"Money and Crisis" (Part Four)

Sergio Bologna

[Part Four of five parts. Continued from here.]

Marx's success in eliciting the class content from an election in which the principal issues being discussed were foreign policy and constitutional guarantees, eases the transition to two subsequent articles which were to appear as appendices to Engels' The Condition of the Working Class in England.If one reads Kuczinsky, Landes and Hobsbawm, it seems to me that there is a remarkable homogeneity in the judgements which historians have given regarding the class composition of Britain at that time. Leaving aside the constant complaint that it is hard to find reliable or at least significant general data prior to 1860 (on employment levels, wages, contracts, intensity of work etc) the class situation appears to be characterised by a fairly precise composition: "The immense mass of semi-proletarians, the poor with occasional jobs, hired irregularly, homeworkers or helpers in small workshops, the world of poverty which comes out of the pages of Mayhew in London Labour and the London Poor in the period 1850-60... was for practical reasons beyond the reach of the trade unions."

It was within this proletarian context that the big factories of the industrial districts functioned, and within them we find once again a working-class composition that is very similar to that of the mass worker, particularly in the textile sector, where female employment levels tend to rise progressively (according to Kuczinsky from 635,000 in 1851 to 726,000 in 1871), or in the clothing sector (from 491,000 to 594,000 in 1871). Or in the new sectors, characterised by unskilled and general manual labour, such as rail transport, steel, or in others where the enormous increase in production and the absence of mechanisation to replace human labour carried employment to incredible levels, as among the coal miners, who, by the end of the century, would number more than a million. But in the "artisanal" sectors too, in a sense by long-standing tradition, there were situations and behaviours which were characteristic of the mass worker. In particular that of labour mobility from zones of crisis to zones of development. The spread, within the craft unions, of the travel chit and the migration indemnity, (which, as Hobsbawm notes in his essay, suggest a generalised practice and a mobility of labour far greater than one might suppose from looking at the statistics) went hand in hand with a greater awareness of the precariousness of work: "The experience of the decade 1840-50 brought about an important change: the spread of unemployment benefits. The reasons were clearly of non-financial origin, inasmuch as the cost of the migration indemnity per person was not high, and was generally paid by means of local collections and private hospitality rather than via established payments." This innovation, and others, "constitute a recognition of the industrial cycle; they mark an important phase in the education of the working class; it was the recognition of the fact that the capitalist economy was not something which could be avoided, but which had to be confronted with the understanding of the specific laws of its movement."

"Above" these worker-proletarian strata stood the "labour aristocracy", which, as has been noted, had an extremely strong bargaining power and exercised a particular hegemony over the construction of the trade union movement, although precisely in this period of transition it was in a clear minority. On the other hand, at the other extreme of working-class stratification, we still find a very large number of children (according to Kuczinsky as much as 10% of the industrial workforce) working in sectors such as textiles which were characterised for the most part by small-to-medium-sized companies.

This is the period of transition from the "textile age" to the age dominated by coal and steel. In 1856 the Bessemer process was discovered, followed a few years later by the Siemens-Martin process. The new industrial regions and the new British factory-cities begin to grow up around the steel sector (Middlesborough); the percentage of factory workers in relation to the rest of the active population is higher in Scotland than in England. Clearly this leads to a big increase in the more skilled jobs, and to increased levels of skill, but there is also a relatively greater increase in the number of unskilled workers. In some sectors, in shipbuilding, for example, the transition from wooden hulls to metal hulls brings a massive destruction of artisanal trades. The other big phenomenon of the reduction of artisanal skills is found in the decline of domestic industry.

The crisis of 1857 took unemployment to the highest levels of the decade 1850-60, reaching almost 12% by 1858.

It is obvious why this state of dis-aggregation of the class led bourgeois historiography to call this Britain's "Golden Age". Following a classic Leninist schema, Kuczinsky maintains that the massive export of capital was the most significant fact in the strengthening of the bourgeoisie and the exploitation of the working class. At the same time, between 1849 and 1858, English overseas trade increased by 66%. Palmerston's policy of colonial intervention would be a logical corollary of this expansive force of British capital. But what is the motor of this development? Landes correctly identifies it in the "finance revolution", in other words in the incredible expansion of credit and in particular of that favouring the setting-up of new industrial companies. The growth of credit, and thus the increased circulation of paper money first, and then fiduciary money, is thus not linked to the rate of accumulation of metal reserves by the Bank of England, in the wake of the imports of Californian and Australian gold; reserves rose from £8.3 million sterling in October 1847 to £21.8 million in the third quarter of 1852.

The fact that interest rates remained low for the whole decade resulted not from the policies of the commercial banks, but from the interest rates set by the central bank ("and when the central banks were ready to take paper, everyone was ready to take paper"). The volume of credit and the mass of money in circulation was extended; what counted now was not so much the price of money as its availability. Therefore, going against the Ricardian theories which had inspired the Peel Act of 1844, the policy pursued by the command staff of British capital was that of allowing an unlimited speculation and appropriation of the labour of others, both at home and abroad. "Trade and industrial development of this period (1840-80) is to a large extent marked by three large credit booms: 1852-7, 1861-6, 1869-73." However the consequences were disastrous at the level of inflation, leading to a depreciation of wages and thereby worsening the conditions of crisis and poverty of the proletariat and further locking them into conditions of precarious industrial labour. Finally, the growing demand for credit drove interest rates upwards, and the weaker employers, the more fragile companies, began to wobble. Then, when monetary panic led to a run on gold and a withdrawing of savings, this triggered a collapse of many commercial speculators. But the spread of credit, the diffusion of operations which at one time were the privilege of an inner elite, ended up creating - as in France - a propensity to investment which even led to forms of working-class shareholding, to the setting-up of cooperatives and limited companies which developed a major role in certain sectors (for example, the "Oldham limited companies" in the textile sector).

The dangers of an economic co-optation of certain sections of the working class, the increasing tendency shown by the Chartists to dedicate themselves to cooperative enterprises, the spread of the ideology of profit within the petty bourgeoisie and the privileged working-cass strata, posed an immediate problem for Marx's battle for communism. Kuczinsky notes, correctly, that in 1851 Marx and Engels were counting on a crisis in the short term, and that by 1856-57 they were already becoming more cautious. Their objective was to organise an assault on the economic illusions of the proletariat, be they the bankers' utopias or the utopias of co-operatives.

As in Capital, the source which Marx uses to examine the condition of the working class and its level of exploitation is the reports of the Factory Inspectors. The statistics were relatively up-to-date, dating from October 1856. Shortly prior to its dissolution, the British parliament had passed two laws with a reformist flavour: the first concerned protection in the event of industrial accidents due to machinery; the second set up arbitration bodies to deal with conflicts between employers and workers - particularly as regards the application of safety regulations. But the inspectors themselves noted that the first law only protected workers in relation to their own machines, not workers who were transferred temporarily to other machines (and thus, not being familiar with them, were more liable to have accidents). Working-class mobility, which was already an instrument of exploitation, enjoyed none of the protections accorded by the bourgeois state. Further, the inspectors also noted that, for the proposed membership of the arbitration tribunals, the second law recommended engineers and machine-makers - in other words the textile employers' best suppliers. What Marx found particularly interesting in the factory inspectors' reports was the systems of intensification of exploitation, of extraction of absolute surplus value. These consisted essentially of extending the working day of young workers, women and children - by allowing work to be started before six in the morning and continued beyond six in the evening, and taking away five minutes at the start and end of lunch breaks. While the relationship between installed motive power and working-class employment levels remained constant, the relation between the number of machines and employment levels increased enormously. Not only were there now more machines per worker, but there was also a greater overall velocity of machinery. The results were alarming in terms of accidents at work: in the six months from April to October 1856, the number of industrial accidents registered by the Factory Inspectors in the Lancashire textile industry was "about ten times the number lost by the British Navy during its glorious Canton massacre," as Marx notes.

The inspectors also noted the variety of systems which textile employers were setting up in order to escape inspections, including providing their factories with multiple exit doors so that workers could be evacuated in a hurry if the inspector happened to turn up at the wrong moment, or suddenly turning the gas off, leaving the inspector poking around in the dark among machines that were unfamiliar to him, or sending "scouts" to railway stations and coach stations, in order to warn when an inspector was about to arrive. The article concludes: "The antagonism between the mill lords and the operatives is rapidly approaching the point of actual social war", and "the industrial slavedrivers of Lancashire need a foreign policy capable of distracting attention from the problems of domestic policy." The term "surplus labour" had been used by the inspectors themselves, as Marx notes punctiliously. What interests us is not so much the re-descent from the heavens of money into the hell of the factory - which Marx performs with these two articles - but the fact that the theme of the intensification of exploitation is directly related to crisis and becomes part and parcel of his analysis of the crisis. From over-production to surplus labour. One recalls immediately the section on crisis in the Grundrisse, in which he speaks of the intrinsic necessity of the accumulation mechanism in reducing the amount of necessary labour and of increasing the amount of surplus labour - posing this necessity as the real origin of the crisis. Each employer sees only other employers' workers as consumers, not his own; each sees his own workforce as a mass from which to extract a maximum of surplus labour. Mechanisms of surplus value and mechanisms of crisis are thus indivisibly related.

In his second article, of 28 April 1857, Marx quotes from the Factory Inspectors' comments on a series of statistical tables developed from a questionnaire distributed to textile industry employers who were using steam or water-power as their power source. They note the average increase in the number of factories in the period 1838-1850, and the period from 1850 to 1856, particularly in the silk industry, which sees an increase of 66% compared with 14.2% in cotton. On the other hand there is total stagnation in the wool sector. This indicates more the process of concentration that was taking place in the cotton sector than anything else. What is interesting, however, is the data on regional differentiation of growth, where one sees on the one hand a strengthening of the traditional regions of Lancashire and Yorkshire, where the big factories are being set up, and the weakening of a whole series of textile counties in the South (Wiltshire, Dorset, Somerset, Gloucestershire) where, in addition to an absolute decline in the number of factories, there is a stagnation in the process of concentration. Polar attractions can thus be observed both in terms of capital and at the territorial level. Finally, his statistics on employment levels are interesting. The percentage of child labour (children below the age of 13) shows a continuous increase from 1838 onwards, and reaches 6.6% in 1856, while that of young workers between the ages of 13 and 18 actually fell slightly. Employment levels of women (aged 13 and upwards) increased: from 55.2% in 1838 to 57% in 1856. Adult male levels (18 years and upwards) fell from 26.5% of the workforce in 1850 to 25.8% in 1856.

The insistence with which Marx underlines the importance of child labour and women's labour, his very decision to embark on an isolated analysis of the textile sector -- leaving aside the fact that he was prompted by the availability of statistical material - confirms the hypothesis that the model of the big factory which he seeks to take on is that in which there is the maximum wage compression, in which the wage really is a minimum subsistence level, in which "slavery" is the determining element. It is no accident that he ends his article by noting that 1844 saw the passing of the law which permitted the employment of children of eight years and over, whereas the previous legislation had forbidden children below the age of nine from working in factories.

But the descent into the hell of the factory was short-lived. Already on 23 April 1857 he is writing to Engels that he had heard from an old Stock Exchange buff that a crisis of such severity had not been seen for forty years. He adds: "I haven't yet got round to it, but some time I really must investigate the relation between the rate of exchange and bullion. The role played by money as such in determining the bank rate and the money market is something striking and quite antagonistic to all laws of political economy. Worthy of note are the two newly published volumes of Tooke's History of Prices. A pity the old man's head-on collision with the 'currency principle' chaps should lead him to give such a one-sided turn to all his disquisitions."

He is referring to the final two volumes of Thomas Tooke's History of Prices, to be precise those covering the period 1848 to 1856, which were written in collaboration with his pupil William Newmarch. By Marx's own admission, they are a crucial work as regards the transcendence of the Ricardian theory of money; seen in the context of Marx's intellectual biography, they are probably the decisive work which proved on the one hand the falsity of Ricardo's theory, and on the other hand the incongruousness of the measures taken by the English state with the Peel Act in 1844 - precisely in the application of that theory. In fact, in Towards a Critique of Political Economy he was to say: "Prices are thus not high or low because more or less money is circulating, but more or less money circulates because prices are high or low. This is one of the most important laws of economics, whose detailed demonstration on the basis of the history of prices constitutes perhaps the only merit of post-Ricardian English economics."

Here the circle really does close, and the links of the chain are welded together. The data produced by Tooke demonstrated amply that a whole series of laws inherent to Ricardian theory had been disproved by economic reality. Together with the Reports on the Bank Acts, in other words the reports of the Parliamentary Commission of Inquiry into the crisis of 1857-58, which we find amply represented in the materials gathered by Engels for Book III of Capital, the history of prices offered raw material for finally making an explicit criticism of Ricardo. The final preparatory work for the writing of the Grundrisse (and then Towards a Critique of Political Economy) was thus completed. Marx reads the two final volumes of Tooke in April; the Parliamentary Commission begins its activities in July; the writing of the Grundrisse begins in November. However, in addition to this historical material, the crisis itself provided a wealth of insights.

The articles in the Economist, particularly those of its editor James Wilson - a man very close to the "banking school", later to become a member of the commission of inquiry into the banking laws (which heard submissions from Lord Overstone, the force behind the Peel Act, and from Tooke, Newmarch and others) - aimed to show how the relationship between the drain of gold, exchange rate mechanisms and variations in the interest rate were entirely at odds with the laws expressed by Ricardo, and the absolute unsuitability of the monetary instruments which the British state had installed in order to govern liquidity, in other words to control the economic process and prevent crises.

These criticisms of Ricardo were a demonstration of capital's inability to govern the crisis; given that they suggest an element of weakness of the state, they thus supply Marx with powerful arguments for his critique of the capitalist state. The introduction to a discussion of the state which we saw so clearly expressed in the articles on the Crédit Mobilier is here enriched and consolidated. Naturally the discussion goes far beyond the unsuitability of the government's technical instruments. While Marx strips bare the tautologies in Ricardo, this does not imply that he accepts the positions of the "banking school", where "there is an undifferentiated confusion of the differences between the means of circulation as money, as money capital in general, and as capital productive of interest." They do, however, represent an advance in bourgeois science, a greater critical awareness of monetary conditions, and are thus a prelude to the creation of more refined technical instruments in order to govern the monetary process and eliminate the more destructive aspects of crisis. Thus we can say that in this instance too 1857 constitutes a leap forward in the science and political power of the bourgeoisie.

In what follows we have the fundamental points of Ricardian theory as Marx outlines them, and the substance of the Banking Law of 1844 (which was completed with the law on Scottish banking in the subsequent year). "According to Ricardo the value of metallic money is determined by the labour-time incorporated in it, but only as long as the quantity of money stands in correct relationship to the amount and price of commodities to be exchanged. If the quantity of money rises above this ratio, its value falls and commodity-prices rise; if it falls below the correct ratio, its value rises and commodity prices fall - assuming all other conditions equal. In the first case, the country in which this excess gold exists will export the gold whose value had depreciated and import commodities; in the second case, gold will flow to those countries in which it is assessed above its value, while the under-assessed commodities flow from these countries to other markets, where they command normal prices. [...] Although bank-notes are convertible, and therefore their real value corresponds to their nominal value, the aggregate currency consisting of metal and of convertible notes may appreciate or depreciate in accordance with its aggregate quantity, for reasons already stated, rising above or falling below the level determined by the exchange-value of circulating commodities and the metallic value of gold..."

On the basis of these premises, whereby only gold and banknotes constituted money, the banking laws of 1844-5 imposed on the issuing house, the Bank of England, an obligation to maintain metallic reserves which were not to fall below a given percentage of the amount of banknotes in circulation. The relation between the amount of gold and banknotes in circulation and the amount of gold reserves was fixed by a legislative standard which represented a quantitative margin within which control of monetary liquidity would be possible. The 1844 Bank Act divided the Bank of England into an issue department and a banking department, of which the former was specifically enabled as regards control over liquidity, and the latter was empowered to deal with relations with other banks - where, however, the problem then re-presented itself. The bank thus came to have two distinct functions. However, while on the one hand a corrective was introduced to the rigid ratio laid down by the law and the government was prepared to let things be guided by the exigencies of credit (it is worth noting that the above-mentioned statistics cited by Landes demonstrate how despite the Peel Act, the mass of money in circulation and the gold reserve never once observed the proportions required by law), on the other, a series of contradictions arose precisely with the principles of this law, which Marx was to highlight in the preparatory materials for Book III of Capital.

If we read these materials closely, together with the preceding pages of Towards a Critique of Political Economy, we see that the first point on which Marx engages Ricardo is precisely in the determination of gold as a world money and thus as a means of international payments. Tooke's researches had shown clearly how the outflow of gold had not in fact caused substantial variations in the prices of commodities, precisely because the gold exported functioned as a means of international payment inasmuch as it was gold, money as raw material. What was affected by the outflow of gold was thus variations in the price of money, in other words the rate of interest, and not the prices of commodities. It had an effect on exchange rates and thus proved false Ricardo's assumption that money had the same value in all countries.

Marx describes the instigators of the banking laws of 1844-5 as "meteorologists of economics". A large part of the contradictions into which they had fallen could only be clarified by confronting the problem of credit: "Their shameful fiasco, both theoretical and practical, after experiments at the highest national level, can be illustrated only in the theory of credit." Marx thus accepts, as the first step in his critique of Ricardo and Lord Overstone, the position of the "banking school", whereby not only money and banknotes were to be considered as currency, but also the use of banking deposits, shares and cheques. For which reason, since money as a means of circulation is essentially credit money, it was impossible to think of regulating its mass with legislative provisions. Did this laissez faire extremism represent a step forward or a step back in relation to Lord Overstone's centralising tendencies? Marx's interventions in the New York Daily Tribune tend to demonstrate that while the vision of money that characterised the "banking school" was historically more progressive than the Ricardian view, nonetheless it was wrong to think that it represented a rejection of the centralisation of capital's political command. And it was precisely the organisation of credit that created this command, no longer as equilibrium but as a forcing of the process, no longer according to the idyllic image of things somehow finding their own level, but according to the fierce process of changes in the organic composition of capital. Ricardian theory expressed a requirement for stability, whereas that of Tooke, Péreire and Wilson expressed a necessity of breaking with the past. Something quite other than laissez faire, therefore, as seemed to have been expressed in the thesis that a control of liquidity was impossible to bring about! That thesis expressed, rather, a need to break the barriers of equilibrium - of the old equilibrium. The onward march of exploitation had to trample Ricardo underfoot and leave him behind. The confrontation with the "banking school" and with all the problems of credit money was to be taken up again at a higher level. What was at stake, at the political level, was hegemony over the process of crisis. Either the science of capital would have to be successful in forging instruments in order to manoeuvre crisis and where necessary to determine it (i.e. longer to eliminate it), or the working class movement would succeed in transforming it into an opportunity for subversive organisation.

The critique of the theories of Tooke and Fullerton on credit money hinged essentially on the confusion between circulation and capital or, rather, on the confused distinction between money as a means of circulation and money as capital. According to Marx, money is a means of circulation, is money in the proper sense, when it functions as expenditure of revenue. It is capital when it is exchanged for means of production and labour power. But in both cases it functions as a means of acquisition and as a means of payment: in other words, it is an agent of circulation. Thus it is erroneous to see circulation as distinct from capital. If anything, the distinction is between the money form of revenue and the money form of capital. But whereas what counts in the first case is the contracts of buying and selling, in the second case - where capitalists and workers confront each other face to face -- it is not the contract of acquisition that counts, but the fact that the acquisition is completed by means of money, which here appears as monetary capital waiting to be transformed into productive capital (whereas in the first case it is waiting to be transformed into commodity). A society in which the money form of revenue operates can be any mercantile society; a society in which the money form of capital operates can only be capitalist society, in other words a society where already given social relations exist, where the person who buys labour power must already own means of production. The problem is to know whether it is possible to apply the same laws of circulation to all these functions of money. Now, where money presents itself as an expenditure of revenue, its velocity of circulation is determined by consumption; where it presents itself as money capital it is determined by the rhythm of the process of reproduction; where it presents itself as transfer of capital - in other words from capitalist to capitalist --it is determined by credit. Each of these spheres is determined by variables which are not proper to the other spheres. The various determinations of money are articulated in different institutional compartments, each of which has its own organisation. The contemporaneous functioning of this plurality of mechanisms is what brings about crisis. But this entering-into-contradiction of autonomous spheres is only one aspect of the problem. The fundamental difference between vulgar economists and Marx on this count lies in the view of the cycle as a variable which has a powerful conditioning effect on the state of circulation.

On the problem of liquidity Marx had already written a first article for the New York Daily Tribune in 1853 (24 September): "Peel's Bank Act of 1844 proceeds on the assumption that the metallic circulation is the normal one; that the amount of the currency regulates prices; that in the case of a purely metallic circulation, the curRency would expand, with a favourable exchange and with an influx of bullion, while it would be concentrated by an adverse exchange and a drain of bullion; that a circulation of bank notes has exactly to initiate the metallic circulation; that accordingly there had to be a degree of correspondence between the variations in the amount of bullion in the vaults of the Bank of England and the variations in the quantities of its notes circulating among the public; that the issue of notes must be expanded with a favourable and contracted with an unfavourable exchange; lastly that the Bank of England had control over the amount of its notes in circulation."

But also on the basis of purely metallic circulation, the sum of the means of circulation is not able to determine prices, just as it would not be in a position to determine the extent of trade and industrial transactions; but prices do determine the amount of money in circulation. Unfavourable exchange rates and a drain of bullion would not diminish even a purely metallic circulation because they do not influence the amount of currency in circulation, but the amount of currency held in reserve in the form of deposits. On the other hand, a favourable exchange and an influx of bullion would increase not the currency payment in circulation, but the currency deposited in banks or hoarded by private individuals. Since the Peel Act starts from a false conception of metallic circulation, naturally it arrives at a false imitation of it by paper circulation. "The very idea that a bank of issue has a control over the amount of its outstanding notes, is utterly preposterous." A bank issuing convertible notes or advancing notes generally has neither the power of augmenting the natural level of circulation nor the power to cripple it by one single note. A bank may certainly issue notes to any amount its customers will accept; but, if not wanted for circulation, the notes will be returned to it in the form of deposits, or in exchange for metal itself. On the other hand, if a bank intends forcibly to contract its issues, its deposits would be withdrawn to the amount needed for filling up the vacuum created in the circulation. "Thus a bank has no power whatever over the quantity of circulation, whatever may be its power for the abuse of other people's capital." He returned to the same theme in an article in the Neue Oder Zeitung of 22 May 1855, where he extends to the banking problems what he had said in a preceding article concerning production: "The crisis is permanent; the government is only temporary."

On 21 November 1857, at the height of the crisis, Marx resumed in the New York Daily Tribune the debate that he had begun four years previously. Now his technical instruments of analysis were far more refined, and the wealth of material which the crisis had brought into the open enabled him to deepen his analysis.

However, before re-reading this group of articles from November-December 1857, I shall look at four articles published between June and September. Once again the protagonist is the Crédit Mobilier as capital productive of interest. Marx demonstrates the social form and the private nature of its operations. We find ourselves here at the height of the financial crisis and a fairly harsh polemic is under way between the Crédit Mobilier and the Bank of France. Péreire had offered to buy the public debt held by the Bank of France, and he had presented this offer as an act of patriotic self-abnegation. In actual fact, if the bank had thrown these shares onto the open market it would have lowered the value of the railway shares owned by the Crédit. So here we have a patriotic operation unmasked as private interest. Péreire, furthermore, had been forbidden to issue six hundred million francs-worth of "trump cards", just as two years previously he had been banned from issuing two hundred millions-worth of fiduciary money: "The Crédit calls this issue augmenting its capital, where the common people were more likely to call it augmenting its debts." The Crédit boasts of having replaced private industry with industrial joint-stock companies. But the fact that it had invested forty million francs in state funds in 1856 (of the sixty million francs which form the capital of the company) and the fact that it had used the sums provided to it by credit to concede "'continuations' in rentes and railway shares on the settling days of the Stock Exchange", that it had speculated on the capital gains, demonstrates once again that the Crédit had turned over a good part of the national capital "from productive industry to unproductive gambling".

[This essay continues here.]