[COMMERCIAL CRISES AND CURRENCY 
IN BRITAIN]* 


There is, perhaps, no point in Political Economy in which there 
exists more popular misapprehension than on the power which 
banks of issue are commonly supposed to wield, of affecting 
general prices through an expansion or contraction of currency. 
The idea that the banks had unduly expanded the currency, thus 
producing an inflation of prices violently to be readjusted by a 
final collapse, is too cheap a method of accounting for every crisis 
not to be eagerly caught at. The question, be it understood, is not 
whether banks may be instrumental in fostering a fictitious system 
of credit; but whether they possess the power of determining the 
amount of circulation in the hands of the public. 

A principle which is not likely to be contested is, that the 
interest of every bank of issue prompts it to keep in circulation the 
greatest possible amount of its own notes. If any bank can be 
supposed to join the power to the will, it is certainly the Bank of 
England. Now, if we consider the period from 1844 to 1857, for 
instance, we shall find that, except in times of panic, the Bank, 
notwithstanding the privilege of throwing its notes into the market 
by the purchase-of public stocks, and notwithstanding successive 
reductions in the rate of interest, has never been able to keep its 
notes in circulation up to the legal margin. But there is another 
phenomenon more striking still. During the period from 1844 to 
1857, the general commerce of the United Kingdom has perhaps 
trebled. British exports we know to have been doubled during the 
last ten years. But, concurrently with this immense increase of 
trade, the circulation of the Bank of England has actually 


Commercial Crises and Currency in Britain 9 


diminished, and still continues gradually to decline. Take the 
following figures: 


Exports. Circulation of Notes. 
184.52 <sosieses coed sinks £60,110,000 £20,722,000 
1854 oes 97,184,000 20,709,000 
T8956. osiiiiceses hiss ayedes 115,826,000 19,648,000 
TBSP. Batcnksashcttsares 122,155,000 19,467,000 


~ 


Thus, with exports increasing by £62,045,000, the circulation 
has fallen by £1,255,000, though during the same period, by dint 
of the Bank Act of 1844, the number of branches of the Bank of 
England was increasing, that of the country banks of issue 
competing with it was decreasing, and its own notes were 
converted into legal tenders for country banks. It might perhaps 
be supposed that the gold coin, supplied from new and fertile 
sources, was instrumental in displacing part of the Bank of 
England notes, by filling channels of circulation which these notes 
formerly occupied. In fact, Mr. Weguelin,* in 1857 Governor of 
the Bank of England, stated to the Committee of the House of 
Commons that, on the part of the most competent persons, the 
increase in the gold currency for the six years then last elapsed 
was estimated at 30 per cent. The total gold circulation he believed 
now to amount to £50,000,000. This addition to the gold coin, 
however, was so little connected with the diminution of the paper 
currency, that on the contrary, the smaller denominations of notes, 
£5 and £10 notes, the only ones which could be superseded by coin 
in the retail trade and in the circulation going on between traders 
and consumers, have actually increased in number simultaneously 
with the increase of the metallic currency. The proportions of such 
increase are represented by the following table: 


Per cent of total 


Notes of £5 and £10. Note circulation. 
IBA 5) ~ acsieeiieacsasaeees £9,698,000 46.9 
ROO” sc crintetstenoe: 10,565,000 51.0 
BS55)s esd succastieneets 10,628,000 53.6 
LB5G: siscsterstcsacass casks 10,680,000 54.4 
L857 cttceets 10,659,000 54.76 


a Report from the Select Committee on the Bank Acts..., 1857, p. 3.— Ed. 
b Report from the Select Committee on the Bank Acts..., 1858, p. XXVI.— Ed. 


10 Karl Marx 


The diminution has thus been limited to the higher descriptions of 
bank notes, notes of £200 to £1,000 performing functions of 
domestic circulation from which coin, properly so called, is almost 
shut out. Such was the saving effected in the use of those notes that, 
notwithstanding the extension of commerce, the general rise of 
prices, and the increase in the small paper currency, the aggregate 
note circulation went on gradually declining. From £5,856,000, to 
which they had amounted in 1852, the number of bank notes of 
£200 to £1,000 had sunk to £3,241,000 in 1857. While in 1844 they 
still formed 26 per cent, they furnished in 1854 but 20.5, in 1855 but 
17.5, in 1856 but 16.9, and in 1857 but 16.7 per cent of the total 
circulation.* 

This new feature in the paper currency of Great Britain arose 
from the growing competition of the London joint-stock banks 
with the private banks, and from the accumulation of vast sums in 
their hands, consequent upon their practice of allowing interest on 
deposits. On the 8th of June, 1854, after a long but vain 
resistance, the London private bankers saw themselves forced to 
admit the joint-stock banks to the arrangements of the clearing- 
house, and, shortly after, the final clearing was adjusted in the 
precincts of the Bank of England. The daily clearances being now 
effected by transfers in the accounts kept by the several banks in 
that establishment, the large notes formerly employed by the 
bankers for the adjustment of their mutual accounts, lost a vast 
field of employment, and were consequently in great part thrown 
out of circulation. Meanwhile the nine joint-stock banks of London 
had increased their deposits from £8,850,774 in 1847 to 
£43,100,724 in 1857, as shown in their published accounts.” 
Whatever influence, therefore, banks may have exercised upon the 
general tendency of trade, and upon prices, must have been 
effected by the management of their deposits, that is, by credit 
operations, instead of by an over-issue of notes, which they proved 
unable to keep up even to the old margin of circulation. 

How little of real money, of Bank of England notes and gold, 
enters into the wholesale transactions of British trade, may be 
conclusively inferred from an analysis, forwarded to the Commons 
Committee by Mr. Slater, a member of one of the largest London 
firms, of a continuous course of commercial operations, extending 
over several millions yearly. The proportions of receipts and 


a loc. cit.— Ed. 
b op. cit., p. V.— Ed. 


Commercial Crises and Currency in Britain 1] 


payments are reduced to the scale of £1,000,000 only, for the year 
1856, and read as follows: 


RECEIPTS. 
In Bankers’ drafts and Bills of Exchange payable after date .......... £533,596 
In checks on Bankers payable on demand ............cccceeeeeeeeeneees 357,715 
Imcountry Bankers’ NOLES 4.5.00 nch15-\ctesict co seecersisinnnlabesntenitanteslt 9,627 
Ota case lecciies aie on eae Sach coon acta oct ase eae ca seas £900,938 
In- Bankwot England totes scenic c5 nes odcara iia icine £68,554 
TAD OG waistesnasdenadgeevin vansuvetassstenus teliedyecenceiaiSeead eds ahak elope ag ies £28,089 
Li SHVEr ANG: COP Pel ni rsiesantine cakes Geant oethean eel earns etn Svcs 1,486 
In Post-Office Orders 2.0.0.0... ceccceecceesceeccecccecccsecetcccuecseceucceseaeseucseuecs 933 
Ne Oleallls Sacecect soci ve ttsicei vtonsdodie nnd cethit secs supsiectea ees bcuseae I a £99,062 
Grand total. 20455 cvccteces secs wales eewieceseie ictal cboh abuse beat egels neke £1,000,000 
PAYMENTS. 
By Bills of Exchange, payable after date ...0....... eee eeeeeees £302,674 
By Checks on: London: Bankers... .ciisscsssenissvedocesnvesnnesncetessvenecenst 663,672 
DE Ota occ istttwsne Be aedeiee cast abcd aac seen aa Lenses ibae kee easels doeeh uae eh ae £966,346 
By Bank ‘of England notes -issccsiccsscesenaseheapeieevaeanevestnessneuerarednatvesas £22,743 
DV OIG. gitesciguaeckecagatiniiniiaigngearind tests emnteser simu uclehiahaces 9,427 
Be. SHVEI-ANG-COD BER fate s:Stisenaning brea piebee tae aie ae tatdy Geass as 1,484 
TOU a ates scoz Geos Reis cee sa ede tee ea ea tee sere eteb eed £33,654 
MSA CEA 3c. ctasadstequa ices cee caaseces oo ueatau ste teetetevean bucbsote Stes £1,000,600 * 


These figures may be taken as an illustration ot the British 
wholesale trade, which centers in London. It is here shown that of 
money received, Bank of Engiand notes amount to less than 10 
per cent, and gold and silver to only 3 per cent of the currency. 
Of the payments made, Bank of England notes are but 2 per cent, 
and gold and silver only | per cent of the currency. On the other 
hand, payments are received in a ratio of about 90 per cent, and 
are made at nearly 97 per cent in that portion of the currency 
formed by the credit and the capital of the traders themselves. 

From an analysis of the issues of the New-York banks—say for 
the last six years—we must arrive at the same conclusion, viz.: that 


4 op. cit., p. LXXI.— Ed. 


12 Karl Marx 


the amount of notes in circulation is beyond the control of the 
banks themselves, and was actually contracting during the very 
epoch when trade expanded, and general prices underwent a 
process of inflation, resulting in a collapse. The vulgar notion, 
therefore, which refers the recent crisis, and crises generally, to an 
over-issue of bank notes, must be discarded as altogether 
imaginary. 


Written on August 10, 1858 Reproduced from the newspaper 


First published in the New-York Daily 
Tribune, No. 5414, August 28, 1858 as a 
leading article