[Manchester,] Tuesday, 25 February [1851] 
Dear Marx, 

A week ago yesterday I sent you a letter for Harney’ and have 
had no answer from you since; this might put me in a bit of a 
quandary if a letter from Harney, which may arrive any day, 
should require a speedy answer, or if the new Chartist clique here 
succeeds in negotiating a visit by Harney, and one fine morning I 
find he has turned up at the pub. I hope that you received 
everything safely and that it’s not ill-health that is preventing 
you from writing. Perhaps you don’t care for the letter or the way 
I acted off my own bat without further consultation with you. But 
that was precisely why I sent it to you, and if there had been 
anything you took exception to, nothing could have been simpler 
than to let Harney know he wasn’t to print my article” for the 
time being, and to return me the letter with marginal comments, 
WHICH YOU KNOW WOULD HAVE HAD ALL DUE ATTENTION. 

In any case, I have long owed you an answer to the currency 
business.‘ In my opinion the thing as such is perfectly correct and 
will go a long way towards reducing the crazy theory of circulation 
to simple and lucid runpamentat racts. As regards the exposition in 
your letter I have only the following remarks to make: 

1. Given that, at the beginning of a period or pressure the Bank of 
England accounts show, as you say, £12,000,000 deposits and £8 
million bullion or corn. In order to get rid of the surplus £4 million 
BULLION, you suggest it [the Bank] should lower the discount rate. I 
don’t believe that it needs to do this, and as far as I remember the 
discount rate has never yet been lowered at the beginning of 
the pressure. In my view the pressure would immediately affect the 
Deposits and very soon not only establish an equilibrium between 
BULLION and peposits, but also compel the Bank to raise the discount 
rate so that the suttion would not fall below '/, of the deposits. To 
the extent that pressure increases, the circulation of capital, the 
turnover of goods will stagnate. Once bills have been drawn, 
however, they mature and have to be honoured. Hence the 
reserve capital—the deposits—has to be set in motion—not qua 
currency, aS you will appreciate, but qua cariraz, and thus the simple 

a See this volume, p. 289. - > ibid., p. 287.-¢ ibid., pp. 274-78. 

DRAIN OF BULLION, Combined with pressurs, will of itself suffice to rid the 
Bank of its surplus suttion. This takes place without the Bank 
having to lower its rate of interest under circumstances which 
simultaneously raise the general interest rate throughout the 
country. 

2. In a period of growing pressure, it seems to me, the Bank (so 
aS not to get into difficulties) must increase the proportion of 
BULLION tO Deposits to the same extent that pressure increases. The 4 
surplus millions would be a boon and a blessing, and the Bank 
would release them as slowly as possible. With increasing pressure, 
according to your assumptions, a proportion of Bullion to Deposits 
of the order of 7/5:1, ‘/g:1 and even °*/5:1 would be in no way 
excessive, and, all the easier to bring about as, with the decrease of 
Deposits, the BULLION RESERVE WOUld also decrease in absolute terms, 
though relatively speaking it would increase. In this case a run on 
the Bank is just as possible as with paper money and may be 
induced by perfectly normal commercial conditions without any 
ruinous effect on the Bank’s credit. 

3. “The currency is the last to be affected’, you say. Your own 
assumptions that it is affected as a result of stagnating commercial 
activity, and that then, of course, less currency is required, lead to 
the conclusion that the currency contracts simultaneously with 
commercial activity, and that part of it becomes surplus to the 
extent that pressure increases. Admittedly it is only at the end, in a 
condition of high pressure, that it contracts perceptibly. But looked at as 
a whole this process is well under way from the beginning of the 
pressure, even though this cannot be factually demonstrated in detail. 
But in so far as this surersepinc of part of the currency 1s a consequence 
of the other commercial conditions, of pressure which is independent 
of the currency, and all other commodities and commercial conditions 
are affected before the currency, and also in so far as in practice the 
currency is the last to be sensitive to this decrease, so it will, indeed, 
be the last to be affected by the crisis. 

These comments, as you see, are entirely confined to your modus 
illustrandi*, the thing itself is quite unexceptionable. 

Your 
F. E.