Great Britain—A Money Stringency[a]
London, Nov. 10, 1860
An event long ago predicted has set in, a drain of bullion, and, consequent upon it, a rise in the rate of discount. Yesterday the Bank of England raised the rate of discount from 4 to 4½ per cent. In the corresponding month of 1859 the bank rate did not exceed 3 per cent, despite the then enormous shipments of silver to the East, amounting to £13,234,305. The obvious object of the Bank was to put a check on the drain of bullion from its vaults, which, amounting to £16,255,951 on the 26th of September last, is now reduced to £13,897,085, not including £43,000 taken from the Bank yesterday. The drain, beginning on Sept. 26, has been constantly on the increase until it has reached this week almost £300,000. The large imports of corn were, of course, sure to lead, sooner or later, to an emigration of the precious metals, but the payments of the corn bills being not yet due, the present drain cannot be accounted for in this manner, and, moreover, it takes place concurrently with a rate of discount higher in London than in Paris, Amsterdam, Brussels and Hamburg, while simultaneously the gold export leaves no profit as an exchange operation.
Whither, then, does the gold go? To the vaults of the Bank of France. The present discount rate of the Bank of France is only 3 per cent, although that concern has lost about £4,000,000 since the end of August, while its discounts for August and September have increased by about £3,000,000. Any vulgar bank would, under such circumstances, have raised its rate of discount, but Louis Bonaparte, afraid to cause a visible disturbance of the money market, orders the Bank to purchase gold at a loss, and will force it to continue proceeding with this certainly not mercantile operation. On the other hand, the Bank of England proves that it is unable to check the present drain by the rise in the rate of interest. Yesterday, for instance, no bullion was taken from the Issue Department of the Bank, but a considerable quantity in sovereigns was drawn from the Banking Department. It is one of the necessary consequences of Sir Robert Peel's blessed bank acts of 1844 and 1845 that the mercantile public are constantly misled as to the real amount of the precious metals exported, since the Banking Department furnishes no public returns of the sovereigns withdrawn from its chest.
The rise in the official discount rate of the Bank of England, especially if continuing, will, of course, impose upon the Bank of France the necessity of following in the same direction, and thus prevent Louis Bonaparte from any longer commanding the Bank Directors to buy gold at a loss, in order to hide a visible derangement of the money market. Still, the English drain of bullion will not be stopped by that eventuality, since, in proper time, the corn bills must fall due and be paid for in cash.
Written on November 10, 1860
First published in the New-York Daily Tribune, No. 6111, November 24, 1860
Marx based his analysis on the article "The Rise in the Bank Rate of Discount", The Economist of November 10, 1860, pp. 1232 and 1242.—Ed.
An Act to Regulate the Issue of Banknotes, and for Giving to the Governor and Company of the Bank of England Certain Privileges for a Limited Period was introduced by Robert Peel on July 19, 1844. It envisaged the division of the Bank of England into two completely independent departments, each with its own cash account—the Banking Department, dealing exclusively with credit operations and the Issue Department, issuing banknotes.
The Act limited the number of banknotes in circulation and guaranteed them with definite gold and silver reserves which could not be used for the credit operations of the Banking Department. Further issues of banknotes were allowed only in the event of a corresponding increase in the precious metal reserves.
Marx analysed the Act of 1844 and its significance in a number of articles for the New-York Daily Tribune: "The Vienna Note.—The United States and Europe.—Letters from Shumla.—Peel's Bank Act" (see present edition, Vol. 12), "The English Bank Act of 1844 and the Monetary Crisis in Britain", "The British Revulsion" (Vol. 15) and "The English Bank Act of 1844" (Vol. 16). A detailed description of the Act was given by Marx later, in Capital, Vol. III, Chapter XXXIV.
Source: Marx and Engels Collected Works, Volume 17
(pp.497-498), Progress Publishers, Moscow 1980