We have now come to the point where it is necessary to consider the circulation of commodities; the first means to this circulation is the establishment of a tertium quid, or universal equivalent. And in order to have a really universal equivalent it is necessary that use-value should be eliminated from it, since such an equivalent is required to express not the diverse qualities of all the various commodities, but the relative quantity of embodied human labor which they severally contain.

Money as a mere measure of value is imaginary and ideal, but the bodily form of it must express quantitively equivalent abstract value -- ie., labor -- and takes the form of the precious metals, finally of gold.

Gold has come to be the bodily form taken by the universal measure of value, partly because of its natural qualities -- portability, durability, etc., but chiefly because the course of history has invested it with this function; and also because its value, instead of changing from, say, week to week, as is the case with other commodities, changes rather from century to century, so that its value may be considered stable relatively to them, just as one speaks of indigo as a permanent dye, which it is relatively to other dyes, although none are absolutely permanent⁽¹⁾.

Paper money is promises to pay gold, which is directly exchangeable with all other commodities. Paper money, therefore, is merely a symbol of the exchange really effected by gold. This universal equivalent takes the place of barter, which is the primitive and direct form of exchange⁽²⁾, and at which stage the distinction between buyer and seller has not arisen. It now gives place to the first form of indirect exchange, in which a third term is interposed between the articles which are to be parted with and acquired. Now for the first time the above distinction takes shape. The seller has a commodity which he does not propose to consume, and therefore he acquires with it money, with which money he buys in turn another commodity equal in quantity to that with which he has parted, but different from it in quality. Marx has formulated this transaction by the well-known and useful formula, Commodity, Money,Commodity: C - M - C.

The habit of hoarding which is common among ancient societies, and also among barbarous peoples, is a natural concomitant of this stage of exchange, and is the first germ of Capital. It is brought about by the arrest of the above process at its first phase thus, C - M -- the seller of the commodity does not go on to buy. Under these conditions money becomes a social power; and being a commodity like other commodities, can be acquired by private persons, whom it invests with social power. Therefore in those states of society which had not outgrown their primitive social ethics, money was considered the embodiment of all evil.

This stage of exchange marks the pre-commercial use of money; after a while it tends to develope (sic) into another stage, which carries the exchange a step further. The holder of a commodity which he does not propose to consume exchanges it for money, which he again exchanges for a commodity to be used, not for his personal consumption but to be exchanged once more for money. He would have no object in doing this if his aim were merely that of the simple exchanger (C. M. C.), namely, to obtain an article of consumption different in kind to that which he has exchanged, since in money there is no inherent difference of quality and therefore whatever difference there may be must be one of quantity. Accordingly the object of the exchanger in this second stage is amount, not kind. In going through his process of exchange (the formula for which may be stated thus: C - M - C - M - C ), the second quantum of money must be more than the first, or else he will have failed in his object; will have made a bad bargain, as the phrase goes. On the other hand, though this form of exchange differs essentially it nevertheless connects itself with the earlier form, in which money occurs only as the middle term between commodity and commodity, thus distinguishing it from simple barter, because even in the later form the result of the merchant's transaction is a commodity with which he intends to begin a fresh transaction --

C - M - C - M - C.

This is the form of exchange which was the practice of the developed classical world in its commercial operations. The break up of the Roman Empire, and the confusion that followed, dislocated this commerce, and largely brought exchange back again to its earlier and simple form of the exchange of a commodity for money with which to buy another commodity to be consumed, which was for the most part the character of the exchange of the Middle Ages.

This second form of exchange leads without a break into the third or modern form of Capitalistic Exchange, in which the exchanger, beginning with money, buys a commodity in order to exchange it for money; which money, as in the foregoing stage, must be more in quantity than that with which he began, or his transaction will be a failure. This process differs from that of the last-mentioned stage of exchange in that the result of the transaction is always money, and not a commodity (that is, a use-value), the latter in the long-run appearing only nominally in the transaction.

To make this clearer, we may give concrete examples of the three forms of exchange:

In the first stage, illustrated by the proceedings of the Craftsman of the time of Homer, which were pretty much those of the Mediæval Craftsman also, the village potter sold his pots and with the money he got for them, which, possible trickery apart, represented just the value or embodied labor of the pots, he bought meal, oil, wine, flesh, etc., for his own livelihood and consumed them.

The merchant of the later classical period shipped, say, purple cloth from Sidon to Alexandria, sold his cloth there, and with the money bought gum-Arabic (from the Soudan) and frankincense (from Arabia), which he sold at Athens, where again he shipped oil for another market. He always handled the actual goods he professed to trade in, and the wares which he thus exchanged against the universal equivalent, money, were of various kinds. Similar commerce went on in the Middle Ages, as with the merchants of Amalfii, Venice, etc., side by side with the primitive exchange of the feudal manor, and the market- town with its corporation and gilds.

The modern man of Commerce necessarily begins his transaction with money. He buys, say, indigo, which he never sees, receives for it more money than he gave for it, and goes on steadily in this process, dealing (unlike the ancient carrier-merchant) with one class of goods only; and all the goods in which he deals represent to him so much money: they are only present in his transactions nominally. Money is the be-all and end-all of his existence as a commercial man.

This is an example of the pure form of capitalistic exchange, wherein money is exchanged for commodities, and these again for money plus an increment; the formula for which, as given by Marx, is M - C - M.

The next question we have to consider is how the surplus, the increment above-mentioned, obtained by this process of exchange is realized, -- or, in plain language, where it comes from.

1. As a deduction from this, we may say that while on the one hand there was no abstract necessity for the measure of value taking the form of gold, though there was a necessity for it to take a form embodying a certain definite amount of labor; on the other hand, since it has taken that form, labor notes, or mere promises to pay which are of no value in themselves, cannot as long as exchange lasts take the place of gold, which is a commodity having a value in itself and the particular commodity which has assumed that function through historical selection^back.

2. There are transitional stages between barter pure and simple and exchange operated by a universal equivalent, which only partly fulfiled (sic) this office: eg., cattle, in the primitive ancient period, from which the name for money (pecunia) is derived; or ordinary woolen cloth, as in the curious and rather elaborate currency of the Scandinavians before coin was struck in Norway: which currency, by the way, has again, in the form of blankets, been used even in our own times in the Hudson Bay Territory^back.

Commonweal, Volume 3, Number 61, 12 March 1887, P. 82