“Furthermore, as soon as somewhat threatening conditions induce the bank to raise its discount rate — whereby the probability exists at the same time that the bank will cut down the running time of the bills to be discounted by it — the general apprehension spreads that this will rise in crescendo. Everyone, and above all the credit swindler, will therefore strive to discount the future and have as many means of credit as possible at his command at the given time.” (p 571)
Its not the volume of precious metal that moves, which creates this effect. It is essentially three factors. Firstly, Marx distinguishes the difference between the export of precious metal and any other commodity. The difference is that the precious metal acts as money-capital, and thereby affects the demand and supply of money-capital, which determines interest rates. Secondly, it depends on the other prevailing economic conditions as to what effect such a movement will have on interest rates. But, finally, Marx again demonstrates that he was way ahead of the Marginal School, in his economic thinking, because he points out that it is not the absolute amount of movement that counts, but the movement at the margin.
“... by acting like a feather which, when added to the weight on the scales, suffices to tip the oscillating balance definitely to one side;” (p 571)
Otherwise, its inexplicable, Marx says, why such relatively small movements would have any consequence. The most that was drained from Britain, was between £5 – 8 million, compared to £70 million of gold that circulated within the British economy.
“But it is precisely the development of the credit and banking system, which tends, on the one hand, to press all money-capital into the service of production (or what amounts to the same thing, to transform all money income into capital), and which, on the other hand, reduces the metal reserve to a minimum in a certain phase of the cycle, so that it can no longer perform the functions for which it is intended — it is the developed credit and banking system which creates this over-sensitiveness of the whole organism. At less developed stages of production, the decrease or increase of the hoard below or above its average level is a relatively insignificant matter. Similarly, on the other hand, even a very considerable drain of gold is relatively ineffective if it does not occur in the critical period of the industrial cycle.” (p 572)
In other words, as seen in previous chapters, what the credit system and development of banking does is to reduce the ability of any money to simply remain inactive. Where, in the past, the wages of workers might have been simply sat waiting to be spent, now even these small amounts of income, amassed by the banks, became money-capital, constantly in search of the highest yield. And, because this supply is then constantly fully committed, any changes in its level have proportionately greater effects.
“In the given explanation we have not considered cases in which a drain of gold takes place as a result of crop failures, etc. In such cases the large and sudden disturbance of the equilibrium of production, which is expressed by this drain, requires no further explanation as to its effect. This effect is that much greater the more such a disturbance occurs in a period when production is in full swing.” (p 572)
During such periods of boom, the demand for money-capital is necessarily high, although supply may also be high. A drain of gold, to pay for food imports, may, therefore, swing this balance to push rates much higher, but, whether this will be decisive depends on the profits being made, and on whether the rise in interest rates goes along with an actual shortage of money.
If profits are high, firms may be able to simply pay the higher interest rates, so long as they obtain the credit required, and there is sufficient liquidity to enable commodity circulation to continue. The problem in 1847 and 1857 was that liquidity itself dried up, due to the provisions of the Bank Act.
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