By contrast, a large quantity of money may be advanced to circulation and yet finance a relatively smaller value of circulation of commodities. In a financial panic, people hold on to money, and do not use it either to buy commodities or risk putting it on deposit in the bank. They retain the money for security, and because, as credit contracts, under such conditions, they need cash themselves to make payments. Marx quotes the testimony of Chapman in this respect.
“"5062. There may be times, when the notes in the hands of the public, though they may be large, are not to be had. Money also exists during a panic; but everyone takes good care not to convert it into loanable capital, i.e., loanable money; everyone holds on to it for the purpose of meeting real payment needs.”” (p 531)
And within the national economy, different paces of economic activity mean that a certain amount of currency represents an excess in one area, whilst shortages exist elsewhere. This meant that the banking system inevitably moved these balances from the former to the latter.
“"5099. The country bankers in rural districts send up their unemployed balances to yourselves and other houses? — Yes." — "5100. On the other hand, the Lancashire and Yorkshire districts require discounts from you for the use of their trades? — Yes." — "5101. Then by that means the surplus money of one part of the country is made available for the demands of another part of the country? — Precisely so."” (p 531)
Where, previously, banks had used such balances to buy government bonds, it now became more profitable to simply move it into those parts of the country where there was a demand for it over these shorter durations. This money on call was able to produce a higher annual rate of interest precisely because the shorter duration of the loan meant that the same capital was turned over many times during the year. It is the same way that the pay day lenders obtain astronomical annual rates of interest.
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