Wednesday, 18 May 2016

Capital III, Chapter 34 - Part 10

A further act of 1845 imposed similar restrictions on Scottish banks, where in the past, there had been little demand for gold rather than notes.

“Since that period there has been a large sum uniformly locked up in Scotland, and another considerable sum constantly travelling back and forward between London and Scotland. If a period arrives when a Scotch bank expects an increased demand for its notes, a box of gold is brought down from London; when this period is past, the same box, generally unopened, is sent back to London." (Economist, October 23, 1847 [pp. 1214-1215]” (p 563)

Overstone in his evidence to parliament, continued to insist that the credit crunch could not be relieved by the increase in liquidity.


"pressure, and a high rate of interest caused by the want of sufficient capital, cannot be relieved by an extra issue of bank-notes" (1514), 

in spite of the fact that the mere authority to increase the note issue, given by the Government's Letter of October 25, 1847, had sufficed to take the edge off the crisis. 

He holds to the view that 

"the high rate of interest and the depression of the manufacturing interests was the necessary result of the diminution of the material capital applicable to manufacturing and trading purposes" (1604). 

And yet the depressed condition of the manufacturing industry had for months consisted in material commodity-capital filling the warehouses to overflowing and being actually unsaleable; so that for precisely this reason, material productive capital lay wholly or partly idle, in order not to produce still more unsaleable commodity-capital.” (p 563)

A determination to stick with the Gold Standard had similar consequences in the 1930's. In 1857, Overstone, in his testimony, related how the prosperity of his time was evidence of the success of the act. In fact, that prosperity was the result of a long wave boom, and the expansion of real capital. But, within a few months, of his testimony, a new financial crisis was to break out, exacerbated by the act, which as Marx sets out, had effects not just in Britain, but internationally in financial markets.

The Act, once more would have to be suspended, to end the financial crisis, before the economic boom continued. That economic boom would run until the mid 1860's, when a new long wave downturn would set in that ran until the early 1890's.

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