“By the quantity of circulation we mean here the sum of all the bank-notes and coin, including bars of precious metals, existing and circulating in a country. A portion of this quantity constitutes the reserve of the banks which continuously vary in magnitude.” (p 499)
So, when the Bank Act was suspended on November 12th 1857, the Bank of England had just £580,751 in reserves. But, its deposits amounted to £22,500,000, of which £6,500,000 belonged to London bankers. In other words, had these other banks withdrawn their deposits, the Bank would have been insolvent. But, this is how fractional reserve banking works.
If other factors, such as the state of confidence etc. are discounted, Marx says, the variations in the rate of interest are a function of the supply of loan capital. This is different to the situation in respect of industrial capital. One firm loans commodity-capital to another on commercial credit, and by this means they all mutually lend to each other – at least until such time as panic sets in.
However, the loanable capital is different from and independent of the money-supply – a fact the proponents of QE do not understand.
“For example, if £20 were loaned five times per day, a money-capital of £100 would be loaned, and this would imply at the same time that this £20 would have served, moreover, at least four times as a means of purchase or payment; for, if no purchase and payment intervened — so that it would not have represented at least four times the converted form of capital (commodities, including labour-power) — it would not constitute a capital of £100, but only five claims of £20 each.” (p 499)
This is the point made earlier, that if A loans £20 to B, who loans it to C and so on, there is only a loan capital of £20. But, if A loans £20 to B, who buys commodities worth £20 from C, who then loans £20 to D, who buys commodities from E and so on, loan capital to the value of £100 has been created. In countries with developed credit systems, all potential money-capital, available for lending, is deposited with banks and other financial institutions. Even for the back street loan sharks, this is frequently true, as they will keep much of their own loanable funds in the bank when it is not being loaned to their victims.
In normal times, most business is conducted without the need for currency, because it is resolved by means of commercial credit. As was seen earlier, today, with the majority of people having bank accounts, and many payments being made by direct bank transfers, this applies much wider than just commercial transactions.
As an indication of this progressive accumulation of capital, Marx refers to the figure for exports and imports between 1815 and 1870. This shows, he says, that, during this period, the maximum value of exports, during a crisis period, becomes the minimum value of exports for the following period of prosperity. The same was true for imports, which shows this was a progressive expansion of the market, during the period. Engels notes, however,
“Of course, this holds true of England only for the time of its actual industrial monopoly; but it applies in general to the whole complex of countries with modern large-scale industries, as long as the world-market is still expanding.” (p 501)
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