Tuesday, 8 March 2016

Capital III, Chapter 28 - Part 8

“Fullarton quotes the discovery by Tooke that 

"with only one or two exceptions, and those admitting of satisfactory explanation, every remarkable fall of exchange, followed by a drain of gold, that has occurred during the last half-century, has been coincident throughout with a comparatively low state of the circulating medium, and vice versa." (Fullarton, p. 121.)” (p 453)

As Marx says, what this demonstrates is that such drains of gold occur after a period of speculation and overproduction. The overproduction means that too much has been sent to export markets. It can't be sold, so it does not act as a transfer of capital to cover the value of commodities being imported. So, these commodities have to be paid for in gold.

“This, naturally, is at once the best refutation of the claim of the advocates of the Currency Theory, that 

"a full circulation drives out bullion and a low circulation attracts it." 

On the contrary, while the Bank of England generally carries a strong gold reserve during a period of prosperity, this hoard is generally formed during the slack period, which follows after a storm.” (p 453)

In other words, it is the period after the crisis, when the rate and mass of profit is restored, and when a lower level of imports can be covered by the export of commodities, that the flow of gold back occurs. The bank can then maintain these high levels of reserves, because in the new period of prosperity, credit increases and the import of commodities continues to be paid for by exports.

“All this sagacity concerning the drain of gold, then, amounts to saying that the demand for international media of circulation and payment differs from the demand for internal media of circulation and payment...”(p 453)

So, it is quite clear that an increased demand for international money – gold – to cover an increased demand for imports, such as was required in 1847, due to the crop failures, is quite separate from the requirements for money to meet the needs of circulation within the domestic economy. Yet, by limiting the money-supply in the domestic economy, in relation to the gold held in the reserves, it was precisely this linkage that the Bank Act created.

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