2. CENTRALISATION OF THE ISSUE OF MONEY AND BANKING AND THEIR INTERCONNECTION WITH PUBLIC FINANCE
One of the results of expanding the specific circulation of credit money was the conversion of agents of pre-capitalist money circulation–money-lenders, exchangers and goldsmiths–into money capitalists, bankers. The latter added to the functions of the former agents the concentration of money resources in the form of accounts and deposits entrusted to them by various sections of society against bank receipts or loan liabilities. In their simplest form! these liabilities were notes or bills of exchange given to definite persons. Such bills had a limited circulation with their endorsement. But as soon as the issue of bills payable to the holder was started, the possibilities for their circulation increased. Such bills, in fact, turned into bank notes.
In addition to bills of exchange and bank notes, other forms of credit money were introduced at the dawn of capitalism. Cheques drawn on bank deposits came to be particularly important. Every cheque personifies the payment or the receipt of a credit: payment when the bank redeems the cheque of the client, using partly or fully his deposit in the bank; it is a receipt of credit if the bank itself, on agreement with the client, makes available to him credit np to a certain sum, within whose limits he can draw cheques on the bank.
But whatever form credit money assumes it must not be identified or confused with paper money of mandatory circulation. Credit money is a means of payment, debt liabilities in circulation. "Just as true paper money takes its rise in the function of money as the circulating medium," Marx wrote, "so money based upon credit takes root spontaneously in the function of money as the means of payment.''1
With the appearance of two kinds of paper media of circulation they began to perform important functions formerly discharged usually by metallic money. This to some extent eased the acute need for specie felt in Europe and North America because of growing internal trade.
On the other hand, foreign trade, increasingly becoming intercontinental, presented a bigger demand for circulation media. This demand was satisfied not only by expanding the production of precious metals in the colonies for the minting of coins in the metropolitancountries.lt was also met by the further development of credit money. The issue of credit and paper money was easier than accelerating the production of precious metals. The opening up of new deposits in many cases depended on accidental circumstances and required the investment of capital and time for their development. It is for this reason that the replacement of full-value metallic money by credit money in internal commodity circulation in some countries, especially England, acquired great economic significance. This was mainly exploited by emerging bank capital, which grew out of the pre-capitalist agents of money circulation.
At that time the young private English banks made the issue and circulation of credit money a profitable means of augmenting their wealth. They not only mediated the circulation of bills of exchange by discounting them, but in place of the discounted commercial bills began widely to introduce their own bills payable to the holder which actually were private bank notes. The degree of reliability of the notes of private banks in the process of mutual settlements depended on the financial stability of the bank which issued them.
Circulation of the notes of private banks signified a substantial saving in specie as a means of payment. This saving accrued fully to the private banks. Moreover, they utilised this opportunity to finance commodity circulation for obtaining an additional profit by raising the interest on bank loans. The development of banks and credit money extended the possibilities for trade, with the lion's share of the benefits being appropriated by the new stratum of money capitalists. At the same time, at this initial stage of accumulation banks did not yet possess financial possibilities corresponding to the growing volume of commodity circulation.
In the mid-17th century the need for credit in England was already clearly not being satisfied by the operations of private banks and goldsmiths. It is this that explains why trading capital itself began persistently to look for a way out. Hence the idea of organising a powerful joint-stock bank and thus increasing credit along joint-stock lines, gained ever more supporters.
In the first half of the 17th century, during the reign of Charles I, Samuel Lamb, a big businessman, energetically advocated the idea of organising public banks. During the Cromwell dictatorship in the mid-17th century ho even submitted a plan to Cromwell, arguing that in this way it would be possible to expand trade with the colonies, to bring back gold and silver to England, and so on. The bill for opening a public bank was discussed in a special parliamentary committee.
From the 1670s and up to the end of the 17th century such bills were successively put forward by Lewis, Chamberlain, Patterson, the ill-famed John Law and others. In 1694 such a bank was organised on the basis of Patterson's idea. Notwithstanding the strong resistance offered by private banks of goldsmiths and a considerable section of the House of Lords and other public circles, in April 1694 the bill providing for the establishment of a public bank was passed and approved by the king.
Without going into details about the organisation of the first Bank of England on public lines, let us note that these were the selfsame joint-stock principles of organisation which subsequently ensured the unprecedented concentration and centralisation of capital. Of course, the principles for organising the joint-stock bank were not entirely new and incorporated only in the given bill. Companies organised along joint-stock lines already existed in com-merce. But in this particular case the form of joint-stock capital was applied to banking, which affected both trade and the financial interests of the royal government, i.e., the political sphere (let us recall the great dependence of the royal government on usurious capital, goldsmiths and so on). Subscription for the shares of the bank amounting to &i,200,000, announced at the beginning of June 1694, contrary to pessimistic forecasts, was very successfully completed in a few days. In January 1695 the Bank of England commenced operations, of which the issue of bank notes was basic.
One characteristic detail is worthy of note. Apparently not expecting that banking operations of this financial institution organised along joint-stock lines would bring a profit, the legislators incorporated in the act a clause that the king would receive £100,000 from new tax revenue for annual payments to the subscribers of the bank shares. In other words, the government guaranteed profits to the bank shareholders. It is not surprising that from the first days of its operations the bank began to help the king's government in settling financial matters, particularly in reminting old coins. It exchanged the coins for its notes. At first the private banks of goldsmiths tried to boycott the bills or the bank notes, but failed. Then they resorted to another tactic. Taking advantage of the fact that the bank indiscriminately accepted all coins both of full weight and also abraded and worn out, they presented them in large quantities to the bank demanding that they be exchanged for bank notes. Thus, private banks accumulated a large quantity of the notes of the Bank of England and then presented them to the bank, demanding their exchange for full-value coins. But since the bank was supported by royal authority, its notes increasingly acquired the force of legal tender to the detriment of the notes of private banks. That is why the issue of notes by private banks was curtailed and came to an end in the mid-18th century. At the same time the role of private banks as holders of deposits for different sections of society steadily increased. What was particularly important was that the banks began to concentrate merchants' deposits and make mutual settlements by crediting respective sums of money from one current account to another. In this way the banks turned into public cashiers and gained the opportunity to credit and control the sphere of circulation
In contrast to private banks, the issue of notes by the Bank of England, which was connected with the government, raised its financial and economic role in the state. How this happened was conclusively shown by Marx. Having started its activity with loans of money to the government at an annual interest rate of 8 per cent, the Bank extended its operations. It was authorised to coin metallic money; it used its notes, granting loans at high interest rates, discounting commercial bills and buying up precious metals. Bank notes began to function like coins. The role of the bank in the state increased: "Credit-money, made by the bank itself, became the coin in which the Bank of England made its loans to the State, and paid, on account of the State, the interest on the public debt.''2
It may be said that from the moment this role of the bank was established in public finance, a new era arrived in the development of money circulation in general: metallic money circulation was gradually replaced by the circulation of paper and credit money. And this, like any other novelty, began swiftly to spread in other European countries. Bui here, too, the development of banking initially did not always proceed smoothly. In France the history of hanking was associated with John Law's venture, which to this day is an instructive example of how not to abuse the issue functions of a state bank.
John Law, a Scotsman, advanced his plan for organising a joint-stock bank at the end of the 17th renlury, first in England, but unsuccessfully. On moving to France, be gripped the minds of the more temperamental Frenchmen. Moreover, he was looked upon as a living embodiment of English experience. What happened in the first quarter of the 18th century in France is, as it were, a prototype of contemporary paper money inflation.
The bank founded by John Law in 1716 at first operated as a joint-stock venture. Its bank notes could be regarded as ordinary notes of private banks. After the bank was reorganised into a state institution in 1719, the issuance of its notes without any limit whatsoever turned into the worst kind of issue of paper money. Eventually, it all ended in a tremendous crash and the flight of the initiator of the whole swindling operation. An astronomical figure of the bank notes issued by John Law's bank is named– 3,071 million livres.
Whether this figure is true or not, it is beyond doubt that in this case the French public in the early 18th century faced a fantastic anomaly in the issue of bank notes, which became paper money and which fully disregarded the laws of money circulation. Like any other experiment, John Law's experience was useful at least in demonstrating how not to act in issuing paper money. That is why both the Bank of England which already existed at that time and also state and joint-stock banks set up with the right of state banks in other countries avoided a recurrence of this bitter experience in their issue of bank notes.
It should be emphasised that, while the sphere of the issue of paper money by one central bank under the auspices of the government was extended in every capitalist country, private banks also utilised the joint-stock form for mutual penetration through shareholding. This enabled them to compete with government banks or to co-operate with them, depending on the circumstances.
Such united and, consequently, enlarged banks succeeded especially in concentrating all kinds of deposits, which even further increased their role as public cashiers. The use of deposits in the form of current accounts resulted in a situation in which the owners of deposits utilised their accounts in banks for repeated day-to-day settlements, issuing corresponding written instructions to banks. A cheque, representing a blank with such instructions, became one of the widespread forms of credit money. Two essential features should be differentiated in the nature of cheque circulation both at the early and the subsequent stages, depending on who acts as creditor and who is the borrower. If a person deposits in advance a definite sum in the bank he becomes a creditor of the bank. Every cheque of his paid by the bank, in essence, is a repayment of the credit by the bank to the amount corresponding to the sum of the cheque. This as it were, is a deferred repayment of the credit by the bank
The situation is the opposite when the bank itself opens an account for a definite sum to some person and authorises him to draw cheques within the limits of that sum. In this case every payment of a cheque by the bank is a credit to the person issuing the cheque who is a receiver of the loan. In both cases, however, the cheque is a form of credit money.
Cheque circulation, an invention of private English banks at an early stage, became widespread, alongside bank notes and paper money. Formerly it stood, to a certain extent, opposed to the circulation of bank notes; now it supplements it.
The rise of such an original institution as the clearing house is linked with the development of cheque and bill circulation. The organisation of this institution was prompted by daily practice. The point is that as early as the 17th century the clerks of various London banks had to deliver daily many cheques and bills and to receive or pay money on them. As time went on, they noticed that the cheques and bills of different banks largely cancelled each other out and at the end of the day money had to be used only to settle the difference. Then bank employees began to meet at designated street corners to exchange cheques and bills. But, since it was not very convenient to wait for each other in the street, especially in bad weather, they hit on the idea of combining business with pleasure and began to meet in a definite tavern. Lastly, when the bankers became aware of this arrangement, they rented a building for this purpose in 1775 for the convenience of their employees, thus opening the first page in the history of clearing houses. A clearing house, after the exchange of cheques and bills, uses money only for settling the difference.
Circulation with the help of cheques replacing money reduces the need for the latter, but it has a number of specific features: first, cheque circulation is primarily of a local nature; in international settlements cheque circulation involves settlements only with a definite bank, which is of benefit to this particular bank but is not always convenient for the clients. Cheque circulation also carries a certain risk. Banks are able to increase, without control, the quantity of circulation media by granting unjustified credits for speculations fraught with bankruptcy. As compared with cheques, bank notes have a more universal and greater speed of circulation. This feature clearly emerged after the issue of bank notes in every country had become the privilege of only one central institution known as the state bank of issue. In contrast to cheques which carry a definite date for payment, bank notes are not limited in time. But, as demonstrated earlier, in the case of John Law's bank in France, the excessive issue of bank notes can completely upset their circulation, turn them into fiat money and lead to inflation. That is why with the establishment of banks of issue the question of the laws of the issue of paper money in general became very acute. Differing points of view on this question were voiced already in the 17th century. Ever since then much attention has been paid to paper money circulation both by theoretical economists and statesmen.
As time went by, paper money circulation and the issue of money turned into an instrument of the class policy of bourgeois states, and hence it is not accidental that in his works Marx gave much attention to a theoretical analysis of these questions. They are of great political poignancy at present in view of the monetary crisis of capitalism and require special examination.
The first theoretical and practical question relates to the interdependence between full-value metallic money, gold, and paper media of circulation and payment–paper and credit money. The latter became so widespread that at present precious metal coins have been completely ousted by paper money in all capitalist countries. The small change preserved in retail trade has become mere money tokens. Metallic money was not ousted from internal circulation at once; it was a drawn-out process, accompanied in all countries by painful financial and economic upheavals. The replacement of metallic by paper money is linked with the expansion of credit, the development of banks and the many various forms and functions of credit money.
The first sphere from which metallic money was ousted by credit money was large-scale wholesale trade. Marx pointed out that "to the same extent as the system of credit is extended, so is the function of money as a means of payment. In that character it takes various forms peculiar to itself under which it makes itself at home in the sphere of great commercial transactions. Gold and silver coin, on the other hand, are mostly relegated to the sphere of retail trade.''3 This, by the way, explains why bank notes, the most developed form of credit money, are usually issued in more or less bigger denominations which do not suit small-scale trade. The first notes issued by the Bank of England were for £20. But in trade on a smaller scale, too, full-value metallic money, gold and silver, could be preserved only up to a certain time. With the growing scale of circulation in small trade, full-value coins could be replaced by smaller coins made of alloys of non-precious metals or paper money. In both cases the non-full-value coins or paper money became legal tender only by slate authority. We should not think, however, that state compulsion is capable of imparting purchasing power to any quantity of paper money.
``The issue of paper money," Marx emphasised, "must not exceed in amount the gold (or silver as the case may be) which would actually circulate if not replaced by symbols.''4
This, however, is not the actual situation. But whether the replacement of full-value money by their paper symbols proceeded according to the principle formulated by Marx or with deviations from it, full-value metallic money was ousted by paper and credit money from internal trade. The service rendered by Marx lay in the fact that he was the first to formulate theoretically the law governing this process. The history of money circulation in different countries has fully corroborated his conclusions.
Indeed, full-value metallic money was fully ousted by credit money from large-scale wholesale trade. In retail trade it was replaced by paper money, but prior to the First World War it was exchanged for coins. But even when preserving the conversion of paper money for coins it had a mandatory circulation for the reason that the state determined the nominal value of paper money and the procedure for its exchange for full-value gold or silver coins. Since gold became the main monetary metal from the end of last century and up to the First World War, the exchange of paper money for gold coins was an indispensable condition of the gold monetary standard.
But such a harmonious combination of metallic money (implying everywhere full-value and not token) and paper money was preserved only during brief historical periods. Usually paper money was issued in quantities larger than required for replacing metallic coins. In this case their parallel use in circulation was rendered difficult. Metallic money was ousted from circulation by paper money. An agio and a mark up to the price of gold coins in paper money was allowed during settlements. This meant a decrease in the rate of exchange of paper money as compared with metallic money.
Nevertheless, during all kinds of financial difficulties, e.g., in wartime, all states resorted to the issue of paper money as a supplementary source of finance. And although this upset the money circulation, it often made it possible to avoid a more dangerous economic catastrophe. It is this that constitutes paper money inflation. In this case under difficult conditions the state creates means of payment by force of law and imposes them on commodity circulation. John Maynard Keynes, one of the chief proponents of the new bourgeois political economy, wrote that "the creation of legal-tender has been and is a Government's ultimate reserve; and no State or Government is likely to decree its own bankruptcy or its own downfall, so long as this instrument still lies at hand unused".5
And so with the appearance of paper money the state even in the period of the preservation of metallic money in circulation, instead of the archaic method of deliberate debasement and depreciation of coins, gained a new financial source–the unlimited issue of paper money. In that case what happened to full-value money, gold?
Experience has shown that, after brief simultaneous circulation with paper money, gold and silver coins ultimately disappear entirely. This applies in particular to gold coins and gold, which are turned into a hoard. But a hoard of precious metals, with the undivided domination of metallic money and after the extensive spread of paper money of mandatory circulation and of credit money, acquires a different nature.
With purely metallic money circulation hoards, as Marx points out, "serve as conduits for the supply or withdrawal of money to or from the circulation, which in this way never overflows its banks".6 With the help of the conduit of hoards, metallic money circulation is, as it were, automatically regulated. But with the development of paper money circulation and the employment of all types of paper money media of circulation and payments the role of precious metal hoards changes, which is particularly noticeable under capitalism. "While hoarding, as a distinct mode of acquiring riches, vanished with the progress of civil society, the formation of reserves of the means of payment grows with that progress". 7 This was written by Marx 100 years ago during the period of pre-monopoly capitalism. In our days hoarding and the "formation of reserves of the means of payment" is most strikingly confirmed in the formation of state gold reserves as full-value means of payment in international settlements.
It is in this form that gold now acts as universal world money. But this does not mean that there is no private hoarding of gold and that hoards in their former sense have completely disappeared. They exist but they no longer play their former role.
At present gold in the form of coins is no longer used as world money. At the present scale of foreign trade direct settlements with the help of metallic money is impossible from the economic point of view. Credit money (drafts, cheques, promissory notes, the transfer of money by a bank from one account to another without the use of cash) have become regular media of circulation in foreign trade. Liabilities are to a considerable extent mutually cancelled out on the respective bank accounts. But during every span of time, say, a year, a certain difference in mutual payments is formed.
It is in such a case that either hard currency or gold, usually bullion, is used. It is this gold that constitutes full-value world money. "Money of the world," Marx writes, "serves as the universal medium of payment, as the universal means of purchasing, and as the universally recognised embodiment of all wealth. Its function as a means of payment in the settling of international balances is its chief one.''8
In the past, when gold coins circulated, the statement that the path upon which gold enters on leaving the mint eventually brings it to the melting pot which turns national coins into bullion necessary in international settlements, corresponded to the actual situation. Now the stocks of monetary gold are mostly kept in the form of bullion. Final settlements on international balances with gold signify that, together with the act of settlement, value is transferred from one country to another in the form of universal wealth, world money. No other form of wealth possesses such universality.
As for credit money, its stability depends, above all, on the presence in a bank's portfolio of short-term commercial bills with even consecutive maturity. In that case the bank notes, as the bills are settled, can more or less evenly return to their initial point, to the cashier's office of the bank. But this does not happen in reality. The point is that besides the bill holdings for which, as they are redeemed, the bank constantly receives its own notes, it has also liabilities on current account deposits. An excessive demand for the return of deposits and also the presentation of its bank notes to be exchanged for full-value metallic money can always place a bank in a difficult position. This happens most often in periods of socio-economic upheavals, during a war, and the like. Then, as was the case in the past, the exchange of bank notes for gold is stopped.
By stopping the exchange of bank notes for gold a government usually vests the bank notes with the force of legaltender. The bank in such cases can satisfy the demand of the depositors by its bank notes. The latter acquire mandatory circulation, as was the case with the notes of the Bank of England in 1797, which turned into paper money of mandatory circulation. Such a method of converting credit money or bank notes into paper money has become possible because the state treasuries of capitalist countries by their intervention in the affairs of central banks converted the latter into the chief weapon of government financial policy. This is also facilitated by the widespread practice of the issue of bank notes not only secured by the bank's portfolio of short-term commercial bills but also by treasury bills and state bonds. The latter are by their nature long-term securities and cannot serve as a basis for ensuring the stability of bank note circulation.
But paper money can also be introduced into circulation directly by the authorities, irrespective of the nature and prestige of the authorities themselves. Thus, as early as the period of colonial dependence paper money began to be issued in the English possessions in North America. In the colony of Massachusetts, as we mentioned earlier, the notes in circulation in 1692 amounted to over £7,000. In 1723 credit bills were issued in Pennsylvania. In 1730 in Virginia, owing to the shortage of media of circulation, there appeared so-called tobacco notes which were legaltender in all settlements for tobacco within the bounds of a given county. The Mortgage Bank in Boston, organised in 1740, began to issue its own paper money. This activity, however, was stopped under the pressure of the English Government. In 1751, obviously sensing a political and economic threat in the issue of paper money in the North American colonial possessions, the English Parliament passed an act prohibiting the issue of any paper money in the New England colonies, in North America. A similar prohibition extending to all the colonies was adopted in 1763.
The issue of paper money, like a mirror, reflected the political and economic interests of the independent capitalist development of the colonies across the Atlantic, on the one hand, and the interests of English ruling circles, on the other. Here the scales obviously tipped in favour of the colonies. Without the issue of paper money the development of capitalist relations would have been hampered. That is why the issue of paper media of circulation in the colonies was continued under various guises. Thus, short-term treasury bills for six months or a year and bearing interest were issued and they actually circulated as money. Lastly, in 1771 the Municipal Assembly of New York, which by that time had advanced to a leading place in trade, was allowed by the English Parliament to issue paper credit notes. This was done to mitigate the shortage of media of circulation and to some extent resist the counterfeiting of money, which was generally rife in the American colonies.
It is no exaggeration to say that the shortcomings of money circulation in England's North American colonies was one of the important reasons which accelerated the outbreak of the struggle of English colonial possessions in North America for independence.
The revolutionary war for independence which broke out in 1775 at once faced the Continental Congress in Philadelphia with the question of sources for financing the war. The introduction of a tax in the absence of a central tax machinery and centralised statehood was out of the question. Continental credit bills or paper money of mandatory circulation were issued as the only real means for financing the War of Independence. Economically, this played an important part in the struggle for independence.
The original amount of issue (two million dollars equated to silver dollars of Spanish coinage) authorised by the Continental Congress in 1775 had already in 1776 begun to rise so swiftly that the various silver and gold coins circulating in the colonies started to disappear.
In 1779 the amount of credit bills in circulation reached a total of more than $ 241 million. Inflation became uncurbed. The depreciation of paper money assumed disastrous proportions, further exacerbated by the unusual spread of counterfeit'paper money. New York, occupied by English troops, was one of the main centres for the spread of counterfeit money. Huge sums of counterfeit continental bills were circulated by agents of William Howe, Commanderin-Chief of the English Army in America, for the purpose~of ``crushing'the rebels" by undermining their financial basis.
The history of paper money circulation in the United States during the War of Independence stimulated the development of banking in America. For the first time it demonstrated the role of paper money circulation in socioeconomic upheavals.
Russia was by no means the runner-up behind European states in the issue of paper money as a financial resource. After six years of the reign of Catherine the Great at the beginning of the first Turkish war, in 1768, the State Assignation Bank was founded which issued paper money, called assignations, for 1,000,000 rubles. True, in order to secure the issue of this paper money, the Government deposited in the bank an equal sum of coins, which ensured its exchange. For this reason bank notes during the first years of their issue circulated on a par with silver coins and even with a certain agio as compared with copper coins. Notwithstanding the increase in the issue of paper money (up to 20 million rubles in 1774), their circulation on a par with silver, was preserved.
Thus, the Russian autocracy received a new fully modern source of revenue, the issue of paper money. It is not surprising that as the issue of paper money was extended, in Russia just as in other countries, its rate, as compared with metallic money, declined.
The revolutionary events in France and the war situation in Europe in the 1790s stimulated the issue of paper money in all European countries, Russia included.
A study of money circulation during the years of the French Revolution by I. I. Kaufman led him to the conclusion that the period of the issue of paper money during the revolution was divided into two unequal parts: between August 1789 and up to April 1, 1795 paper money for more than 8,300 million francs was issued; these issues even with the drop of the exchange rate yielded a financial effect amounting to 39.5 per cent of the nominal value. After April 1, 1795, when more than 37,000 million francs were put into circulation, the financial benefit of paper money issue was reduced to naught. Such is the logical end of any inflation.
The issue of paper money in Austria which began, just as in Russia, long before the revolution in France, (in Russia 21 years and in Austria 17 years earlier) also reached large dimensions.
The long period of the Napoleonic wars in Europe led to the discontinuation of the exchange of bank notes in England and the derangement of money circulation in Austria and other countries.
As for Russia, in the initial period of the reign of Alexander I, when it seemed as though the military aspirations of Napoleon would bypass Russia, the rate of Russian paper money stabilised at a level of 70-80 per cent of their nominal value. The situation sharply deteriorated as soon as the threat of an attack on Russia by Napoleon arose.
As a result of the war against Napoleon, during the six years from 1811 to 1816, when more than 256 million rubles of paper money was issued, its rate dropped to 23.5 per cent of its face value. But paper money depreciated and money circulation was upset at that time to varying degrees in a number of other European countries. This confirmed the general rule: the upsetting of paper money circulation in the past was linked with socio-economic upheavals. Only several years after the abolition of the Napoleonic military dictatorship was money circulation in European countries stabilised.
The period of upset money circulation from the beginning of the great French bourgeois revolution and up to the end of the Napoleonic wars in Europe compelled economists to take the theoretical problems of money circulation seriously.
One of the results of the Napoleonic wars was the clearing of the way for capitalist development in Europe by uprooting feudal survivals. Developing capitalism needed normal money circulation, and this became the aim of government policies.
In the second quarter of the 19th century, the concentration and centralisation of capital was accelerated by the joint-stock companies, which spread widely. But simultaneously capitalism's intrinsic flaws became pronounced, particularly during trade crises, including the crises of 1825 and 1836.
The cyclical nature of the development of capitalist economy was felt increasingly. Approximately every ten years economic advances gave way to crises in which money circulation played a special part. Crises were followed by periods of an upturn in trade, which again led to stabilisation of money circulation.
Machine-based factory production has developed widely since the mid-19th century. A technological revolution occurred in the merchant marine, the transition from sailboats to steam ships. An unusual boom in railway construction spread on the basis of the joint-stock form of capital.
All this demanded mobilisation of public capital and the maintenance of stable money circulation. The governments of European states strove for it in order to facilitate capitalist development, basing themselves on the theoretical conclusions which by that time had been drawn following a long period of theoretical studies. The results of these studies were analysed in detail in the works of Marx. No serious student of the contemporary world monetary crisis can ignore them. It is particularly important to discuss, even if only in general outline, the theoretical problem of money circulation, because at the present time, too, all kinds of theories, like the quantity theory of money and others, are utilised to justify the need for limited inflation and other measures in money circulation. All these steps are taken in the interests of finance capital to the detriment of the working people, and can be exposed only on the basis of the Marxist theory of money circulation.
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