the Socialist Standard 

A Criticism and a Reply.

Sir,

I am of the opinion that A. E. Jacomb, writing under the heading of “Should we Produce More” (S.S., Oct. 1927) makes serious blunders in his economics. He says :

“Let us take the employed workmen in a community as one thousand, let us reduce their varied products to a common form, which we call ‘wares,’ and finally let us suppose that the price of each of those wares is £l, and it is the product of one man’s labour for a day. We have the following condition of affairs as the result of the day’s effort :—

Workers 1,000; Wares, 1,000; Price, £1,000. Now suppose that from some cause each worker doubles his day’s output, the figures then would be :—

Workers, 1,000; Wares, 2,000; Price £2,000.”


Now I have always understood since I became acquainted with Marxian political economy that
 price is the monetary expression of exchange value. That goods exchange for goods and that
 price was merely an indication of the relative value of each commodity to the amount of gold 
contained in the £1 sterling. Gold does not determine the price any more than a ruler determines the length of the object measured. Like other commodities, gold has value also price, and is subject to the same laws that apply to them. In fact one might as logically say that wheat determines the price of other goods. The reason why gold is adopted as a standard is its portability, the fact that it does not deteriorate in storage, and that on the average it is less subject to market fluctuations. The Labour Power necessary to produce a given quantity of gold is pretty constant from one year to another; Certainly the discovery of fresh deposits and the introduction of the cyanide process and modern crushing plant has reduced the value of gold which coupled with the fact that it no longer functions as coinage brings supply in excess of demand and a consequent fall in price. But to take A. E. Jacomb’s analogy we must accept the notion that inflation of the currency was responsible for the rise in prices during the war period and since.

I will now take Value and Price (Marx). Value is determined by the amount of socially necessary Labour Power embodied. Price equals Exchange Value, i.e., the relative amount of socially necessary labour power embodied plus the factor of supply and demand. Therefore it follows that if I have 2,000 wares the value of which, assuming that fixed capital is halved as well as variable capital in their production, is just that of 1,000 produced under the old conditions. Of a necessity they must ultimately saturate the market and price will fall below value and will actually exchange at an adverse price. Assuming that the process of production is extended to every other commodity the exchange, i.e., Price remains at par.

Foreign exchange will show how A. E. Jacomb falls. For instance, say, the £1 is quoted at 4.86 to the dollar, it has nothing to do with the amount of gold in either, but the amount of goods that each will buy in their own country. Gold is a mere detail compared to other values created. The amount held by the Banks only fractionally covers the paper in circulation, i.e., Treasury and Bank Notes. Commerce operates by Cheque, Bill or Draft—a mere book transaction. It could not be done by a transference of gold, without half of the population being engaged in gold extraction. Bullion transactions are but adjustments. In the short compass of a letter I cannot deal with every detail of A. E. Jacomb’s article, but may do so later, if allowed.—Yours fraternally,

F. L. Rimington.

Reply to Rimington.

I showed that the result of all wares, including gold, being produced at half the labour cost would be that prices remain the same. My critic says I am wrong. Yet he himself states : “Assuming that the process of production is extended to every other commodity, the exchange, i.e., price, remains at par.” Notwithstanding, then, that I am wrong and my critic right, we both say the same thing, and are in entire agreement so far.

However, Mr. Rimington did not know when to stop. He was safe enough while he was repeating the present scribe, but when he let go of his hand he was soon floundering in the mud. “Gold,” he says, “has value, also price,” and later tells us that gold supply is in excess of demand, and there is a “consequent fall in price.”

Gold has price, has it ! Then how is it expressed? “Price,” my friend correctly states, “is the monetary expression of value.” What, then, is the monetary expression of money? To say that the price of 1,000 bricks is £3 is an intelligent statement ; but to say that the price of the gold in £3 is £3 is idiocy. It adds nothing to our knowledge. An ounce of gold is coined into money expressed by the figures £3 17s. 10½d. It does not matter how the value of gold fluctuates, the amount of gold expressed by those figures is always the same—one ounce. If, then, £3 17s. 10½ d. is the price of one ounce of gold, how is the fall in price to which my critic refers expressed? If the figures are not the price, what is?

Price is an endeavour to equate one kind of commodity to a different commodity (gold), not one to its like; and since all prices are in terms of gold, gold is the only commodity which has no price, and can have none. If silver was the standard of price, then gold could have a price.

Mr. Rimington’s statement that commerce could not operate “by a transference of gold, without half of the population being engaged in gold extraction,” is another ridiculous assertion. The idea is, of course, that for every commodity which is not gold the golden equivalent must exist in order to enable it to exchange. If every piece of gold that was exchanged for a commodity dropped out of circulation when the commodity did he might be correct. But what would become, will my critic tell us, of the golden equivalent of a hundred loaves of bread when the latter were consumed? Would the gold be consumed also? Or would it be free to serve as the medium of further exchanges?

It is difficult to get to the back of Mr. Rimington’s mind, but he appears to imply that high general prices since the war are the result of the supply of gold being in excess of demand. Strangely enough, however, when prices were highest, gold was scarcest.

What Mr. Rimington has to tell us regarding foreign exchange is laughable. When “the £1 is quoted, say, at 4.86 to the $” (Gosh! nearly £5 to the dollar! what a come down for the British Lion !) it has nothing to do with the amount of goods each will buy in its own country. It simply means that the balance of payments is against the country whose money is at a premium. International debts (in commerce) are paid by a process of cancellation. The medium is Bills of Exchange. A in England owes B in America £100; C in America owes D in England £100. If A in England pays D in England £100 and C in America pays A in America £100, they are all square. B draws a bill on A for £100; this he sells to C, who, owing D £100, sends him the bill, and the latter presents it to A for payment upon the date of its maturity. All this is done actually through recognised agents, who buy and sell bills of exchange for a small commission. Now when payments due from England to America largely exceed those due from America to England there will not be sufficient bills on America offered to satisfy the requirements of all those requiring them to pay their debts to Americans. Clearly, then, gold will have to be sent to balance. As the cost of transporting gold has to be faced, the price of the bills advance to cover this. Should gold be very scarce in the country where the demand for bills exceeds the supply, then anticipation of difficulty in obtaining gold will send the price of bills up higher still. That, friend Rimington, is what “foreign exchange” amounts to.

Now let’s see where we stand. After the war prices were much higher than they are now. Also the rate of exchange as between England and America was much more unfavourable to England than it is now. According to Mr. Rimington this means that gold was in greater excess then than now; but according to what I have written above the reverse is indicated. Who is right? It is pretty clear that if gold had been so much in excess of demand in this country as to give us such high prices as prevailed after the war, the master class, instead of putting restrictions on its movement, would have been glad to send some of it to America, thus restoring the balance of exchange on the one hand, and lowering prices to their wage slaves on the other. The first would have meant that they could pay their debts more cheaply, and the second that they could have knocked down wages wholesale.

I have not space to deal with the other dud eggs in my critic’s mare’s nest, but if he is going to have another shot, he should try to be a little more careful.

A. E. Jacomb