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332 THE COMMUNIST

speculation. The same high rates for call money which induced American capitalists and corporations to lend in the New York market made it feel very profitable for European capitalists and banks to lend their liquid capital in New York. This increased the movement of money capital to the United States, which was dangerously large because of the necessity for paying the adverse balance of trade in gold in the absence of a market for foreign securities in the United States.

The transfer of liquid capital to the United States from Europe added just that much additional credit inspiration to an already insane stock market. The chief central banks of Europe (with the exception of France, for a discussion of whose position there is not sufficient space) found their reserves being drained to New York. The obvious remedy, if they were to remain on the gold standard, was to increase discount rates in the market from which gold was being drained. Practically all of the central banks raised their rediscount rates and raised them yet again. The drain from New York continued and the successive increases only raised the differentials to a new higher level.

"In each instance the advance of the discount rate is for the purpose of raising the general level of interest rates and thereby attracting capital to the market affected, or at least inducing capital not to leave it for better rates elsewhere. Thus this general action has a competitive motive, one financial center being forced to act by conditions elsewhere, and the action of one central bank to some extent nullifying the action of another. The combined effect, however, is to bring about a general contraction of credit. Where the discount rate does not accomplish it, resort may be had to credit-rationing, i.e., an arbitrary allotment of credit as in Germany a few months ago." (National City Letter, October 1929.)

These increases in interest rates tended to depress further economic conditions that were already generally depressed. The Bank of England, in particular, struggled against the inevitable. The British capitalist class needed every aid it could get in the way of low stable interest rates if its attempts to get out of the industrial depression were to succeed. On February 7, 1929, the Bank of England increased its rate from 4 1/2 per cent to 5 1/2 per cent. The drain of gold to the United States continued down to the minimum fixed by the Cunliff Commission as the lowest possible with safety to the whole credit structure. On September 26, 1929 the rate was increased a whole per cent from 5 1/2 per cent to 6 1/2 per cent. The reserves of the bank had passed the Cunliffe minimum.

The stock market crash in New York relieved the credit strain
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