Capital III, Chapter 33 - Part 8

Marx highlights a feature again seen today. He notes that a country that sees a rapid growth of exports may also see a growth of demand for money-capital in its money market. That is because the exporters enable buyers in foreign markets to buy their commodities on credit. The exporter finances this by borrowing in their own domestic market. At the time Marx was writing, Britain exported large amounts to China and elsewhere, and provided credit for these countries to pay for the imports, as well as British exporters funding their own activity by borrowing. Today, it is the other way round. China exports huge amounts to Britain, which now borrows large amounts on capital markets, while China provides the credit.

The merchants involved in export, particularly at the time Marx was writing, had to ship goods to foreign markets, and then sell them, before the money they had advanced for their purchase flows back to them. That could take many months, and the merchant could not simply sit on their hands for all that time. They had to keep trading. As a result, they bought their next consignment of commodities, from manufacturers with borrowed money. Sometimes, indeed it was manufacturers who were directly involved in such exports, and who borrowed to finance it. That was the case in 1847, as Engels notes. In essence, as Engels remarks, the banks, in discounting the bills of exchange, presented to them by the exporters, became the buyers of those commodities.

And, Chapman in his testimony says,

“”No doubt; it is a substantial occupation of the money-market and of the Bank of England. The Bank of England are as glad to get these bills as we are, because they know them to be good property." — "5141. In that way, as the export trade increases, the demand upon the money-market increases also? — As the prosperity of the country increases, we" [the Chapmans] "partake of it." — "5142. Then when these various fields for the employment of capital increase suddenly, of course, the natural consequence is that the rate of interest is higher? — No doubt about it."” (p 533)

The consequence of this, especially as seen earlier, when the potential for speculative capital gains encourages a demand for liquidity, is that bills may be discounted for no other real purpose than to obtain liquidity. It encourages fraud, swindling and overtrading, which in turn leads to overproduction. The prosperity and high rates of profit encourage this exuberance and overproduction, along with the demands on the money market, which acts then to raise interest rates. But, Marx points out that high interest rates cannot then be read backwards to imply such prosperity and high profits.

Quoting Chapman again, Marx writes,

“"There are some, who cannot help themselves; they have engagements to meet, and they must fulfil them, whether it is profitable or not; but, for a continuance" [of the high rate of interest], "it would indicate prosperity."

Both forget that a high rate of interest can also indicate, as it did in 1857, that the country is undermined by the roving cavaliers of credit who can afford to pay a high interest because they pay it out of other people's pockets (whereby, however, they help to determine the rate of interest for all), and meanwhile they live in grand style on anticipated profits. Simultaneously, precisely this can incidentally provide a very profitable business for manufacturers and others. Returns become wholly deceptive as a result of the loan system.” (p 534)

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