Capital III, Chapter 28 - Part 7

When Britain suffered a series of crop failures from 1846 on, it had to import large amounts of food. According to Fullarton and advocates of The Currency School, this was merely a question of a transfer of capital. It didn't matter whether the payment for those imports was made by the export of capital in the form of commodities, or the export of gold.

But, Marx makes clear that, in practice, it made a great deal of difference. Firstly, Britain had already supplied large quantities of exports to the continent, so the potential to export more was limited. To export more would mean having to reduce selling prices, so as to generate the necessary level of demand. In other words, commodities would have to be sold below their market value, so that a portion of the capital tied up in them would in essence be destroyed or depreciated. That, in fact, is what happened.

“"When I spoke of the depreciation of stocks and fixed capital, are you not aware that all property invested in stocks and produce of every description was depreciated in the same way; that raw cotton, raw silk, and unmanufactured wool were sent to the continent at the same depreciated price, and that sugar, coffee and tea were sacrificed as at forced sales?”” (Testimony of Governor of the Bank of England, Morris, before the Parliamentary Committee on the crisis of 1847-48) (p 452)

But, secondly, it made a great difference that payment was made by a drain of gold, because, under the provisions of the Bank Act, the drain of gold had a dire effect on the money supply, that an export of any other commodity would not have had. In many ways, it is similar to the imposition of austerity measures in 2010 by the Liberal-Tory government, in response to a drain of money to cover the collapse of the financial system.

In 1847, unable to transfer sufficient capital, in the form of commodities, Britain exported gold. In line with the provisions of the Bank Act, it then contracted the money supply, creating a credit crunch, which slashed economic activity by 37%, and destroyed capital in an attempt to recover the gold.

In 2010, having bailed out the banks, and increased liquidity to overcome a credit crunch, the Liberal-Tory government, attempting to recover the capital it had handed over to save the banks, destroyed large swathes of both social capital and private capital, tied to it. The same economically insane policy was adopted in Ireland, Greece, Spain, Portugal, Cyprus and may yet be applied elsewhere.

By attempting to recover this capital, by reducing current spending, existing social capital, in the shape of schools, libraries, etc. was destroyed as effectively as if a terrorist car bomb had been used to blow them up. Yet, the Tories try to portray Labour as a threat to national security! In addition, planned future expansion of the social capital, was scrapped. This meant that all those private capitals in the construction industry, that build schools, roads etc., as well as those in the ICT industry that supply elements of infrastructure, saw the anticipated expansion of their capital destroyed, where it did not destroy the business itself. 

It was this wanton destruction of capital by deliberate political diktat, rather than the financial crisis of 2008, which sent the economies of Britain and the European periphery into a tailspin after 2010, just as it was the lunacy of the 1844 Bank Act, that caused economic crisis in 1847.

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