Capital III, Chapter 30 - Part 15

In a global economy, such as was developing at the time Marx was writing, it necessarily becomes the case that a major crisis in one country, becomes a crisis affecting all of them, because each rely on exporting and importing commodities to one another. The consequence may be that it appears as an unfavourable balance of payments, or balance of trade, but each country in turn suffers this unfavourable balance, so that its clear that the real problem is not the balance of payments, but “... that all of them, with few exceptions, have exported and imported too much, so that they all have an unfavourable balance of payments. The trouble, therefore, does not actually lie with the balance of payments. For example, England suffers from a drain of gold. It has imported too much. But at the same time all other countries are over-supplied with English goods. They have thus also imported too much, or have been made to import too much.” (p 491)

The latter comment is in relation to the Opium Wars, through which Britain forced China to buy its opium, shipped from India and Afghanistan. Where countries do not produce enough to ship out as exports, to cover these imports, they have to buy them on credit, which Britain was glad to supply, just as China is pleased to provide credit to the US and UK today. In that way, not only did it continue to have a market for its commodities, but money-capitalists drew interest on the loans they provided too.

The crisis may break out in England, because, although it has a trade surplus, it has an unfavourable balance of payments. That is more money must go out of the economy than comes into it. The reason for that is that the credit it provides involves money going out of the economy. Although the credit it has previously provided earns interest, in fact, this may return in the shape not of money, but of commodities.

As more money leaves than enters, the balance is made up from a gold drain, and, under the terms of the Bank Act, the reduction in gold reserves required a reduction in notes in circulation, a reduction in discounting takes place, interest rates rise and economic activity is contracted. But, this contraction of economic activity in Britain then means that it imports less from other countries. As their exports fall, the money going into their economies drops, and they then suffer a balance of payments crisis.

They then suffer a gold drain. In a series of articles Marx wrote for the New York Daily Tribune, he set out, therefore, how the Bank Acts, established in the UK, had an international impact way beyond Britain's border, which contributed to the crisis of 1857, which started in the US, as it faced reduced exports, following the end of the Crimean War. That war had meant that Europe needed to import US agricultural commodities. The end of the war reduced that demand. As that had an effect in the US, which then suffered a gold drain, to cover its imports, this put pressure on US financial institutions. The panic erupted with the Ohio Life Company.

The economic crisis, which followed the financial panic, then caused imports from the UK to be reduced. The consequence was then a gold drain from Britain, and eruption of the crisis here.

“Ignorant and mistaken bank legislation, such as that of 1844-45, can intensify this money crisis. But no kind of bank legislation can eliminate a crisis.” (p 490)

The consequence is that all countries are then seen to have overproduced and over-traded. The balance of payments crisis only brings this to light, as this situation is revealed as each country's turn to pay arrives.

“The balance of payments is in times of general crisis unfavourable to every nation, at least to every commercially developed nation, but always to each country in succession, as in volley firing, i.e., as soon as each one’s turn comes for making payments; and once the crisis has broken out, e.g., in England, it compresses the series of these terms into a very short period.” (p 492)

Commodity-capital represents money-capital. The commodity-capital has a monetary value. That is important, not just because this is the basis of the realisation of the value of the productive-capital, which must be reproduced, as well as the surplus value produced, it is important also because in a system built on credit, the money value of the commodity-capital also constitutes a large part of the credit of the company.

It is on the back of the future flow of funds from its realisation that the firm can obtain commercial credit, as well as bank loans, it is on the back of the money value of this commodity-capital, represented in bills of exchange, that it can obtain liquidity by having these bills discounted. 

“It follows from the above that commodity-capital, during crises and during periods of business depression in general, loses to a large extent its capacity to represent potential money-capital. The same is true of fictitious capital, interest-bearing paper, in so far as it circulates on the stock exchange as money-capital. Its price falls with rising interest. It falls, furthermore, as a result of the general shortage of credit, which compels its owners to dump it in large quantities on the market in order to secure money. It falls, finally, in the case of stocks, partly as a result of the decrease in revenues for which it constitutes drafts and partly as a result of the spurious character of the enterprises which it often enough represents. This fictitious money-capital is enormously reduced in times of crisis, and with it the ability of its owners to borrow money on it on the market. However, the reduction of the money equivalents of these securities on the stock exchange list has nothing to do with the actual capital which they represent, but very much indeed with the solvency of their owners.” (p 493)

In fact, as Marx outlines elsewhere, the collapse of this fictitious capital is generally a positive development.

“As regards the fall in the purely nominal capital, State bonds, shares etc.—in so far as it does not lead to the bankruptcy of the state or of the share company, or to the complete stoppage of reproduction through undermining the credit of the industrial capitalists who hold such securities—it amounts only to the transfer of wealth from one hand to another and will, on the whole, act favourably upon reproduction, since the parvenus into whose hands these stocks or shares fall cheaply, are mostly more enterprising than their former owners.” (TOSV2 p 496)

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