It may be that the conditions imply that the prices of imported materials are low, and this may be the cause of a trade surplus, causing an influx of precious metal, but this is not the cause of a lower rate of interest, which depends on the demand and supply of money-capital.
“If the import market were really glutted, it would prove that a decrease in the demand for imported articles had taken place, and this would be inexplicable at low prices, unless it were attributed to a contraction of domestic industrial production; but this, again, would be inexplicable, so long as there is excessive importing at low prices. A mass of absurdities — in order to prove that a fall in prices = a fall in the interest rate. Both may simultaneously exist side by side. But if they do, it will be a reflection of the opposition in the directions of the movement of industrial capital and the movement of loanable money-capital. It will not be a reflection of their identity.” (p 587)
The argument about low commodity prices causing low interest rates, due to a lower requirement for money-capital, to buy these commodities, also does not follow. A lower price of commodities should result in higher demand for them. If I previously bought commodities for £2,000 that today I can buy for £1,000, I may buy twice as many, in which case my demand for money-capital in the money market is unaltered. But, if I buy less than that, my demand for money-capital will be reduced. However, my profits will now be higher, so all things being equal, this will prompt an additional demand for money-capital pushing interest rates higher.
“Incidentally, a low level of commodity-prices may be due to three causes. First, to lack of demand. In such a case, the interest rate is low because production is paralysed and not because commodities are cheap, for the low prices are but a reflection of that paralysis. Second, it may be due to supply exceeding demand. This may be the result of a glut on the market, etc., which may lead to a crisis and coincide with a high interest rate during the crisis itself; or, it may be the result of a fall in the value of commodities, so that the same demand can be satisfied at lower prices. Why should the interest rate fall in the last case? Because profits increase? If this were due to less money-capital being required for obtaining the same productive or commodity-capital, it would merely prove that profit and interest are inversely proportional to each other.” (p 587-8)
As Marx points out, if low commodity prices went together with low interest rates, then interest rates would be lower in the poorest countries, and higher in the richest countries. And, when “The Economist” insists that when commodity prices are low, interest rates must be low, Marx points out that during crises, exactly the opposite applies.
“Commodities are superabundant, inconvertible into money, and therefore the interest rate is high; in another phase of the cycle the demand for commodities is great and therefore quick returns are made, but at the same time, prices are rising and because of the quick returns the interest rate is low.” (p 588-9)
If the market is glutted with cheap imports, the interest rate may be high, as producers seek money-capital to avoid selling at low prices, into depressed markets, or because merchants seek to buy speculatively at these low prices. On the other hand, interest rates may be low because producers have less resort to credit, to buy inputs at the lower price, so commercial credit may replace bank credit.
“The Economist” pointed to the effect of raising the interest rate on the exchange rate in 1847. But, Marx points out that the gold drain continued long after the change in the exchange rate. He provides a table illustrating the point.
Most of the continued gold drain probably went to the US, he says.
1847
|
Bullion Reserve of
the Bank of England |
Money-Market
|
Highest
Three-Month Rates |
||
Paris
|
Hamburg
|
Amsterdam
|
|||
March 20
|
11,231,630
|
Bank disc. 4%
|
25.67½
|
13.9¾
|
12.2½
|
April 3
|
10,246,410
|
,, ,, 5%
|
25.80
|
13.10
|
12.3½
|
April 10
|
9,867,053
|
Money very scarce
|
25.90
|
13.10½
|
12.4½
|
April 17
|
9,329,841
|
Bank disc. 5.5%
|
26.02½
|
13.40¾
|
12.5½
|
April 24
|
9,213,890
|
Pressure
|
26.05
|
13.12
|
12.6
|
May 4
|
9,337,746
|
Increasing pressure
|
26.45
|
13.12¾
|
12.6½
|
May 8
|
9,588,759
|
Highest pressure
|
26.27½
|
13.15½
|
12.7¾
|
Most of the continued gold drain probably went to the US, he says.
According to “The Economist” the rise in interest rates had reduced the price of securities, thereby increasing foreign demand, and causing British investors to sell foreign securities. The high interest rate deterred borrowing to finance imports, and thereby reduced any outflow of funds.
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