Inflation

As a symbol of value, paper money replaced metallic money to perform the function of means of circulation and means of payment, and the law of its circulation is based upon the law of the circulation of metallic money. Therefore, the law of the circulation of paper money “is simply that the issue of paper money must be restricted to that quantity in which the gold (or silver) which it symbolizes would actually have to be in circulation.” Namely:

Magnitude of value represented by all paper money in circulation = Quantity of metallic money required in circulation.

Since paper money or credit money are only symbols of value, they have no value in themselves. If the quantity of paper money or all kinds of credit money issued exceeds the quantity of metallic money required in circulation, the value they represent or the social labor they symbolize becomes smaller, and the phenomenon of depreciation of paper money and general rise in commodity prices, i.e., inflation will emerge.