Capital III, Chapter 34 - Part 3

A critique of the Currency School was undertaken by Thomas Tooke, John Fullarton and James Wilson. But, as was seen earlier, Marx analysed the inadequacies of their own critique, which still failed to recognise the relationship between money and capital, as well as the nature of gold as money-commodity, and commodity. Marx then quotes from the testimony of J.G. Hubbard to the 1857 Parliamentary Committee on the Bank Acts, where Hubbard shows that there was no connection between the inflow and outflow of gold, and commodity prices. But, there was a connection between this flow and the interest rate, because it was an indicator of the supply of loanable money-capital.

“"[2402] In 1847, a very large amount of American securities were retransferred to America, and Russian securities to Russia, and other continental securities were transferred to those places from which we drew our supplies of grain."” (p 549-50)

“The fifteen major articles on which the following tables of Hubbard are based include cotton, cotton yarn, cotton fabrics, wool, woollen cloth, flax, linen, indigo, pig-iron, tin, copper, tallow, sugar, coffee, and silk.”

I. 1834-1843

Date	Bullion Reserve of Bank £	Market Rate of Discount *	Price increase	Price Decrease	Unchanged
1834, March 1	9,104,000	2¾%	-	-	-
1835, March 1	6,274,000	3¾%	7	7	1
1836, March 1	7,918,000	3¼%	11	3	1
1837, March 1	4,077,000	5%	5	9	1
1838, March 1	10,471,000	2¾%	4	11	-
1839, Sept. 1	2,684,000	6%	8	5	2
1840, June 1	4,571,000	4¾%	5	9	1
1840, Dec. 1	3,642,000	5¾%	7	6	2
1841, Dec. 1	4,873,000	5%	3	2	-
1842, Dec. 1	10,603,000	2½%	2	13	-
1843, June 1	11,566,000	2¼%	1	14	-

II. 1844-1853

Date	Bullion Reserve of Bank £	Market Rate of Discount	Price Increase	Price Decrease	Unchanged
1844, March 1	16,162,000	2¼%	-	-	-
1845, Dec 1	13,237,000	4½%	11	4	-
1846, Sept. 1	16,366,000	3%	7	8	-
1847, Sept. 1	9,140,000	6%	6	6	3
1850, March 1	17,126,000	2½%	5	9	1
1851, June 1	13,705,000	3%	2	11	2
1852, Sept. 1	21,853,000	1¾%	9	5	1
1853, Dec. 1	15,093,000	5%	14	-	1

“Since the demand and supply of commodities regulate their market-prices, it becomes evident here how wrong Overstone is in identifying the demand for loanable money-capital (or rather the deviations of supply therefrom), as expressed by the discount rate, with the demand for actual "capital."” (p 551)

This illustrates, Marx says, the falsity of Overstone's claims that it was the movement of the gold which determined commodity prices, which he confused with the demand and supply of capital determining interest rates.

“But, in fact, a decrease in the quantity of gold raises only the interest rate, whereas an increase in the quantity of gold lowers the interest rate; and if not for the fact that the fluctuations in the interest rate enter into the determination of cost-prices, or in the determination of demand and supply, commodity prices would be wholly unaffected by them.” (p 551)

Marx seems to have made a slip here, because he has earlier demonstrated the error of Proudhon, in believing that interest rates affect cost prices. Higher interest rates result in a reduction in profit of enterprise, not an increase in cost prices, and vice versa.

However, Marx is right that, in so far as changes in interest rates affect the profit of enterprise, this affects the willingness of entrepreneurs to borrow, to invest in additional productive-capital, and thereby affects the level of demand for such commodities, as well as any subsequent change in economic activity affecting the level of aggregate demand in the economy, with a subsequent effect on the general level of prices.

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