Credit and Monetary Crisis

Credit and Monetary Crisis


a disruption of the balance of the capitalist credit and monetary system, expressed as a sharp reduction in commercial and bank credit, mass withdrawals of deposits, widespread bank failures, a rush to get cash and gold, a drop in the prices of stocks and bonds, and a sharp increase in the interest rate. K. Marx established a distinction between cyclical and special crises. Cyclical crises are the initial expression of economic crises of overproduction, developing along with them and, in turn, leading to their worsening. Special crises originate independently of economic crises and occur under the influence of special factors, for example, a chronic budgetary deficit, war, or poor harvests.

The symptoms of cyclical credit and monetary crises develop and manifest themselves in the course of general economic crises; the overproduction of goods typical of such crises makes it difficult to sell the goods and creates barriers to converting capital from commodity to monetary form. Delays in selling goods cause a money shortage, leading to an intensified demand for credit. The banks cannot satisfy this demand because, in trying to maintain their liquidity, they limit credit and raise the interest rate on loans. Delays in receiving payments result in numerous defaults. Large-scale enterprise bankruptcies cause a chain reaction of massive bank failures. In an atmosphere of universal mistrust, with credit being undermined and the trust in credit money shaken, the rush for cash becomes critical and there are massive withdrawals of deposits from banks. In the crises of the era of the gold standard and the free exchange of credit money for gold, massive bank failures and growing mistrust of credit money led to a general run on gold.

In the age of the general crisis of capitalism, even after World War I and particularly after World War II, the course of the credit and monetary crisis has changed greatly. In particular, the periodicity has become less precise because of such specific factors as the enormous growth of government spending, intensified statemonopoly intervention in the economy, and elimination of the gold standard and transition to paper money. In present-day imperialist states, government spending, consisting primarily of military expenditures and of state purchases of various types of goods, can only postpone the advent of the economic crisis and mitigate the money shortage. The development of a number of new industrial sectors (including electronics and plastics), which has helped maintain economic vigor, is another factor in staving off crises.

As Marx wrote, special credit and monetary crises may occur “independently. . . . The pivot of these crises is to be found in moneyed capital, and their sphere of direct action is therefore the sphere of that capital, viz., banking, the stock exchange, and finance” (K. Marx and F. Engels, Soch., 2nd ed., vol. 23, p. 149, footnote). In the age of the general crisis of capitalism, special credit and monetary crises have basically taken the form of currency crises, which are not cyclical in nature. These crises are a result of disarray in monetary circulation and the chronic balance-of-payments crisis of the capitalist countries. Two examples are the world currency crisis of 1931–33 and the world currency crisis of the late 1960's and early 1970's, which was caused by the chronic balance-of-payments deficit of the imperialist states and the crisis of the leading imperialist currencies, the dollar and the pound sterling.

Devaluation of the US dollar by 7.89 percent (December 1971) and by 10 percent (February 1973) led to a massive devaluation of the currencies of the members of the International Monetary Fund (IMF) and a revaluation of the currencies of some countries (Japan, the Federal Republic of Germany). The official price of gold rose from $35 to $38 per troy ounce in December 1971 and to $42.22 in February 1973, while in the free markets it reached $70 in August 1972 and then $130 in June 1973. In June 1972, Great Britain and most of the countries of the sterling zone introduced “floating” currencies, followed in January 1973 by Switzerland and in March 1973 by the Common Market countries. In this way, the development of the present-day currency crisis plainly reveals another characteristic of the special credit and monetary crises that was noted by Marx: although their origin is unconnected to overproduction they end up involving industry and trade.


Marx, K. Kapital, vols. 1, 3. K. Marx and F. Engels, Soch., 2nd ed., vol.
23, ch. 3; vol. 25, parts 1 and 2.
BregeP, E. la. Denezhnoe obrashchenie i kredit kapitalisticheskikh gosudarstv. Moscow, 1950. Chapter 10.
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Politicheskaia ekonomiia, 2nd ed., vol. 1. Edited by G. A. Kozlov. Moscow, 1969. Chapter 18.


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