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```the quantity of gold required for circulation is in the first place determined therefore by
the sum of the commodity-prices to be realised. This sum, however, is in its turn determined by the
following factors: 1. the price level, the relative magnitude of the exchange-values of commodities in
terms of gold, and 2. the quantity of commodities circulating at definite prices, that is the number of
purchases and sales at given prices. [2] If a quarter of wheat costs 60s., then twice as much gold is
required to circulate it or to realise its price as would be required if it cost only 30s. Twice as much gold
is needed to circulate 500 quarters at 60s. as is needed to circulate 250 quarters at 60s. Finally only half
as much gold is needed to circulate 10 quarters at 100s. as is needed to circulate 40 quarters at 50s. It
follows therefore that the quantity of gold required for the circulation of commodities can fall despite
rising prices, if the mass of commodities in circulation decreases faster than the total sum of prices
increases, and conversely the amount of means of circulation can increase while the mass of commodities
in circulation decreases provided their aggregate prices rise to an even greater extent. Thus excellent
investigations carried out in great detail by Englishmen have shown that in England, for instance, the
amount of money in circulation grows during the early stages of a grain shortage, because the aggregate
price of the smaller supply of grain is larger than was the aggregate price of the bigger supply of grain,
and for some time the other commodities continue to circulate as before at their old prices. The amount
of money in circulation decreases, however, at a later stage of the grain shortage, because along with the
grain either fewer commodities are sold at their old prices, or the same amount of commodities is sold at
lower prices.
But the quantity of money in circulation is, as we have seen, determined not only by the sum of
commodity-prices to be realised, but also by the velocity with which money circulates, i.e., the speed
with which this realisation of prices is accomplished during a given period. If in one day one and the
same sovereign makes ten purchases each consisting of a commodity worth one sovereign, so that it
changes hands ten times, it transacts the same amount of business as ten sovereigns each of which makes
only one circuit a day. [3] The velocity of circulation of gold can thus make up for its quantity: in other
words, the stock of gold in circulation is determined not only by gold functioning as an equivalent
alongside commodities, but also by the function it fulfils in the movement of the metamorphoses of
commodities. But the velocity of currency can make up for its quantity only to a certain extent, for an
endless number of separate purchases and sales take place simultaneously at any given moment.
If the aggregate prices of the commodities in circulation rise, but to a smaller extent than the velocity of
currency increases, then the volume of money in circulation will decrease. If, on the contrary, the
velocity of circulation decreases at a faster rate than the total price of the commodities in circulation, then
the volume of money in circulation will grow. A general fall in prices accompanied by an increase in the
quantity of the medium of circulation and a general rise in prices accompanied by a decrease in the
quantity of the medium of circulation are among the best documented phenomena in the history of prices.
But the causes occasioning a rise in the level of prices and at the same time an even larger rise in the
velocity of currency, as also the converse development, lie outside the scope of an investigation into
simple circulation. We may mention by way of illustration that in periods of expanding credit the
velocity of currency increases faster than the prices of commodities, whereas in periods of contracting
credit the velocity of currency declines faster than the prices of commodities. It is a sign of the
superficial and formal character of simple money circulation that the quantity of means of circulation is
determined by factors -- such as the amount of commodities in circulation, prices, increases or decreases
The Circulation of Money
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of prices, the number of purchases and sales taking place simultaneously, and the velocity of currency --
all of which are contingent on the metamorphosis proceeding in the world of commodities, which is in
turn contingent on the general nature of the mode of production, the size of the population, the relation of
town and countryside, the development of the means of transport, the more or less advanced division of
labour, credit, etc., in short on circumstances which lie outside the framework of simple money
circulation and are merely mirrored in it.
If the velocity of circulation is given, then the quantity of the means of circulation is simply determined
by the prices of commodities. Prices are thus high or low not because more or less money is in
circulation, but there is more or less money in circulation because prices are high or low. This is one of
the principal economic laws, and the detailed substantiation of it based on the history of prices is perhaps
the only achievement of the post-Ricardian English economists. Empirical data show that, despite
temporary fluctuations, and sometimes very intense fluctuations, [4] over longer periods the level of
metallic currency or the volume of gold and silver in circulation in a particular country may remain on
the whole stable, deviations from the average level amounting merely to small oscillations. This
phenomenon is simply due to the contradictory nature of the factors determining the volume of money in
circulation. Changes occurring simultaneously in these factors neutralise their effects and everything
remains as it was.
The law that, if the speed of circulation of money and the sum total of the commodity-prices are given,
the amount of the medium of circulation is determined, can also be expressed in the following way: if the
exchange-values of commodities and the average speed of their metamorphoses are given, then the
quantity of gold in circulation depends on its own value. Thus, if the value of gold, i.e. the labour-time
required for its production, were to increase or to decrease, then the prices of commodities would rise or
fall in inverse proportion and, provided the velocity remained unchanged, this general rise or fall in
prices would necessitate a larger or smaller amount of gold for the circulation of the same amount of
commodities. The result would be similar if the previous standard of value were to be replaced by a more
valuable or a less valuable metal. For instance, when, in deference to its creditors and impelled by fear of
the effect the discovery of gold in California and Australia might have, Holland replaced gold currency
by silver currency, 14 to 15 times more silver was required than formerly was required of gold to
circulate the same volume of commodities.
Since the quantity of gold in circulation depends upon two variable factors, the total amount of
commodity-prices and the velocity of circulation, it follows that it must be possible to reduce and expand
the quantity of metallic currency; in short, in accordance with the requirements of the process of
circulation, gold must sometimes be put into circulation and sometimes withdrawn from it. We shall see
later how these conditions are realized in the process of circulation.
FOOTNOTES
1. A commodity may be several times bought and sold again. It circulates, in this case, not as a mere
commodity, but fulfils a function which does not yet exist from the standpoint of simple circulation and
of the simple antithesis of commodity and money.
2. The amount of money is a matter of indifference "provided there is enough of it to maintain the prices
determined by the commodities."```