Karl Marx - Precious Metal and Rate of Exchange (Chap. 3.35.4) lyrics

ENGLAND'S BALANCE OF TRADE India alone has to pay 5 million in tribute for "good government," interest and dividends on British capital, etc., not counting the sums sent home annually by officials as savings from their salaries, or by English merchants as part of their profit to be invested in England. Every British colony continually has to make large remittances for the same reason. Most of the banks in Australia, the West Indies, and Canada, have been founded with English capital, and the dividends are payable in England. In the same way, England owns many foreign securities — European, North American and South American — on which it draws interest. In addition to this it has interests in foreign railways, can*ls, mines, etc., with corresponding dividends. Remittance on all these items is made almost exclusively in products over and above the amount of English exports. On the other hand what is sent from England to owners of English securities abroad and for consumption by Englishmen abroad, is insignificant in comparison. The question, so far as it concerns the balance of trade and the rates of exchange, is "at any particular moment one of time." "Practically speaking ... England gives long credits upon her exports, while the imports are paid for in ready money. At particular moments this difference of practice has a considerable effect upon the exchanges. At a time when our exports are very considerably increasing, e.g., 1850, a continual increase of investment of British capital must be going on ... in this way remittances of 1850 may be made against goods exported in 1849. But if the exports of 1850 exceed those of 1849 by more than 6 million, the practical effect must he that more money is sent abroad, to this amount, than returned in the same year. And in this way an effect is produced on the rates of exchange and the rate of interest. When, on the contrary, our trade is depressed after a commercial crisis, and when our exports are much reduced, the remittances due for the past years of larger exports greatly exceed the value of our imports; the exchanges become correspondingly in our favour, capital rapidly accumulates at home, and the rate of interest becomes less." (Economist, January 11, 1851 [p. 30].) The foreign rates of exchange can change: 1) In consequence of the immediate balance of payments, no matter what the cause — a purely mercantile one, or capital investment abroad, or government expenditures for wars, etc., in so far as cash payments thereby are made to foreign countries. 2) In consequence of money depreciation — whether metal or paper — in a particular country. This is purely nominal. If £1 should represent only half as much money as formerly, it would naturally be counted as 12.5 francs instead of 25 francs. 3) When it is a matter of a rate of exchange between countries, of which one uses silver and the other gold as "money," the rate of exchange depends upon the relative fluctuations of the value of these two metals, since these necessarily alter the parity between them. This is illustrated by the rates of exchange in 1850; they were unfavourable to England, although that country's export rose enormously. Yet no drain of gold took place. This was a result of a momentary rise in the value of silver as against gold. (See Economist, November 30, 1850 [pp. 1319-1320].) Parity for the rate of exchange of £1 is: Paris, 25 francs 20 cent.; Hamburg, 13 marks banko 10.5 shillings; Amsterdam, 11 florins 97 cent. To the extent that the Paris rate of exchange exceeds 25.20 francs, it becomes more favourable to the English debtor of France, or the buyer of French commodities. In both cases he needs fewer pounds sterling in order to accomplish his purpose. — In remoter countries, where precious metal is not easily obtained when bills of exchange are scarce and insufficient for remittances to be made to England, the natural effect is to drive up the prices of such products as are generally shipped to England since a greater demand arises for them, in order to send them to England in place of bills of exchange; this is often the case in India. 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. In the course of 1848 England received large quantities of silver from India, since good bills of exchange were rare and mediocre ones were not readily accepted in consequence of the crisis of 1847 and the general lack of credit in business with India. All this silver had barely arrived before it found its way to the continent, where the revolution led to the formation of many hoards. The bulk of the same silver made the trip back to India in 1850, since the rate of exchange now made this profitable. ________________________________________ 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. ________________________________________ Notes 14. The effect this had on the money-market is indicated by the following testimony of Newmarch: "1509. At the close of 1853, there was a considerable apprehension in the public mind, and in September of that year the Bank of England raised its discount on three occasions... In the early part of October there was a considerable degree of apprehension and alarm in the public mind. That apprehension and alarm was relieved to a very great extent before the end of November, and was almost wholly removed, in consequence of the arrival of nearly £5,000,000 of treasure from Australia... The same thing happened in the autumn of 1854, by the arrival in the months of October and November of nearly £6,000,000 of treasure. The same thing happened again in the autumn of 1855, which we know was a period of excitement and alarm, by the arrivals, in the three months of September, October and November, of nearly £8,000,000 of treasure; and then at the close of last year, 1856, we find exactly the same occurrence. In truth, I might appeal to the observation almost of any member of the Committee, whether the natural and complete solvent to which we have got into the habit of looking for any financial pressure, is not the arrival of a gold ship" [B. A. 1857]. 15. According to Newmarch, a drain of gold to foreign countries can arise from three causes: 1) from purely commercial conditions, that is, if imports have exceeded exports, as was the case in 1836 to 1844, and again in 1847 — principally a heavy import of grain; 2) in order to secure the means for investing English capital in foreign countries, as in 1857 for railways in India, and 3) for definite expenditures abroad, as in 1853 and 1854 for war purposes in the Orient. 16. 1918. Newmarch. "When you combine India and China, when you bring into account the transactions between India and Australia, and the still more important transactions between China and the United States, the trade being a triangular one, and the adjustment taking place through us ... then it is true that the balance of trade was not merely against this country, but against France, and against the United States." — (B. A. 1857.) 17. See, for instance, the ridiculous reply of Weguelin [B.A. 1857] where he states that a drain of five million in gold is so much capital less, and thus attempts to explain certain phenomena which do not take place when there is an infinitely greater increase in prices or depreciation, expansion or contraction of real industrial capital. On the other hand, it is just as ridiculous to attempt to explain these phenomena directly as symptoms of an expansion or contraction of the ma** of real capital (considered from the viewpoint of its material elements). 18. Newmarch (B. A. 1857): "1364. The reserve of bullion in the Bank of England is, in truth, the central reserve or hoard of treasure upon which the whole trade of the country is made to turn; all the other banks in the country look to the Bank of England as the central hoard or reservoir from which they are to draw their reserve of coin; and it is upon that hoard or reservoir that the action of the foreign exchanges always falls." 19. "Practically, then, both Mr. Tooke and Mr. Loyd would meet an additional demand for gold ... by an early ... contraction of credit by raising the rate of interest, and restricting advances of capital.... But the principles of Mr. Loyd lead to certain [legal] restrictions and regulations which produce the most serious inconvenience." (Economist [December 11], 1847, p. 1418.) 20. "You quite agree that there is no mode by which you can modify the demand for bullion except by raising the rate of interest?" — Chapman [a**ociate member of the great bill-brokers' firm of Overend, Gurney & Co.]: "I should say so.... When our bullion falls to a certain point, we had better sound the tocsin at once and say we are drooping, and every man sending money abroad must do it at his own peril." (B. A. 1857, Evidence No. 5057.) _________________________________________________________________