Or let us assume by contrast that the aggregate exchange-value has increased,because a larger volume of commodities has been produced while production costs's remain constant,or because either the same or a smaller volume of commodities has a larger value as a result of a decline in the productivity of labour.What happens to the existing quantity of metal in circulation in these two cases?If gold is money only because it circulates as a medium of circulation,if it is forced to stay in the sphere of circulation,like paper money with forced currency issued by the State (and Ricardo implies this),then the quantity of money in circulation will,in the first case,be excessive in relation to the exchange-value of the metal,and it will stand below its normal level in the second case.
Although endowed with a specific value,gold thus becomes a token which,in the first case,represents a metal with a lower exchange-value than its own,and in the second case represents a metal which has a higher value.
Gold as a token of value will fall below its real value in the first case,and rise above it in the second case (once more a deduction made from paper money with forced currency).The effect would be the same as if,in the first case,all commodities were evaluated in metal of lower value than gold,and in the second case as if they were evaluated in metal of a higher value.Commodity-prices would therefore rise in the first case,and fall in the second.The movement of commodity-prices,their rise or fall,in either case would be due to the relative expansion or contraction in the amount of gold in circulation occasioning a rise above or a fall below the level corresponding to its own value,i.e.,the normal quantity determined by the relation between its own value and the value of the commodities which are to be circulated.
The same process would take place if the aggregate price of the commodities in circulation remained constant,but the amount of gold in circulation either fell below or rose above the proper level;the former might occur if gold coin worn out in circulation were not replaced by sufficient new output from the mines,the latter if the new supply from the mines surpassed the requirements of circulation.In both cases it is assumed that the production cost of gold,or its value,remains unchanged.
To recapitulate:if the exchange-values of the commodities are given,the money in circulation is at its proper level when its quantity is determined by its own metallic value.It exceeds this level,gold falls below its own metallic value and the prices of commodities rise,whenever the aggregate exchange-value of commodities decreases or the supply of gold from the mines increases.The quantity of money sinks below its appropriate level,gold rises above its own metallic value and commodity-prices fall,whenever the aggregate exchange-value of commodities increases or the supply of gold from the mines is insufficient to replace worn-out gold.In these two cases the gold in circulation is a token of value representing either a larger or a smaller value than it actually possesses.It can become an appreciated or depreciated token of itself.When commodities are generally evaluated in conformity with the new value of money,and commodity-prices in general have risen or fallen accordingly,the amount of gold in circulation will once more be commensurate with the needs of circulation (a result which Ricardo emphasises with special satisfaction),but it will be at variance with the production costs of precious metals,and hence with the relations of precious metals as commodities to other commodities.According to Ricardo's general theory of exchange-value,the rise of gold above its exchange-value,in other words above the value which is determined by the labour-time it contains,would lead to an enlarged output of gold until the increased supply reduced it again to its proper value.Conversely,a fall of gold below its value would lead to a decline in the output of gold until its value rose again to its proper level.These opposite movements would resolve the contradiction between the metallic value of gold and its value as a medium of circulation;the amount of gold in circulation would reach its proper level and commodity-prices would once more be in accordance with the standard of value.These fluctuations in the value of gold would in equal measure affect gold bullion,since according to the assumption all gold that is not used as luxury articles is in circulation.
Seeing that even gold in the form of coin or bullion can become a value-token representing a larger or smaller value than its own,it is obvious that any convertible bank-notes that are in circulation must share the same fate.Although bank-notes are convertible and their real value accordingly corresponds to their nominal value,"the aggregate currency consisting of metal and of convertible notes"may appreciate or depreciate if,for reasons described earlier,the total quantity either rises above or falls below the level which is deter mined by the exchange-value of the commodities in circulation and the metallic value of gold.According to this point of view,inconvertible paper money has only one advantage over convertible paper money,i.e.,it can be depreciated in two ways.
It may fall below the value of the metal which it professes to represent,because too much of it has been issued,or it may fall because the metal it represents has fallen below its own value.This depreciation,not of notes in relation to gold,but of gold and notes taken together,i.e.,of the aggregate means of circulation of a country,is one of Ricardo's main discoveries,which Lord Overstone and Co.pressed into their service and turned into a fundamental principle of Sir Robert Peel's bank legislation of 1844and 1845.
