4243. " Does the quantity of capital fluctuate, in your own opinion, to such an extent from one month to another, that its value is changed thereby in the way that we have observed during the last years in the fluctuations of the rate of discount? " — " The proportion between demand and sup- ply of capital may undoubtedly fluctuate even in short in- tervals...If France announces to-morrow, that it will take up a very large loan, it will undoubtedly cause at once a great change in the value of money, that is, the value of capital, in England."
4245. " If France announces, that it wdll suddenly need 30 millions worth of commodities for some purpose or other, a great demand will arise for capital, to use the more scien- tific and simpler expression," 4246. '' The capital, which France might want to buy with its loan, is one thing; the money, with w^hich France buys this, is another thing; is it the money, which changes its value, or not? " — " We are coming back to the old question, and that, I believe, is better suited for the study The Role of Credit. 515 room of a scientist than for this committee room." — And with this he retires, but not into the study room.*^ CHAPTEK XXVII.
THE EOLE OF CKEDIT IN CAPITALIST PRODUCTION.
The general remarks, which the credit system so far elicited from us, were the following: I. Its necessary development, for tlie purpose of pro- curing the compensation of the rate of profit, or the move- ments of this compensation, upon which the entire capitalist production rests.
II. Reduction of the cost of circulation.
1) One of the principal expenses of the circulation is money itself, so far as its represents value itself. It is economized by credit in three ways, A. It is entirely eliminated in a large portion of the transactions.
B. The circulation of the circulating medium is ac- celerated.^^ This coincides partly with the statements to be '*'' Further remarks on Overstone's confusion of terms in the matter of capital will be found at the close of chapter XXXII.
"" The average circulation of notes of the Bank of France was 106,538,000 francs in 1813 and 101,205,000 francs in 1818; while the circulation of money, the total amount of all receipts and payments, was 2,837,712,000 francs in 1812 and 9,065,030,000 francs in 1818. The activity of the circulation in France in 1818 compared to that of 1812 was, therefore, as 3 to 1. The great regulator of the velocity of the circulation is credit...This explains, why a heavy pressure on the money-market generally coincides with a full circulation." {The Cur- rency Question Revieii'ed, etc., p. 165.) " Between September, 1833, and September, 1843, nearly 300 banks were established in Great Britain, which issued their own notes; the consequence was a restriction of the circulation of notes by two and a half millions; it was 36,035,244 pounds sterling at the end of September, 1833, and 33,518,544 pounds sterling at the end of September, 1843." (L. c, p. 53.) "The wonderful activity of the Scotch circulation enables it to transact with 100 pounds sterling the same amount of business, which requires 420 pounds sterling in England." (L. c, p. 55. This last statement refers only to the technical side of the operation.)
5i6 Capitalist Production.
made under 2). On one band, the acceleration is technical; that is, with the same number and quantity of actual transfers of commodities for consumption, a smaller quantity of money or tokens of money performs the same sen-ice. This is con- nected with the technique of the banking business. On the other hand, credit accelerates the velocity of the metamor- phoses of commodities and thereby the velocity of the circula- tion of money.
C. Replacement of gold money by paper, 2) Acceleration, by credit, of the individual phases of circulation or of the metamoi^Dhoses of commodities, and with it an acceleration of the process of reproduction in general, (On the other hand credit permits keeping the acts of buying and selling farther apart and thus serves as a basis for speculation.) Contraction of the reserve funds, which may be studied from two sides; on one side as a reduction of the circulating medium, on the other as a reduction of that part of capital, which must always exist in the form of money. *'^ III. Formation of stock companies. By means of these: 1) An enormous expansion of the scale of production and enterprises, which were impossible for individual capitals. At the same time such enterprises as were formerly carried on by governments are socialised.
2) Capital, which rests on a socialised mode of produc- tion and presupposes a social concentration of means of pro- duction and labor-powers, is here directly endowed with the form of social capital (a capital directly associated indi- viduals) as distinguished from private capital, and its enter- prises assume the form of social enterprises as distinguished from individual enterprises. It is tlie abolition of capital as private property within the boundaries of capitalist produc- tion itself.
3) Transformation of the actually functioning capitalist into a mere manager, an administrator of other people's capi- " " Before the establishment of banks the amount of capital required for the function of the circulating medium was always greater than the actual circulation of comtnodities demanded." Economist, 1845, p. 238.
I The Role of Credit. 517 tal, and of the owners of capital into mere owners, mere monej-capitalists. Even if the dividends, which they receive, include the interest and profits of enterprise, that is, the total profit (for the salary of the manager is, or is supposed to be, a mere wage of a certain kind of skilled labor, the price of which is regulated in the labormarket, like that of any other labor), this total profit is henceforth received only in the form of interest, that is, in the form of a mere com- pensation of the ownership of capital, which is now separated from its function in the actual process of reproduction in the same way, in which this function, in the person of the manager, is separated from the ownership of capital. The profit now presents itself ( and not merely that portion of it, which derives its justification as interest from the profit of the borrower) as a mere appropriation of the surplus-labor of others, arising from the transformation of means of pro- duction into capital, tliat is, from its alienation from its actual producer, from its antagonism as another's property opposed to the individuals actually at work in production, from the manager down to the last day laborer.
In the stock companies the function is separated from the ownership of capital, and labor, of course, is entirely sepa- rated from the ownership of means of production and of surplus-labor. This result of the highest development of capitalist production is a necessary transition to the reconver- sion of capital into the property of the producers, no longer I as the private property of individual producers, but as the common property of associates, as social property outright. On the other hand it is a transition to the conversion of all functions in the process of reproduction, wdiich still remain connected with capitalist private property, into mere func- tions of the associated producers, into social functions.
Before we proceed any further, we call attention to the following fact, which is economically important: Since profit here assumes purely the form of interest, enterprises of this sort may still be successful, if they yield only interest, and this is one of the causes, which stem the fall of the rate of profit, since these enterprises, in which the constant capital is so enormous compared to the variable, do not necessarily come under the regulation of the average rate of profit.
[Since Marx wrote the above, new forms of industrial enterprises have developed, which represent the second and third degree of stock companies. The daily increasing speed, with which production may to-day be intensified on all fields of great industry, is offset on the other hand by the ever increasing slowness, with which the markets for these in- creased products expand. What the great industries turn out in a few months, can scarcely be absorbed by the markets in years. Add to this the system of protective tariffs, by which every industrial country shuts itself off from all others, particularly from England, and which increases home pro- duction still more by artificial means. The results are a chronic overproduction, depressed prices, falling or disappear- ing profits; in short, the long cherished freedom of competi- tion has reached the end of its tether and is compelled to an- nounce its own palpable bankruptcy. This is shown by the fact, that the great captains of industry of a certain line meet for the joint regulation of production by means of a kartel. A committee determines the quantity to be produced by each establishment and distributes ultimately the incoming orders. In some cases even international kartels were formed temporarily, for instance, one uniting the English and German iron producers. But even this form of socialisation did not suffice. The antagonism of interests between the individual firms broke through the agreement quite frequently and re- stored competition. This led in some lines, where the scale of production permitted it, to the concentration of the entire production of this line in one great stock company under one joint management. In America this has been accomplished several times; in Europe the greatest illustration is so far the United Alkali Trust, which has brought the entire Alkali production of the British into the hands of one single busi- ness firm. The former ovniers of the individual works, more than thirty, have received the tax value of their entire estab- lishment in shares of stock, totalling about 5 million pounds sterling, which represent the fixed capital of the trust. The The Role of Credit. 519 technical management remains in the same hands, but the business management is centralised in the hands of the gen- eral management. The floating capital, amounting to about one million pounds, was offered to the public for subscription. The total capital is, therefore, 6 million pounds sterling. In this way competition in this line, which forms the basis of the entire chemical industry, has been replaced in England by monopoly, and the future expropriation of this line by the whole of society, the nation, has been well prepared. — F. E.]
This is the abolition of the capitalist mode of production within capitalist production itself, a self-destructive contra- diction, which represents on its face a mere phase of transition to a new form of production. It manifests its contradictory nature by its effects. It establishes a monopoly in certain spheres and thereby challenges the interference of the state. It reproduces a new aristocracy of finance, a new sort of para- sites in the shape of promoters, speculators and merely nominal directors; a whole system of swindling and cheating by means of corporation juggling, stock jobbing, and stock speculation. It is private production without the control of private property.
IV. Aside from the stock company business, which rep- resents an abolition of capitalist private industry on the basis of the capitalist system itself and destroys private industry in proportion as it expands and seizes new spheres of produc- tion, credit offers to the individual capitalist, or to him who is regarded as a capitalist, absolute command of the capital of others and the property of others, within certain limits, and thereby of the labor of others.^^ A command of social ^ See, for instance, in the Times the list of business failures of a critical year like 1857, and compare the private property of the bankrupts with the amount of their debts. " In truth the purchasing power of people, who have capital and credit, exceeds by far anything conceivable by those who have no practical ac- quaintance with speculative markets." (Tooke, Inquiry into the Currency Prin- ciple, p. 73.) " A man who has the reputation of having enough capital for his regular business, and who enjoys good credit in his line, if he has sanguine ideas concerning the rising constellation of the articles carried by him, and if he is lucky in the beginning and course of his speculation, may make purchases of a truly enormous extent compared to his capital " (Ibidem, p. 136). " The manufacturers, merchants, etc., all carry on transactions which exceed their capital by far. Capital is to-day rather the basis, on which a good credit is built up, than the limit of the transaction of any commercial business." {Economist, 1847, p. 333.)
520 Capitalist Production.
capital, not individual caj^ital of his own gives him commanci of social labor. The capital itself, which a man really owns, or is supposed to own by public opinion, becomes purely a basis for the superstructure of credit. This is true par- ticularly of ^^'holesale commerce, through whose hands the greatest portion of the social product passes. All standards of measurement, all excuses which are more or less justified under capitalist production, disappear here. What the spec- ulating wholesale merchant risks is social property, not his own. Equally stale becomes the phrase concerning the origin of capital from saving, for what he demands is precisely tliat others shall save for him. [In this way all France saved recently one and a half billion francs for the Panama Canal swindlers. In fact the entire Panama swindle is here cor- rectly described, fully twenty years before it happened. — F. E.] The other phrase of the abstention is slapped in the face by his luxury, which now becomes a means of credit by itself. Conceptions, which still have some meaning on a less developed stage of capitalist production, become quite meaningless here. Both success and failure lead now simul- taneously to a centralisation of capital, and thus to an expropriation on the most enormous scale. This expropriation ex- tends here from the direct producers to the smaller and smallest capitalists themselves. It is first the point of de- parture of the capitalist mode of production; its complete accomplishment is the aim of this production. In the last instance it aims at the expropriation of all individuals from the means of production, which cease with the development of social production to be means of private production and products of private production, and which can henceforth be only means of production in the hands of associated producers, their social property, just as they are social products. How- ever, this expropriation appears under the capitalist system in a contradictory form, as an appropriation of social prop- erty by a few; and credit gives to these few more and more the character of pure adventurers. Since property here exists in the form of shares of stock, its movements and transfer become purely a result of gambling at the stock exchange, The Role of Credit. 521 where the little fish are swallowed by the sharks and the lambs by the wolves. In the stock companies the antagonism against the old form becomes apparent, in which social means of pro- duction are private property; but the conversion to the form of shares of stock still remains ensnared in the boundaries of capitalism; hence, instead of overcoming the antagonism be- tween the character of wealth as a social one and as private wealth, the stock companies merely develop it in a new form.
The co-operative factories of the laborers themselves rep- resent within the old form the first beginnings of the new, although they naturally reproduce, and must reproduce, every- where in their actual organisation all the shortcomings of the prevailing system. But the antagonism between capital and labor is overcome within them, although only in the furm of making the associated laborers their own capitalists, that is, enabling them to use the means of production for the em- ployment of their own labor. They show the way, in which a new mode of production may naturally grow out of an old one, when the development of the material forces of produc- tion and of the corresponding forms of social production has reached a certain stage. Without the factory system arising out of the capitalist mode of production the co-operative fac- tory could not develop, nor without the credit system arising out of the same mode of production. The credit^ system is not only the principal basis for the gradual transformation of capitalist private enterprises into capitalist stock com- panies, but also a means for the gradual extension of co- operative enterprises on a more or less natural scale. The capitalist stock companies as well as the co-operative factories may be considered as forms of transition from the cap- italist mode of production to the associated one, with this distinction, that the antagonism is met negatively in the one, positively in the other.
So far w^e have considered the development of the credit system, and the latent abolition of capitalist property implied by it, mainly with reference to industrial capital. In the fol- lowing chapters we shall consider credit with reference to interest-bearing capital as such, both the effect of interest 522 Capitalist Production.
on this capital and the form which it assumes thereby; and on this point we shall have to make a few more specific re- marks of economic significance. g For the present we have this to sav: I ' The credit system appears as the main lever of overproduc-1 tion and overspeculation in commerce solely because the process of reproduction, which is elastic in its nature, is here forced to its extreme limits, and is so forced for the reason that a large part of the social capital is employed by people who do not own it and who push things with far less caution than the owTier, who carefully weighs tlie possibilities of his private capital, which he handles himself. This simply dem- onstrates the fact, that the production of values by capital based on the^ntagonistic na'fiire ^f the capitalist system per- mits an actual, free, development only up to a certain point, so that it constitutes an immanent fetter and barrier of pro- duc^on,1vh:ich~are continually~overstepped by the credit sys-. temT^^ Hence the credir^ system "accelerates tlie materiaT "9F\'elopment of the forces of production and the establish- ment of the world market. To bring these material founda- tions of the new mode of production to a certain degree of perfection, is the historical mission of the capitalist system of production. At the same time credit accelerates the violent eruptions of this antagonism, the crises^ and thereby the de- velopment of the elements of disintegration of the old mode of production.
Two natures, then, are immanent in the credit sy-^tem. On one side, it develops the incentive of capitalist production, the accumulation of wealth by the a23propriation and ex- ploitation of the labor of others, to the purest and most colossal form of gambling and swindling, and reduces more and more the number of those, who exploit the social wealth. On the other side, it constitutes a transition to a new mode of productipn. It is this ambiguous nature, which endows tlfe pfnlcip^T^pokesmen of credit from Law to Isaac Pereire with the pleasant character of swindlers and prophets.
»»Th. Chalmers.
The Medium of Circulation. 523 CHAPTER XXVIII.
THE MEDIUM OF CIRCULATION (cUBEENCy) AND CAPITAL.
tooke's and fullaeton's conception.
The distinction between currency and capital, drawn by Tooke,^° Wilson, and others, which indiscriminately con- founds the differences between the medium of circulation as money, as money-capital, and as interest-bearing capital (moneyed capital in English parlance), refers to two things. The currency circulates on the one hand as coin (money), feo far as it promotes the expenditure of revenue, in the trans- actions between the individual consumers and the retail mer- chants. In this category belong all merchants, who sell to the consumers, that is, the individual consumers as distinguished from the productive consumers or producers. Here money cir- culates in the function of coin, although it continually replaces '" The business of bankers, setting aside the issue of promissory notes payable on demand, may be divided into two branches, corresponding with the distinction pointed out by Dr. (Adam) Smith of the transactions between dealers and dealers, and between dealers and consumers. One branch of the bankers' business is to collect capital from those who, have no immediate employment for it, and to distribute or transfer it to those who have. The other branch is to receive de- posits of the incomes of their customers, and to pay out the amount, as it is wanted for expenditure by the latter in the objects of their consumption...-the former being a circulation of capital, the latter of currency." Tooke, Inquiry into the Currency Principle, p. 36. The former is "the concentration of capital on the one hand and the distribution of it on the other," the latter is " administer- ing the circulation for local purposes of the district." Ibidem, p. 37. The correct conception is far more approached in the following passage from Kinnear: "Money is used to accomplish two essentially different operations. As a medium of ex- change between dealer and dealer it is the instrument, by which transfers of capital are accomplished; that is, the exchange of a certain amount of capital in money for an equal amount of capital in commodities. But money expended in the payment of wages and in the purchase and sale between dealer and consumer is not capital, but revenue; that portion of the revenue of the community, which is used for daily expenditures. This money circulates continually in daily use, and it is this alone, which is strictly called currency. Advances of capital depend exclusively on the will of the bank or other capitalists, for there are always bor- rowers to be found; but the amount of currency depends on the needs of the community, within which the money circulates for the purpose of daily expendi- ture." (J. G. Kinnear, The Crisis and Currency. London, 1847.)
^24 Capitalist Production.
I capital. A certain portion of the money in a certain country is continually devoted to this function, although this portion con- sists of perpetually varying pieces of individual coin. On the other hand, so far as money promotes the transfer of cap- ital^ either as a means of purchase (means of circulation), or as a means of payment, it is capital. It is, therefore, neither its function as a means of purchase, nor that as a means of payment, which distinguishes it from coin, for it may act as a means of purchase also between dealer and dealer, so far as they buy on cash terms from one another, and it may serve as a means of payment also between dealer and consumer, so far as credit is given and the revenue consumed before it is paid. The difference, then, is in fact that between the money-form of revenue and the money-form of capital, but not that between currency and capital, for a certain quan- tity of money circulates in the transactions between dealers as well as those between consumers and dealers. It is, there- fore, equally a currency (circulation) in hoth functions. In Tooke's conception, confusion is introduced into this question in various ways.
1) By confounding the definite distinctions of the two,, functions: 1] 2) By intermingling with it the question of the quantity of money circulating together in both functions; 3) By intermingling with it the question of the relative proportions of the quantities of currency circulating in the two functions, and thus in the two spheres of the process of reproduction.
I. Confounding the Definite Distinctions.
Money is said to be currency in the one form, and capital in the other. To the extent that money serves in the one or the other function, be it for the realisation of revenue or the transfer of capital, it performs its duty in buying and selling or in paying, as a means of purchase or payment, and in the wider meaning of the word as currency. The further pur- poses, to which it is devoted in the accounts of its spender or recipient, who may use it as capital or revenue, do not alter I The Medium, of Circulation. 525 anything in this matter, and this is demonstrated by two facts. Although the kinds of money circulating in the two spheres are different, yet the same price of money, for in- stance a five pound note, passes from one sphere to the other and performs alternately both functions; this is inevitable for the simple reason, that the retail merchant can give to his capital the form of money which he receives from cus- tomers. It may be assumed, that the small change has its center of gravitation in the domain of retail trade; the retail dealer needs it continually to give change and receives it back continually in the payments of his customers. But he also receives money, that is, coin in that metal, which serves as a standard of value, for instance, in England one pound coins, or even bank notes, particularly notes of small de- nominations, such as five and ten pound notes. These gold coins and notes, with whatever small change he has to spare, are deposited by the retail dealer every day, or every week, in his bank, and he pays for his purchases by drawing checks on his deposits. But the same gold coins and bank notes are continually withdrawn from the bank, indirectly or directly (for instance, small change by manufacturers for the payment of wages), by the entire public in its capacity as consumer, and flow continually back to the retail dealers, for whom they realise in this way a portion of their capital, and at the same time their revenue, again and again. This last circumstance is important, and it is wholly overlooked by Tooke. Only where money is expended as money-capital, in the beginning of the process of reproduction (Book II, Part I), does capital- value exist purely as such. For in the produced commodities there is contained not merely capital, but also surplus-value; they are not capital alone, but also newly produced capital, capital pregnant with the source of revenue. What the re- tail dealer gives away for the money returning to him, his commodities, constitutes for him capital plus profit, capital plus revenue.
Furthermore, the circulating small change, when returning to the retail dealer, rehabilitates for him the money-form of his capital.
526 Capitalist Production.
The difference between circulation as a circulation of rev- enue and a circulation of capital cannot, therefore, be pre- sented as a difference between currency and capital without creating confusion. This mode of expression is due in the case of Tooke to the fact, that he simply places himself in the position of a banker issuing his own bank notes. The amount of his notes, which is continually in the hands of the public and serves as currency (even if consisting of ever different notes) costs him nothing but paper and printing. They are circulating certificates of indebtedness made out in his own name (bills of exchange), but they bring him money and thus serve as a means of expanding his capital. But they differ from his capital, whether this be his own or borrowed capital. This implies for him a specific distinction between currency and capital, w'hich, however, has nothing to do with the definite definition of terms as such, least of all with those made by Tooke in this case.
The different terms denoting specific functions — whether it be the money form of revenue or of capital — do not change anything in the primal character of money as a medium of circulation; it retains this character, no matter whether it performs the one function or the other. It is true, that money senses more as a medium of circulation in the strict meaning of the term (coin, means of purchase) in its char- acter as the money-form of revenue, on account of the in- coherency of the purchases and sales, and because the majority of the spenders of revenue, the laborers, can buy relatively little on credit, while in the transactions of the business world, where the medium of circulation constitutes the money-form of capital, money serves mainly as a means of payment, partly on account of the concentration, partly on account of the pre- vailing credit system. But the distinction between money as a means of payment and a means of purchase (currency) refers to money itself; it is not a distinction between money and capital. The distinction is not one between currency and capital, merely because more copper and silver circulates in the retail business, and more gold in wholesale business.
The Medium of Circulation. 527 so that there is a diiferenee between copper and silver on one side, and gold on the other.
II. Introducing the Question of the Quantity of Money Circulating Together in Both Functions.
To the extent that money circulates, either as a means of purchase or as a means of payment, no matter in which one of tlie two spheres and independently of its function of real- ising revenue or capital, the quantity of its circulating mass is regulated by the laws developed previously in the discus- sion of the simj)le circulation of commodities. Book I, Chapter III, 2 b. The degree of the velocity of circulation, in other words, the number of repetitions of the same function as means of purchase and payment by the same pieces of money in a given period of time, the mass of simultaneous purchases and sales, or payments, the sum of the prices of the circulat- ing commodities, finally the balances of payments to be spared in the same period, determine in either case the mass of the circulating money, of currency. Whether the money so serv- ing represents capital or revenue for the paying or receiving party, is immaterial, and does not alter the matter in any way. Its mass is simply determined by its function as a medium of purchase and payment.