Capital III, Chapter 35 - Part 17

ENGLAND'S BALANCE OF TRADE

As well as the £5 million a year paid by India to receive “good government” from Britain, further large amounts were remitted by Britons living in India, as savings from their salaries, as well as profits made by merchants operating in India. Similar large transfers came into Britain from all its colonies.

In addition, Britain owned and still owns, large numbers of foreign securities, on which it obtains interest and dividends.

In Marx’s time, there was very little in the way of flows the other way, out of Britain, but today, that is not the case. Marx quotes “The Economist” of January 11th 1851, which pointed out that, whilst Britain paid for its imports immediately, it gave long dated credit for many of its exports. This meant that in terms of the balance of trade, it appeared that the surplus was not as large as it actually was. The consequence was that the exchange rate did not rise as high as it might, ensuring that British exports did not become uncompetitive due to a high exchange rate.

The other consequence is that during times of economic weakness, although its exports may fall, the remittances from the credit given on the exports of previous years, continued to flow in, which together with reduced imports meant a positive trade balance, an accumulation of funds and lower interest rates.

Marx sets out three causes of changes in the exchange rate. 

1. A change in the balance of payments due to a change in the trade balance, increased capital investment abroad, or other cash payments to foreign countries.
2. As a result of the depreciation of the currency. If the currency of country A depreciates by 50%, then where previously, two units of its currency exchanged for one unit of country B's currency now they would exchange one for one.
3. Where one country uses gold and the other silver, as its money-commodity, any change in the relative value of gold and silver will affect the exchange rate. This obviously does not apply today, as no formal link of currencies to gold or silver exists. 

Marx sets out the basic consequences of a change in exchange rates. If the rate of exchange moved from £1 to 25 Francs to £1 = 30 Francs, this is a movement in favour of the £. French commodities become cheaper in sterling terms. If the £ buys more foreign commodities than previously, the effect will be to increase demand, which will then tend to increase the price of those commodities.

“An unfavourable rate of exchange, or even a drain on gold, can take place when there is a great abundance of money in England, the interest rate is low and the price for securities is high.” (p 592)

In 1848, Britain received large amounts of silver from India, because little credit was being given. However, the Revolutions of 1848, caused the creation of numerous money hoards across Europe, as the political crisis caused uncertainty and fear to rise, reducing aggregate demand. As a result, this silver rapidly found its way from Britain into Europe. In 1850, when the revolutionary wave had subsided, the silver found its way back to India, on the back of the change in the exchange rate.

“The monetary system is essentially a Catholic institution, the credit system essentially Protestant. 

"The Scotch hate gold." In the form of paper the monetary existence of commodities is only a social one. It is Faith that brings salvation. Faith in money-value as the immanent spirit of commodities, faith in the mode of production and its predestined order, faith in the individual agents of production as mere personifications of self-expanding capital. But the credit system does not emancipate itself from the basis of the monetary system any more than Protestantism has emancipated itself from the foundations of Catholicism.” (p 592)

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