Capital III, Chapter 33 - Part 2

But, also money in circulation moves faster or slower, depending on the extent and speed of economic activity. Credit facilitates both.

“A single piece of money, for instance, can effect only five moves, and remains longer in the hands of each individual as mere medium of circulation without credit mediating — when A, its original owner, buys from B, B from C, C from D, D from E, and E from F, that is, when its transition from one hand to another is due only to actual purchases and sales. But when B deposits the money received in payment from A with his banker and the latter uses it in discounting bills of exchange for C, C in turn buys from D, D deposits it with his banker and the latter lends it to E, who buys from F, then even its velocity as mere medium of circulation (means of purchase) is effected by several credit operations: B's depositing with his banker and the latter's discounting for C, D's depositing with his banker, and the latter's discounting for E; in other words through four credit operations. Without these credit operations, the same piece of money would not have performed five purchases successively in the given period of time.” (p 521)

As described previously, a banknote of £100, deposited in bank X, can create additional deposits at bank X and other banks. Bank X uses the £100 to discount bills, or make loans, and the recipients of this money, or money-capital, use their receipts to make deposits into their own accounts, which are then used by the banks to make further loans etc. which create further deposits, and so on.

“We have already demonstrated in the discussion of simple money circulation (Vol I, Ch. III, 2) that the mass of actual circulating money, assuming the velocity of circulation and economy of payments as given, is determined by the prices of commodities and the quantity of transactions. The same law governs the circulation of notes.” (p 522)

This is not entirely correct, as Marx describes in A Contribution To The Critique of Political Economy, because paper money tokens, or bank notes, can be printed in excess of the actual money they represent. Marx is correct that the laws which determine how much money is required also govern, thereby, the amount of money, represented by those tokens, is required. The difference, as Marx describes, in A Contribution To The Critique of Political Economy, is that if too much money is put into circulation, as gold or silver, it becomes hoarded and turned into bullion etc, and so drops out of circulation. But, paper money tokens have no actual value. They cannot be converted into bullion, or resume their commodity form. They continue to circulate, and become thereby devalued. 

Marx provides a table showing the quantity of bank notes of various denominations that were in circulation between 1844-57.

Year	£5-10 Notes	%	£20-100 Notes	%	£200-1,000 Notes	%	Total
1844	9,263	45.7	5,735	28.3	5,253	26.0	20,241
1845	9,698	46.9	6,082	29.3	4,942	23.8	20,722
1846	9,918	48.9	5,778	28.5	4,590	22.6	20,286
1847	9,591	50.1	5,498	28.7	4,066	21.2	19,155
1848	8,732	48.3	5,046	27.9	4,307	23.8	18,085
1849	8,692	47.2	5,234	28.5	4,477	24.3	18,403
1850	9,164	47.2	5,587	28.8	4,646	24.0	19,398
1851	9,362	48.1	5,554	28.5	4,557	23.4	19,473
1852	9,839	45.0	6,161	28.2	5,856	26.8	21,856
1853	10,699	47.3	6,393	28.2	5,541	24.5	22,653
1854	10,565	51.0	5,910	28.5	4,234	20.5	20,709
1855	10,628	53.6	5,706	28.9	3,459	17.5	19,793
1856	10,680	54.4	5,645	28.7	3,323	16.9	19,648
1857	10,659	54.7	5,567	28.6	3,241	16.7	19,467

It shows that the smaller notes, £5 and £10, increased , whilst the larger notes, £200-£1,000 decreased.

“This is explained as follows: 

"On the 8th June 1854, the private bankers of London admitted the joint-stock banks to the arrangements of the clearing house, and shortly afterwards the final clearing was adjusted in the Bank of England. The daily clearances are now effected by transfers in the accounts which the several banks keep in that establishment. In consequence of the adoption of this system, the large notes which the bankers formerly employed for the purpose of adjusting their accounts are no longer necessary." (B. A. 1858, p. V.)” (p 523)

Back To Part 1

Forward To Part 3