In the first place, we have here that portion of the profit which is not spent as revenue, but is set aside for accumulation — for which, however, the industrial capitalists have no use in their own business at the moment. This profit exists directly in commodity capital, a part of whose value it constitutes, and along with which it is realised in money. Now, if it is not reconverted into the production elements of commodity capital (we leave out of consideration for the present the merchant, whom we shall discuss separately), it must remain for a length of time in the form of money. This amount increases with the amount of capital itself, even when the rate of profit declines. That portion which is to be spent as revenue is gradually consumed, but, in the meantime, as deposits, it constitutes loan capital with the banker. Thus, even the growth ofthat portion of profit which is spent as revenue expresses itself as a gradual and continually repeated accumulation of loan capital. The same is true of the other portion, which is intended for accumulation. Therefore, with the development of the credit system and its organisation, even an increase in revenue, i. e., the consumption of the industrial and commercial capitalists, expresses itself as an accumulation of loan capital. And this holds true for all revenues so far as they are consumed gradually, in other words, for ground rent, wages in their higher form, incomes of unproductive classes^ etc. All of them assume for a certain time the form of money revenue and are, therefore, convertible into deposits and thus into loan capital. All revenue — whether it be intended for consumption or accumulation — as long as it exists in some form of money, is a part of the value of commodity capital transformed into money, and is, for this reason, an expression and result of actual accumulation, but is not productive capital itself. When a spinner has exchanged his yarn for cotton — but that portion which constitutes revenue for money — the real existence of his industrial capital is the yarn, which has passed into the hands of the weaver or, perhaps, of some private consumer, and the yarn is, in fact, the existence — whether it is for reproduction or consumption — of the capital value as well as the surplus value contained in it. The magnitude of the surplus value transformed into money depends upon the magnitude of the surplus value contained in the yarn. But as soon as it has been transformed into money, this money is only the value existence of this surplus value. And as such it becomes a moment of loan capital. For this purpose, nothing more is required than that it be transformed into a deposit, if it has not already been loaned out by its owner. But in order to be reconverted into productive capital, it must, on the other hand, already have reached a certain minimum limit.
The mass of money reconverted into capital in this manner is a result of the enormous reproduction process, but considered by itself, as loanable money capital, it is not itself a mass of reproductive capital.
The most important point of our presentation so far is that the expansion of the part of the revenue intended for consumption (leaving out of consideration the worker, because his revenue is = to the variable capital) shows itself at first as an accumulation of money capital.
A factor, therefore, enters into the accumulation of money capital that is essentially different from the actual accumulation of industrial capital; for the portion of the annual product which is intended for consumption does not by any means become capital. A portion of it replaces capital, i. e., the constant capital of the producers of means of consumption, but to the extent that it is actually transformed into capital, it exists in the natural form of the revenue of the producers of this constant capital. The same money, which represents the revenue and serves merely for the promotion of consumption, is regularly transformed into loanable money capital for a period of time. In so far as this money represents wages, it is at the same time the money form of the variable capital; and in so far as it replaces the constant capital of the producers of means of consumption, it is the money form temporarily assumed by their constant capital and serves to purchase the components of their constant capital to be replaced in kind. Neither in the one nor in the other form does it express in itself accumulation, although its quantity increases with the growth of the reproduction process. But it performs temporarily the function of loanable money, i. e., of money capital. In this respect, therefore, the accumulation of money capital must always reflect a greater accumulation of capital than actually exists, owing to the fact that the extension of individual consumption, because it is promoted by means of money, appears as an accumulation of money capital, since it furnishes the money form for actual accumulation, i. e., for money which permits new investments of capital.
Thus, the accumulation of loanable money capital expresses in part only the fact that all money into which industrial capital is transformed in the course of its circuit assumes the form not of money advanced by the reproductive capitalists, but of money borrowed by them; so that indeed the advance of money that must take place in the reproduction process appears as an advance of borrowed money. In fact, on the basis of commercial credit, one person lends to another the money required for the reproduction process. But this now assumes the following form: the banker, who receives the money as a loan from one group of the reproductive capitalists, lends it to another group of reproductive capitalists, so that the banker appears in the role of a supreme benefactor; and at the same time, the control over this capital falls completely into the hands of the banker in his capacity as middleman.
A few special forms of accumulation of money capital still remain to be mentioned. For example, capital is released by a fall in the price of the elements of production, raw materials, etc. If the industrial capitalist cannot expand his reproduction process immediately, a portion of his money capital is expelled from the circuit as superfluous and is transformed into loanable money capital. Secondly, however, capital in the form of money is released especially by the merchant, whenever interruptions in his business take place. If the merchant has completed a series of transactions and cannot begin a new series because of such interruptions until later, the money realised represents for him only a hoard, surplus capital. But at the same time, it represents a direct accumulation of loanable money capital. In the first case, the accumulation of money capital expresses a repetition of the reproduction process under more favourable conditions, an actual release of a portion of formerly tied-up capital; in other words, an opportunity for expanding the reproduction process with the same amount of money. But in the other case, it expresses merely an interruption in the flow of transactions. However, in both cases it is converted into loanable money capital, represents its accumulation, influences equally the money market and the rate of interest — although it expresses a promotion of the actual accumulation process in one case and its obstruction in the other. Finally, accumulation of money capital is influenced by the number of people who have feath-ered their nests and have withdrawn from reproduction. Their number increases as more profits are made in the course of the industrial cycle. In this case, the accumulation of loanable money capital expresses, on the one hand, an actual accumulation (in accordance with its relative extent), and, on the other hand, only the extent of the transformation of the industrial capitalists into mere money capitalists.
As for the other portion of profit, which is not intended to be consumed as revenue, it is converted into money capital only when it is not immediately able to find a place for investment in the expansion of business in the productive sphere in which it has been made. This may be due to two causes. Either because this sphere of production is saturated with capital, or because accumulation must first reach a certain volume before it can serve as capital, depending on the investment magnitudes of new capital required in this particular sphere. Hence it is converted for a while into loanable money capital and serves in the expansion of production in other spheres. Assuming all other conditions being equal, the quantity of profits intended for transformation back into capital will depend on the quantity of profits made and thus on the extension of the reproduction process itself. But if this new accumulation meets with difficulties in its employment, through a lack of spheres for investment, i. e., due to a surplus in the branches of production and an oversupply of loan capital, this PLETHORA of loanable money capital merely shows the limitations of capitalist production. The subsequent credit swindle proves that no real obstacle stands in the way of the employment of this surplus capital. However, an obstacle is indeed immanent in its laws of expansion, i. e., in the limits in which capital can realise itself as capital. A PLETHORA of money capital as such does not necessarily indicate overproduction, not even a shortage of spheres of investment for capital.
The accumulation of loan capital consists simply in the fact that money is precipitated as loanable money. This process is very different from an actual transformation into capital; it is merely the accumulation of money in a form in which it can be transformed into capital. But this accumulation can reflect, as we have shown, events which are greatly different from actual accumulation. As long as actual accumulation is continually expanding, this extended accumulation of money capital may be partly its result, partly the result of circumstances which accompany it but are quite different from it, and, finally, even partly the result of impediments to actual accumulation. If for no other reason than that accumulation of loan capital is inflat-ed by such circumstances, which are independent of actual accumulation but nevertheless accompany it, there must be a continuous PLETHORA of money capital in definite phases of the cycle and this PLETHORA must develop with the expansion of credit. And simultaneously with it, the necessity of driving the production process beyond its capitalistic limits must also develop: overtrade, overproduction, and excessive credit. At the same time, this must always take place in forms that call forth a reaction.
As far as accumulation of money capital from ground rent, wages, etc., is concerned, it is not necessary to discuss that matter here. Only one aspect should be emphasised and that is that the business of actual saving and abstinence (by hoarders), to the extent that it furnishes elements of accumulation, is left by the division of labour, which comes with the progress of capitalist production, to those who receive the minimum of such elements, and who frequently enough lose even their savings, as do the labourers when banks fail. On the one hand, the capital of the industrial capitalist is not "saved" by himself, but he has command of the savings of others in proportion to the magnitude of his capital; on the other hand, the money capitalist makes of the savings of others his own capital, and of the credit, which the reproductive capitalists give to one another and which the public gives to them, a private source for enriching himself. The last illusion of the capitalist system, that capital is the fruit of one's own labour and savings, is thereby destroyed. Not only does profit consist in the appropriation of other people's labour, but the capital, with which this labour of others is set in motion and exploited, consists of other people's property, which the money capitalist places at the disposal of the industrial capitalist, and for which he in turn exploits the latter.
A few remarks remain to be made about credit capital. How often the same piece of money can figure as loan capital wholly depends, as we have already previously shown, on:
1 ) how often it realises commodity values in sale or payment, thus transfers capital, and furthermore how often it realises revenue. How often it gets into other hands as realised value, either of capital or of revenue, obviously depends, therefore, on the extent and magnitude of the actual transactions;
2) this depends on the economy of payments and the development and organisation of the credit system;
3) finally, on the concatenation and velocity of action of credits, so that when a deposit is made at one point it immediately starts off as a loan at another.
Even assuming that the form in which loan capital exists is exclusively that of real money, gold or silver — the commodity whose substance serves as a measure of value — a large portion of this money capital is always necessarily purely fictitious, that is, a title to value — just as tokens of value. In so far as money functions in the circuit of capital, it constitutes indeed, for a moment, money capital; but it does not transform itself into loanable money capital; it is rather exchanged for the elements of productive capital, or paid out as a medium of circulation in the realisation of revenue, and cannot, therefore, transform itself into loan capital for its owner. But in so far as it is transformed into loan capital, and the same money repeatedly represents loan capital, it is evident that it exists only at one point in the form of metallic money; at all other points it exists only in the form of claims to capital. With the assumption made, the accumulation of these claims arises from actual accumulation, that is, from the transformation of the value of commodity capital, etc., into money;
but nevertheless the accumulation of these claims or titles as such differs from the actual accumulation from which it arises, as well as from the future accumulation (the new production process), which is promoted by the lending of this money.
Prima facie loan capital always exists in the form of money,[9]' later as a claim to money, since the money in which it originally exists is now in the hands of the borrower in actual money form. For the lender it has been transformed into a claim to money, into a title of ownership. The same mass of actual money can, therefore, represent very different masses of money capital. Mere money, whether it represents realised capital or realised revenue, becomes loan capital through the simple act of lending, through its transformation into a deposit, if we consider the general form in a developed credit system. The deposit is money capital for the depositor. But in the hands of the banker it may be only potential money capital, which lies idle in his safe instead of in its owner's.[10]'
9i B.A. 1857. Testimony of Twells, banker: "4516. As a banker, do you deal in capital or in money? — We deal in money." — "4517. How are the deposits paid into your bank? — In money." — "4518. How are they paid out? — In money." — "Then can they be called anything else but money? — No." (1)
Overstone (see Chapter XXVI) confuses continually "CAPITAL" and "MONEY". "VALUE OF MONEY" also means interest to him, but in so far as it is determined by the mass of money, "VALUE OF CAPITAL" is supposed to be interest, in so far as it is determined by the demand for productive capital and the profit made by it. He says: "4140. The use of the word 'capital' is very dangerous." — "4148. The export of bullion from this country is a diminution of the quantity of money in this country, and a diminution of the quantity of money in this country must of course create a pressure upon the money market generally" //but not in the capital market, according to this//.— "4112. As the money goes out of the country, the quantity in the country is diminished. That diminution of the quantity remaining in the country produces an increased value of that money" //this originally means in his theory an increase in the value of money as such through a contraction of circulation, as compared to the values of commodities; in other words, an increase in the value of money is the same as a fall in the value of commodities. But since in the meantime even he has been convinced beyond peradventure that the mass of circulating money does not determine prices, it is now the diminution in money as a medium of circulation which is supposed to raise its value as interest-bearing capital, and thus the rate of interest//. "And that increased value of what remains stops the exit of money, and is kept up until it has brought back that quantity of money which is necessary to restore the equilibrium." — More of Overstone 's contradictions later on.
[10] At this point the confusion starts: both of these things are supposed to be "money", namely, the deposit as a claim to payment from the banker, and the deposit-
With the growth of material wealth the class of money capitalists grows; on the one hand, the number and the wealth of retiring capitalists, rentiers, increases; and on the other hand, the development of the credit system is promoted, thereby increasing the number of bankers, money lenders, financiers, etc. With the development of the available money capital, the quantity of interest-bearing paper, government securities, stocks, etc., also grows as we have previously shown. However, at the same time the demand for available money capital also grows, the jobbers, who speculate with this paper, playing a prominent role on the money market. If all the purchases and sales of this paper were only an expression of actual investments of capital, it would be correct to say that they could have no influence on the demand for loan capital, since when A sells his paper, he draws exactly as much money as B puts into the paper. But even if the paper itself exists, though not the capital (at least not as money capital) originally represented by it, it always creates pro tanto a new demand for such money capital. But at any rate it is then money capital, which was previously at the disposal of B but is now at the disposal of A.
B. A. 1857. No. 4886. "Do you consider that it is a correct description of the causes which determined the rate of discount, to say that it is fixed by the quantity of capital
ed money in the hands of the banker. Banker Twells, before the Banking Committee of 1857, offers the following example: "If I begin business with £10,000, I buy with £5,000 commodities and put them into a warehouse. I deposit the other £5,000 with a banker, to draw upon it and use it as I require it. I consider it still £10,000 capital to me, though £5,000 is in the shape of deposits or money" (4528).— This now gives rise to the following peculiar debate.— "4531. You have parted with your £5,000 of notes to somebody else? — Yes." — "4532. Then he has £5,000 of deposits? — Yes." — "4533. And you have £5,000 of deposits left? —Exactly." —"4534. He has £5,000 in money, and you have £5,000 in money? — Yes." — "4535. But it is nothing but money at last? — No." This confusion is due partly to the circumstance that A, who has deposited £5,000, can draw on it and dispose of it as though he still had it. To that extent it serves him as potential money. However, in all cases in which he draws on it he destroys his deposit pro tanto. If he draws out real money, and his own money has already been lent to someone else, he is not paid with his own money, but with that of some other depositor. If he pays a debt to B with a cheque on his banker, and B deposits this cheque with his banker, and the banker of A also has a cheque on the banker of B, so that the two bankers merely exchange cheques, the money deposited by A has performed the function of money twice; first, in the hands of the one who has received the money deposited by A; secondly, in the hands of A himself. In the second function, it is a balancing of claims (the claim of A on his banker, and the claim of the latter on the banker of B) without using money. Here the deposit acts twice as money, namely, as real money and then as a claim on money. Mere claims on money can take the place of money only by a balancing of claims.
in the market which is applicable to the discount of mercantile bills, as distinguished from other classes of securities?"—//Chapman:// "No; I think that the question of interest is affected by ALL CONVERTIBLE SECURITIES OF A CURRENT CHARACTER (2); it would be wrong to limit it simply to the discount of bills, because it would be absurd to say that when there is a great demand for money upon" //the deposit of// "consols, or even upon Exchequer bills, as has ruled very much of late, at a rate much higher than the commercial rate, our commercial world is not affected by it; it is very materially affected by it."—"4890. When sound and current securities, such as bankers acknowl-edge to be so, are in the market, and people want to borrow money upon them, it certainly has its effect upon commercial bills; for instance, I can hardly expect a man to let me have money at 5% upon commercial bills, if he can lend his money at the same moment at 6% upon consols, or whatever it may be; it affects us in the same manner; a man can hardly expect me to discount bills at 5 -y%> if I can lend my money at 6%." —"4892. We do not talk of investors who buy their £2,000, or £5,000, or £10,000 as affecting the money market materially. If you ask me as to the rate of interest upon" //a deposit of// "consols, I allude to people, who deal in hundreds of thousands of pounds, who are what are called jobbers, who take large portions of loans, or make purchases in the market, and have to hold that stock till the public take it off their hands at a profit; these men, therefore, want money."
With the development of the credit system, great concentrated money markets are created, such as London, which are at the same time the main seats of trade in this paper. The bankers place huge quantities of the public's money capital at the disposal of this unsavoury crowd of dealers, and thus this brood of gamblers multiplies.
"Money upon the Stock Exchange is, generally speaking, cheaper than it is elsewhere," says the incumbent of the Governor's chair of the Bank of England in 1848 before the Secret Committee of Lords ( C D . 1848, PRINTED 1857, No. 219).
In the discussion on interest-bearing capital, we have already shown that the average interest over a long period of years, other conditions remaining equal, is determined by the average rate of profit; not profit of enterprise, which is nothing more than profit minus interest/
It has also been mentioned, and will be further analysed in another place, that also for the variations in commercial interest, that is, interest calculated by the money lenders for discounts and loans within the commercial world, a phase is reached, in the course of the industrial cycle, in which the rate of interest exceeds its minimum and reaches its mean level (which it exceeds later) and that this movement is a result of a rise in profits.
In the meantime, two things are to be noted here.
First: When the rate of interest stays up for a long time (we are speaking here of the rate of interest in a given country like England, where the average rate of interest is given over a lengthy period of time, and also shows itself in the interest paid on long-term loans — what could be called private interest), it is prima facie proof that the rate of profit is high during this period, but it does not prove necessarily that the rate of profit of enterprise is high. This latter distinction is more or less removed for capitalists, who operate mainly with their own capital; they realise the high rate of profit, since they pay the interest to themselves. The possibility of a high rate of interest of long duration is present when the rate of profit is high; this does not refer, however, to the phase of actual squeeze. But it is possible that this high rate of profit may leave only a low rate of profit of enterprise, after the high rate of interest has been deducted. The rate of profit of enterprise may shrink, while the high rate of profit continues. This is possible because the enterprises must be continued, once they have been started. During this phase, operations are carried on to a large extent with pure credit capital (capital of other people); and the high rate of profit may be partly speculative and prospective. A high rate of interest can be paid with a high rate of profit but decreasing profit of enterprise. It can be paid (and this is done in part during times of speculation), not out of the profit, but out of the borrowed capital itself, and this can continue for a while.
Secondly: The statement that the demand for money capital, and therefore the rate of interest, grows, because the rate of profit is high, is not identical with the statement that the demand for industrial capital grows and therefore the rate of interest is high.
In times of crisis, the demand for loan capital, and therefore the rate of interest, reaches its maximum; the rate of profit, and with it the demand for industrial capital, has to all intents and purposes disappeared. During such times, everyone borrows only for the purpose of paying, in brder to settle previously contracted obligations. On the other hand, in times of renewed activity after a crisis, loan capital is demanded for the purpose of buying and for the purpose of transforming money capital into productive or commercial capital. And then it is demanded either by the industrial capitalist or the merchant. The industrial capitalist invests it in means of production and in labour power.
The rising demand for labour power can never by itself be a cause for a rising rate of interest, in so far as the latter is determined by the rate of profit. Higher wages are never a cause for higher profits, although they may be one of the consequences of higher profits during some particular phases of the industrial cycle.
The demand for labour power can increase because the exploitation of labour takes place under especially favourable circumstances, but the rising demand for labour power, and thus for variable capital, does not in itself increase the profit; it, on the contrary, lowers it pro tanto. But the demand for variable capital can nevertheless increase at the same time, thus also the demand for money capital — which can raise the rate of interest. The market price of labour power then rises above its average, more than the average number of labourers are employed, and the rate of interest rises at the same time because under such circumstances the demand for money capital rises. The rising demand for labour power raises the price of this commodity, as every other, increases its price; but not the profit, which depends mainly upon the relative cheapness of this commodity in particular. But it raises at the same time — under the assumed conditions — the rate of interest, because it increases the demand for money capital. If the money capitalist, instead of lending the money, should transform himself into an industrialist, the fact that he has to pay more for labour would not increase his profit but would rather decrease it pro tanto. The state of business may be such that his profit may nevertheless rise, but it would never be so because he pays more for labour. The latter circumstance, in so far as it increases the demand for money capital, is, however, sufficient to raise the rate of interest. If wages should rise for some reason during an otherwise unfavourable state of business, the rise in wages would lower the rate of profit, but raise the rate of interest to the extent that it increased the demand for money capital.
Leaving labour aside, the thing called "demand for capital" by Overstone consists only in a demand for commodities. The demand for commodities raises their price, either because it rises above average, or because the supply of commodities falls below average. If the industrial capitalist or merchant must now pay, e.g., £150 for the same amount of commodities for which he used to pay £100, he would now have to borrow £150 instead of the former £100, and if the rate of interest were 5%, he would now have to pay an interest of £7 — as compared with £5 formerly. The amount of interest to be paid by him would rise because he now has to borrow more capital.
The whole endeavour of Mr. Overstone consists in representing the interests of loan capital and industrial capital as being identical, whereas his Bank Act is precisely calculated to exploit this very difference of interests to the advantage of money capital.
It is possible that the demand for commodities, in case their supply has fallen below average, does not absorb any more money capital than formerly. The same sum, or perhaps a smaller one, has to be paid for their total value, but a smaller quantity of use values is received for the same sum. In this case, the demand for loanable capital will be unchanged and therefore the rate of interest will not rise, although the demand for commodities would have risen as compared to their supply and consequently the price of commodities would have become higher. The rate of interest cannot be affected, unless the total demand for loan capital increases, and this is not the case under the above assumptions.
The supply of an article can also fall below average, as it does when crop failures in corn, etc., occur; and the demand for loan capital can increase because speculation in these commodities counts on further rise in prices and the easiest way to make them rise is to temporarily withdraw a portion of the supply from the market. But in order to pay for the purchased commodities without selling them, money is secured by means of the commercial "bill of exchange operations". In this case, the demand for loan capital increases, and the rate of interest can rise as a result of this attempt to artificially prevent the supply of this commodity from reaching the market. The higher rate of interest then reflects an artificial reduction in the supply of commodity capital.
On the other hand, the demand for an article can grow because its supply has increased and the article sells below its average price.
In this case, the demand for loan capital can remain the same, or even fall, because more commodities can be had for the same sum of money. Speculative stock-piling could also occur, either for the purpose of taking advantage of the most favourable moment for production purposes, or in expectation of a future rise in prices. In this case, the demand for loan capital could grow, and the rise in the rate of interest would then be a reflection of capital investment in surplus stock-piling of elements of productive capital. We are only considering here the demand for loan capital as it is influenced by the demand for, and supply of, commodity capital. We have already discussed how the varying state of the reproduction process in the phases of the industrial cycle influences the supply of loan capital. The trivial proposition that the market rate of interest is determined by the supply and demand of (loan) capital is shrewdly jumbled up by Overstone with his own postulate, namely, that loan capital is identical with capital in general; and in this way he tries to transform the usurer into the only capitalist and his capital into the only capital.
In times of stringency, the demand for loan capital is a demand for means of payment and nothing else; it is by no means a demand for money as a means of purchase. At the same time, the rate of interest may rise very high, regardless whether real capital, i. e., productive and commodity capital, exists in abundance or is scarce. The demand for means of payment is a mere demand for convertibility into money, so far as merchants and producers have good securities to offer; it is a demand for money capital whenever there is no collateral, so that an advance of means of payment gives them not only the form of money but also the equivalent they lack, whatever its form, with which to make payment. This is the point where both sides of the controversy on the prevalent theory of crises are at the same time right and wrong. Those who say that there is merely a lack of means of payment, either have only the owners of bona fide securities in mind, or they are fools who believe that it is the duty and power of banks to transform all bankrupt swindlers into solvent and respectable capitalists by means of pieces of paper. Those who say that there is merely a lack of capital, are either just quibbling about words, since precisely at such times there is a mass of inconvertible capital as a result of overimports and overproduction, or they are referring only to such cavaliers of credit who are now, indeed, placed in the position where they can no longer obtain other people's capital for their operations and now demand that the bank should not only help them to pay for the lost capital, but also enable them to continue with their swindles.
It is a basic principle of capitalist production that money, as an independent form of value, stands in opposition to commodities, or that exchange value must assume a self-established form in money; and this is only possible when a definite commodity becomes the material whose value becomes a measure of all other commodities, so that it thus becomes the general commodity, the commodity par excellence — as distinguished from all other commodities. This must manifest itself in two respects, particularly among capitalistically developed nations, which to a large extent replace money, on the one hand, by credit operations, and on the other, by credit money. In times of a squeeze, when credit contracts or ceases entirely, money suddenly stands as the only means of payment and true existence of value in absolute opposition to all other commodities. Hence the universal depreciation of commodities, the difficulty or even impossibility of transforming them into money, i. e., into their own purely fantastic form. Secondly, however, credit money itself is only money to the extent that it absolutely takes the place of actual money to the amount of its nominal value. With a drain of gold its convertibility, i.e., its identity with actual gold, becomes problematic. Hence coercive measures, raising the rate of interest, etc., for the purpose of safeguarding the conditions of this convertibility. This can be carried more or less to extremes by mistaken legislation, based on false theories of money and enforced upon the nation by the interests of the money dealers, the Overstones and their ilk. The basis, however, is given with the basis of the mode of production itself. A depreciation of credit money (not to mention, incidentally, a purely imaginary depreciation) would unsettle all existing relations. Therefore, the value of commodities is sacrificed for the purpose of safeguarding the fantastic and independent existence of this value in money. As money value, it is secure only as long as money is secure. For a few millions in money, many millions in commodities must therefore be sacrificed. This is inevitable under capitalist production and constitutes one of its beau-ties. In former modes of production, this does not occur because, on the narrow basis upon which they move, neither credit nor credit money can develop greatly. As long as the social character of labour appears as the money existence of commodities, and thus as a thing external to actual production, money crises — independent of or as an intensification of actual crises — are inevitable. On the other hand, it is clear that as long as the credit of a bank is not shaken, it will alleviate the panic in such cases by increasing credit money and intensify it by contracting the latter. The entire history of modern industry shows that metal would indeed be required only for the balancing of international commerce, whenever its equilibrium is momentarily disturbed, if only domestic production were organised. That the domestic market does not need any metal money even now is shown by the suspension of the cash payments of the so-called national banks, which resort to this expedient in all extreme cases as the sole relief.
In the case of two individuals, it would be ridiculous to say that in their transactions with one another both have an unfavourable balance of payments. If they are reciprocally creditor and debtor of one another, it is evident that when their claims do not balance, one must be the creditor and the other the debtor for the balance. With nations this is by no means the case. And that this is not the case is acknowledged by all economists when they admit that the balance of payments can be favourable or unfavourable for a nation, though its trade balance must ultimately be settled. The balance of payments differs from the balance of trade in that it is a balance of trade which must be settled at a definite time. What the crises now accomplish is to narrow the difference between the balance of payments and the balance of trade to a short interval; and the specific conditions which develop in the nation suffering from a crisis and, therefore, having its payments become due — these conditions already lead to such a contraction of the time of settlement. First, shipping away precious metals; then selling consigned commodities at low prices; exporting commodities to dispose of them or to obtain money advances on them at home; increasing the rate of interest, recalling credit, depreciating securities, disposing of foreign securities, attracting foreign capital for investment in these depreciated securities, and finally bankruptcy, which settles a mass of claims. At the same time, metal is still often sent to the country where a crisis has broken out, because the drafts drawn on it are insecure and payment in specie is most trustworthy. Furthermore, in regard to Asia, all capitalist nations are usually simultaneously— directly or indirectly — its debtors. As soon as these various circumstances exert their full effect upon the other involved nation, it likewise begins to export gold and silver, in short, its payments become due and the same phenomena are repeated.
In commercial credit, the interest — as the difference between credit price and cash price — enters into the price of commodities only in so far as the bills of exchange have a longer than ordinary running time. Otherwise it does not. And this is explained by the fact that everyone takes credit with one hand and gives it with the other.//This does not agree with my experience.— F. E.\\ But in so far as discount in this form enters here, it is not regulated by this commercial credit, but by the money market.
If supply and demand of money capital, which determine the rate of interest, were identical with supply and demand of actual capital, as Overstone maintains, the interest would be simultaneously low and high, depending on whether various commodities or various phases (raw material, semi-finished product, finished product) of the same commodity were being considered. In 1844, the rate of interest of the Bank of England fluctuated between 4% (from January to September) and 2 — and 3 % (from November to the end of the year). In 1845, it was 2 — , 2 — , and 3 % from January to October, and between 3 and 5% during the remaining months. The average price of
FAIR ORLEANS cotton was 6 — d. in 1844 and 4 — d. in 1845. On March
[4] [8] 3, 1844, the cotton supply in Liverpool was 627,042 bales, and on March 3, 1845, it was 773,800 bales. To judge by the low price of cotton, the rate of interest should have been low in 1845, and it was indeed for the greater part of this time. But to judge by the yarn, the rate of interest should have been high, for the prices were relatively high and the profits absolutely high. From cotton at 4d. per pound, yarn could be spun in 1845 with a spinning cost of 4d. (good SECUNDA MULE TWIST No. 40), or a total cost of 8d. to the spinner, which he could sell in September and October 1845 at 10 — or 11 — d. per pound. (See the testimony of Wylie below.)
The entire matter can be resolved as follows: Supply and demand of loan capital would be identical with supply and demand of capital generally (although this last statement is absurd; for the industrialist or merchant a commodity is a form of his capital, yet he never asks for capital as such, but only for the particular commodity as such, he buys and pays for it as a commodity, e. g., corn or cotton, regardless of the role that it has to play in the circuit of his capital), if there were no money lenders, and if in their stead the lending capitalists were in possession of machinery, raw materials, etc., which they would lend or hire out, as houses are rented out now, to the industrial capitalists, who are themselves owners of some of these objects. Under such circumstances, the supply of loan capital would be identical with the supply of elements of production for the industrial capitalist and commodities for the merchant. But it is clear that the division of profit between the lender and borrower would then, to begin with, completely depend on the relation of the capital which is lent to that which is the property of the one who employs it.
According to Mr. Weguelin (B. A. 1857), the rate of interest is determined by "the amount of unemployed capital" (252); it is "but an indication of a large amount of capital which is seeking employment" (271); later this unemployed capital becomes "FLOATINGCAPITAL" (485) and by this he means "the Bank of England notes and other kinds of circulation in the country, for instance, the country banks circulation and the amount of coin which is in the country ... I include in FLOATING CAPITAL the reserves of the bankers" (502, 503), and later also gold bullion (503). Thus the same Mr. Weguelin says that the Bank of England exerts great influence upon the rate of interest in times, when "we" //the Bank of England// "are holders of the greater portion of the unemployed capital" (1198), while, according to the above testimony of Mr. Overstone, the Bank of England "is no place for capital." Mr. Weguelin further says:
"I think the rate of discount is governed by the amount of unemployed capital which there is in the country. The amount of unemployed capital is represented by the reserve of the Bank of England, which is practically a reserve of bullion. When, therefore, the bullion is drawn upon, it diminishes the amount of unemployed capital in the country and consequently raises the value ofthat which remains" (1258).
J. Stuart Mill says (2102):
"The Bank is obliged to depend for the solvency of its BANKING DEPARTMENT upon what it can do to replenish the reserve in that department; and therefore as soon as it finds that there is any drain in progress, it is obliged to look to the safety of its reserve, and to commence contracting its discounts or selling securities."
The reserve, in so far as only the BANKING DEPARTMENT is considered, is a reserve for the deposits only. According to the Overstones, the BANK-
ING DEPARTMENT is supposed to act only as a banker, without regard to the "automatic" issue of notes. But in times of actual stringency the Bank, independently of the reserve of the BANKING DEPARTMENT, which consists only of notes, keeps a sharp eye on the bullion reserve, and must do so if it does not wish to fail. For, to the extent that the bullion reserve dwindles, so the reserve of banknotes also dwindles, and no one should be better informed of this than Mr. Overstone, who precisely by his Bank Act of 1844 has so sagaciously arranged this.
Endnotes
[9] The Fabians — members of the English reformist Fabian Society founded by middle-class intellectuals in 1884; among its leaders were Sidney and Beatrice Webb. The Society was named after the Roman general of the 3rd century B. C , Quintus Fabius Maximus, surnamed Cunctator ("the delayer") for his cautious tactics in the war against Hannibal. The Fabians believed that the transition from capitalism to socialism was possible through gradual minor reforms in society. In 1900 the Fabian Society affiliated to the Labour Party.—13
[4] Cf. the contents of Book III of Capital as set forth by Marx in his letter to Engels of April 30, 1868 (ibid., Vol. 43, pp. 21-25).—10
[8] The economic theory of marginal utility appeared in the 1870s. According to this theory, the value of a commodity is determined by its "marginal utility", that is, by the subjective evaluation of the utility of the commodity which satisfies the least urgent need of a buyer.— 13
[10] Wilhelm Lexis dealt with this problem in his "Kritische Erörterungen über die Währungsfrage" published in Jahrbuch für Gesetzgebung. Verwaltung und Volkswirtschaft im Deutschen Reich, 5 Jg., 1. Heft, Leipzig, 1881, S. 87-132. Bimetallism (or double standard) — a monetary system in which gold and silver are a legal universal equivalent and the basis of national money circulation (the 16th-19th cent).—14, 319