“A very amusing part of Chapman's testimony reveals how these people really regard public money as their own and assume for themselves the right to constant convertibility of the bills of exchange discounted by them. The questions and replies show great naïveté. It becomes the obligation of legislation to make those bills which are accepted by large firms convertible at all time; to ensure that the Bank of England should under all circumstances continue to rediscount them for bill-brokers. And yet three of such bill-brokers went bankrupt in 1857, owing about 8 million and their own infinitesimally small capital compared with these debts.” (p 534)
It is this same mentality that was behind the “Greenspan Put”, and QE, whose purpose has been to keep the prices of fictitious capital inflated, ensure that the owners of these pieces of paper could sell them at these inflated prices, and thereby maintain their fictitious wealth, even at the expense of real capital.
Chapman's testimony also highlights another point of interest to more recent events. In 1857, another financial panic, like that of 1847, broke out. At its heart was again the 1844 Bank Act. It restricted the provision of liquidity at just the time it was required. This is like the restriction of liquidity imposed on Greece in 2015, by the ECB. Marx quotes the following exchanges.
“"5306. If there should not be currency to settle the transactions at the clearing house, the only next alternative which I can see is to meet together, and to make our payments in first-class bills, bills upon the Treasury, and Messrs. Smith, Payne, and so forth." — "5307. Then, if the government failed to supply you with a circulating medium, you would create one for yourselves? — What can we do? The public come in, and take the circulating medium out of our hands; it does not exist." — "5308. You would only then do in London what they do in Manchester every day of the week? — Yes."” (p 538)
If economic activity increases, therefore, this need not be constrained by a shortage of currency, because the circulation can instead be effected by means of an expansion of credit. The same applied in relation to Greece. Had its economy been fully banked, the ECB could not have exercised the control it did over the economy, which thereby restricted economic activity and the exchange of commodities, because Greece would not have been dependent upon the provision of currency by the ECB to facilitate the exchange of commodities. It would have achieved this by the majority of commodities being bought by commodities, and only the balance of these transactions requiring settlement, which would again have been achieved simply on the basis of the electronic transfer, of that balance, between bank accounts. In that respect, money functions more or less simply as the unit of account, for such transactions, whether its basic unit is the €, £, $ or Drachma, because it is only a representative of a given quantity of social labour-time, the universal equivalent form of that value.
“The quantity of circulating bills of exchange, therefore, like that of bank-notes, is determined solely by the requirements of commerce; in ordinary times, there circulated in the fifties in the United Kingdom, in addition to 39 million in bank-notes, about 300 million in bills of exchange — of which 100-120 million were made out on London alone. The volume of circulating bills of exchange has no influence on note circulation and is influenced by the latter only in times of money tightness, when the quantity of bills increases and their quality deteriorates. Finally, in a period of crisis, the circulation of bills collapses completely; nobody can make use of a promise to pay since everyone will accept only cash payment; only the bank-note retains, at least thus far in England, its ability to circulate, because the nation with its total wealth backs up the Bank of England.” (p 540)
No comments:
Post a Comment