London, May 19. According to the optimists of the press here the 
economic crisis in England has now ended, and commerce and 
industry are once again taking an upward course. They draw this 
consoling conclusion from the fact that there has been an easing of 
the money market. For on the one hand there has been an increase 
in the gold reserve in the vaults of the Bank of England, and on the 
other the bank has lowered its rate of interest. Whilst on Januar 
20, 1855, the value of the gold holdings was only £12,162,000, on 
May 12, 1855, it had risen to £16,045,000—an increase of 
£3,883,000. The rate of interest, which stood at 5 per cent on 
January 20, 1855, was lowered by the Bank to 4'/, per cent on 
March 31, and to 4 per cent on April 28. However, those 
gentlemen have overlooked the fact that an accumulation of gold 
in the vaults of the Bank and a fall in its rate of interest can be 
caused by something other than an economic boom—namely the 
very opposite. stagnation of business and, linked with that, a 
falling-off in the demand for capital. That the latter is really the 
cause on this occasion is shown by the tables published every week 
by the Bank of England. Only one should not, like those optimists, 
look exclusively at two columns contained in the tables, gold 
holdings and rate of interest. One has to compare two other 
columns—those showing reserve bank-notes and discounted bills. As is 
generally known, the Bank of England is split into two different 
departments, the Issue Department* and the Banking Department. 
We can describe the former as the mint of the Bank of England. It 
is engaged solely in manufacturing bank-notes. Robert Peel’s Act 

* Here and below Marx uses the English terms.— Ed. 

Questions of Finance 199 

of 1844 laid down legal limitations on the issue of bank-notes. 
That is to say, above the sum of £14 million, which is the amount 
of capital it is owed by the state, the Bank can issue no more 
bank-notes than there is gold in its vaults. If then, for example, 
the Bank issues bank-notes to the value of £20 million there has 
to be gold worth £6 million in its vaults. The Issue Department 
of the Bank is engaged solely in manufacturing and _ issuing 
bank-notes in accordance with the restrictions described. It 
transfers all the bank-notes it manufactures in this way to the 
Banking Department, the actual Bank, which does business with 
the public like any other deposit and discount bank, and which 
puts bank-notes into circulation by discounting bills, advancing 
money on interest-bearing papers, paying dividends to state 
creditors, paying off deposits it holds, etc. Robert Peel cleverly 
devised both this division of the Bank of England into two 
self-contained departments and this method of regulating the 
amount of notes to be issued, because he fancied this would make 
it possible to guard against any future monetary crisis arising, and 
to adjust the amount of paper currency to that of metallic 
currency by means of an automatic and mechanical law. What the 
celebrated statesman overlooked was the not insignificant fact that 
his restriction only regulated circulation between the Issue 
Department and the Banking Department, between two offices of 
the Bank of England, but by no means determined circulation 
between the Banking Department and the outside world. The 
Issue Department of the Bank transfers to the Banking Depart- 
ment as many bank-notes as it is allowed by law to manufacture, 
for example £20 million if there are £6 million gold in its coffers. 
However, what proportion of these £20 million actually goes into 
circulation depends on the state of business, and on_ the 
requirements and demand in the world of commerce. The 
remainder, which the Bank cannot dispose of and which is thus 
left in the coffers of the Banking Department, appears in the 
accounts rendered by the Bank under the heading of reserve 
bank-notes. 

Seeing, as we have, that, from January 20, 1855, to May 12, 
1855, the gold holdings of the Bank increased by £3,883,000, we 
also find that during the same period the quantity of bank-notes 
held in reserve rose from £5,463,000 to £9,417,000, i. e. by 
£3,954,000. The greater the quantity of reserve bank-notes, 1. e. 
the notes left in the coffers of the Banking Department, the 
smaller is the quantity of notes actually circulating amongst the 
public. However, from the figure just quoted it follows that the 

accumulation of gold in the vaults of the Bank has been 
accompanied by a decline in the quantity of bank-notes circulating 
amongst the public. What is the reason for this contraction in 
circulation? Simply a decline in trade and a fall in business 
transactions. Any doubt as to the accuracy of this view will be 
dispelled when one sees from the same accounts rendered by the 
Bank that the value of bills discounted by the Bank was 
£25,282,000 on January 20,1855, whereas on May 12, 1855 it had 
fallen to £23,007,000—a decrease of £2,275,000. But the value of 
bills discounted by the Bank is the most reliable gauge of the 
quantity of business transacted between the Bank and the world of 
commerce. The evidence is even more conclusive if one considers 
that the Bank lowered its rate of interest to 4 per cent on April 
28, and thus offered its commodity—capital— 20 per cent cheaper 
than in the previous January. And from April 28, when the Bank 
lowered its rate of interest, to May 12 the quantity of bank-notes 
spent on discounting bills fell instead of rising—proof that under 
the present state of the economy capital is still too expensive at 
4 per cent to find even the demand it found at the beginning of 
January at 5 per cent; proof that the fall in the rate of interest 
cannot be ascribed to a greater influx of capital but rather to a 
reduced demand on the part of commercial and industrial 
enterprises; proof, finally, that the increase in the metal held in 
the vaults of the Bank is only an increase in idle capital which, at 
this moment, cannot be utilised. 

Marked with the sign X 

201 

Frederick Engels