trary, less capital!) although he receives means of payment Avhich he needs. For the bank, on the other hand, this trans- action constitutes a temporary fixation of money-capital in the form of a loan, a conversion of money-capital from one form into another, and this conversion is precisely the essen- tial function of the banking business.
Third Case. — A has had a bill of exchange discounted by the bank, and received its value in cash after the deduction tif the discount. In this case he has sold to the bank a money- capital which does not represent ready cash for the same amount in the shape of ready cash. lie has sold his run- ning bill for cash money. The bill is now the property of tlie bank. It does not alter the matter that the last endorser of the bill. A, is responsible to the bank for it in default of payment. He shares this responsibility with the other en- dorsers and with the first writer of the bill, all of whom are responsible to him. In this case, then, we have not any loan to deal with, but only an ordinary sale and purchase. For this reason A has not to make any return payments to the bank. It covers itself by cashing the bill when it becomes due. Here, also, a transfer of capital has taken place be- tween A and the bank, in exactly the same way, which holds good in the sale and purchase of any other commodity, and for this very reason A did not receive any additional capital. What he needed and received were means of payment, and he received them by having the bank convert one form of his money-capital, his bill, into another, money.
It is only the first case, in which there can be any question of a real loan of capital; in the second and third cases the matter can be so regarded only in the sense that every invest- ment of capital implies an advance of capital. In this sense the bank advances capital to A; but for A it is money-capital at best in the sense that it is a portion of his capital in gen- oral. And he does not want and use it as a capital specific- ally. It is specifically a means of payment for him. Other- wise every ordinary sale of commodities, by which means of pavment are secured, might be considered as a loan received.
540 Capitalist Production.
In the ease of private banks issuing notes we have this dif- ference: If its notes remain neither in the local circulation, nor return to it in the form of deposits, or in payment for due bills of exchange, then these notes fall into the hands of people, who compel the private bank to cash these notes in gold or in notes of the Bank of England. In that event its loan represents indeed an advance of notes of the Bank of England, or, what amounts to the same thing for the private bank, of gold, in other w^ords, of a portion of its banking cap- ital. The same holds good in the case that the Bank of Eng- land itself, or some other bank, which has a fixed legal maxi- mum for its issue of notes, must sell securities for the pur- pose of withdrawing its own notes from circulation and giving them out once more in the shape of loans; in that case the bank's own notes represent a portion of its mobilised banking capital.
Even if the circulation were purely metallic, it would be possible, first, that the drain of gold [Marx evidently refers here to a drain of gold that would, at least partially, go to foreign countries. — F. E.] might empty the treasurj^, while, secondly, its loans on securities might grow considerably, but flow back to it in the form of deposits, or of payments on due bills of exchange (since the gold is principally demanded from the bank for the payment of balances in the settlement of previous transactions); so that, on one side, the total treasure of the bank would be decreasing with an increase of securities in its hands, while it would be holding the same amount, which it possessed formerly as owner, in the capacity of debtor of its customers, who made deposits, and the total quantity of currency would be decreasing.
Our assumption so far has been, that the loans are made in notes, so that they carry with them a momentary, but immedi- ately disappearing, increase of the issue of notes. But this is not necessary. Instead of a paper note, the bank may open a credit account for A, in which case this A, a debtor of the bank, appears in the role of an imaginary depositor. He sat- isfies his creditors with checks on the bank, and the recipient of these checks passes them on to his own banker, who ex- The Medium of Circulation. 541 changes them for the checks running against him in the clear- ing house. In this case no intervention of notes takes place at all, and the entire transaction is confined to the fact that the bank collects its own debt in a check drawn on itself, since its actual recompense consists in its claim on A. In this case the bank has loaned to A a portion of its own banking capital, its own credit to him.
To the extent that this demand for pecuniary accommoda- tion is a demand for capital, it is so only for money-capital. It is capital only from the point of view of the banker, namely gold (in the case of gold exports to foreign countries) or notes of the I^ational Bank, which a private bank can obtain only by purchase against securities, and wdiich, therefore, repre- sent capital for it. Or, again, it is a case of interest-bearing papers, government bonds, stocks, etc., which must be sold in order to obtain gold or banknotes. Such papers, however, if they are government bonds, are capital only for the buyer^ for whom their purchase price represents a capital invested in them. By themselves they are not capital, but merely claims on loans. If they are mortgages, they are mere claims on future ground rent. And if they are shares of stock, they are mere titles of ownership, which entitle the holder to a share in future surplus-values. All these things are no real capital, they form no constituent parts of capital, nor are they values in themselves. By similar transactions money belong- ing to the bank may be transformed into deposits, so that the bank, instead of being the owner of this money, owes it to some customer and holds it under a different title of ownership. While this is important as a phenomenon for the bank, yet it does not alter anything in the mass of capital existing in a certain country, or even of money-capital. Capital stands here only for money-capital, and if it is not available in the actual form of money, it stands for a mere title on cap- ital. This is a very important fact, since a scarcity of, and urgent demand for, hanking capital is confounded with a de- crease of actual capital, which is in such cases rather abun- dant in the form of means of production and products and swamps the markets.
1542 Capitalist Production. Til It is, therefore, easy to explain, how it is that the mass of securities received by a bank as collateral increases, so that the growing demand for pecuniary accommodation can be sat- isfied by the bank, while the total mass of currency remains the same or decreases. This total mass is held in check dur- ing such periods of money stringency in two ways: 1) By a drain of gold; 2) by a demand for money in its capacity of a mere means of payment, when the issued bank notes re- turn immediately, or when the transactions pass off without the intervention of notes by means of book credit; the pay- ments are thus made wholly by a transaction of credit, and the settlement of these payments was the only pui'pose of this transaction. It is a peculiarity of money, when it serves merely to square balances of payments (and in times of crises loans are taken up for the purpose of paying, not of buying; for the purpose of winding up previous transactions, not of beginning new ones), that its circulation is but small, even where balances are not squared by mere operations of credit, without any intervention of money, so that, when there is a heavy demand for pecuniary accommodation, an enormous quantity of such transactions can take place without expanding the circulation. But the mere fact, that the circulation of the Bank of England remains stable or de- creases simultaneously wdth a heavy satisfaction of money-ac- commodation on its part, does not prove without further cere- mony, as Fullarton, Tooke and others assume (owing to their mistake to the effect that pecuniary accommodation is iden- I tical with taking up capital on loan as additional capital), that the circulation of money (of banknotes) in its function as a means of payment does not increase and extend. While the circulation of notes as means of purchase is decreasing in periods of business depression, when such a heavy accommo- dation is necessary, their circulation as means of payment may increase, and the aggregate amount of the circulation, the sum of the notes functioning as means of purchase and pay- ment, may remain stable or may even decrease. The cur- rency in its capacity as a means of payment, of banknotes im- The Medium of Circulation. 543 mediately returning to the bank issuing them, is not a cur- rency in the eyes of those economists.
If the circulation as a means of payment were to increase at a higher rate than it decreases as a means of purchase, the aggregate currency would increase, although the money send- ing in the capacity of a means of purchase would have de- creased considerably in quantity. And this actually happens in periods of crisis, when credit collapses completely, so that commodities and securities are unsalable and bills of exchange cannot be discounted, and nothing goes any more but cash money. Since Fullarton and others do not understand, that the circulation of notes as means of payment is the character- istic mark of such periods of money stringency, they treat this phenomenon as accidental. " With respect again to those examples of eager competition for the possession of banknotes, which characterise seasons of panic and which may sometimes, as at the close of 1825, lead to a sudden, though only tem- porary, enlargement of the issues, even while the efflux of bullion is still going, these, I apprehend, are not to be re- garded as among the natural or necessary concomitants of a low exchange; the demand in such cases is not for circula- tion" (he should say circulation as a means of purchase) " but for hoarding, a demand on the part of alarmed bankers and capitalists which arises generally in the last act of the crisis " (that is, for a reserve of means of payment) " after a long continuation of the drain, and is the precursor of its termination." (Fullarton, p. 130.)
In the discussion of money as a means of payment (Vol- ume I, chapter III, 3 b) we have already explained, in what manner, when the chain of payments is suddenly interrupted, money turns from its ideal form into a material and at the same time absolute form of value as compared to the com- modities. This was illustrated by some examples (footnotes on- pages 156 and 157). This interruption itself is partly an effect, partly a cause of the insecurity of credit and of the circumstances accompanying it, such as overcrowding of mar- kets, depreciation of commodities, interruption of production, etc.
544 Capitalist Production.
But it is evident, that Fullarton transforms ^he difference between money as a means of purchase and money as a means of payment into the mistaken conception of a difference be- tween currency and capital. This is due to the narrow- minded banker's conception of circulation.
It might be asked, finally: What is it that is missing in such periods of stringency, capital or money in its function as a means of payment? And this is a well known contro- versy.
In the first place, so far as the stringency is marked by a drain of gold, it is evident that what is demanded is the in- ternational means of payment. But money in its character of international means of payment is gold in its metallic actu- ality, as a quantity of values in itself, as a mass of values. It is at the same time capital, capital not as commodity-capital, but as money-capital, cajjital not in the form of commodities but in the form of money (and at that of money in the emi- nent meaning of the term, in which it exists as a universal world market commodity). It is not a question of a con- trast between a demand for money as a means of payment and a demand for capital. The contrast is rather between capital in its money-form and its commodity-form; and the form which is here demanded and which can alone perform any function here, is its money-form.
Aside from this demand for gold (or silver) it cannot be said that there is a dearth of capital in such periods of crisis. Under extraordinary circumstances, such as a corn famine or a cotton famine, etc., this may be the case; but these are not necessary or regular companions of such periods; and the ex- istence of such a lack of capital cannot be assumed, without further ceremony, from the mere fact, that there is a heavy demand for pecuniary accommodation. On the contrary. The markets are overcrowded and swamped with commodi- ties. Evidently it is not the lack of commodity-capital which causes the stringency. We shall return to this question larer.
The Composition of Banking Capital. 545 CHAPTER XXIX THE COMPOSITION OF BANKING CAPITAL.
It is now necessary to find out more accurately, what are the constituent elements of banking capital.
We have just seen, that Fullarton and others transform the distinction between money as a means of circulation and money as a means of payment (or eventually as world money, whenever it is a question of gold drains) into a distinction between currency and capital.
The peculiar role played by capital in this instance brought it about, that this banker's economics taught as insistently that money is indeed capital par excellence as the enlight- ened economics taught that money is not capital.
In subsequent analysis we shall demonstrate, that in such cases money-capital is confounded with moneyed capitrl in the sense of interest-bearing capital, while in the first named sense money-capital is but a transient form of capital as distin- guished from the other forms of capital, commodity-capital and productive capital.
The banking capital consists 1) of cash money, gold or notes; 2) securities. These again may be divided into two parts: Commercial bills, bills of exchange, which run for some time, become due, and the cashing (discounting) of which is the essentially profitable business of the banker; and public securities, such as government bonds, treasury notes, stocks of all kinds, in brief, interest-bearing papers, which are essentially different from bills of exchange. Mortgages may also be classed with this part. The capital composed of these various constituents is again divided into the banker's busi- ness capital, and into the deposits, which form his banking capital, or borrowed capital. In the case of barks with an issue of notes these must be counted also. We leave the de- al 546 Capitalist Production.
posits and notes out of consideration for the present. It is evident, that nothing is altered in the actual constituents of banking capital (money, bills of exchange, deposits), whether these different elements represent the banker's own capital or deposits, the capital of other people. The same division would remain, whether he were to carry on his business with his own capital alone or with no other but deposited capital.
The form of the interest-bearing capital is responsible for the fact, that every determined and regiilar revenue of money appears as interest on some capital, whether it be due to some capital or not. The money revenue is first converted into in- terest, and with the interest comes also the capital, from which it is drawn. In like manner every sum of money ap- pears as capital in connection with the interest-bearing cap- ital, as long as it is not spent as revenue; that is, it appears as principal compared to the possible or actual interest which it may yield.
The matter is simple. Let the average rate of interest be 5% annually. A sum of 500 pounds sterling would then yield 25 pounds sterling, if converted into interest-bearing capital. Every fixed annual income of 25 pounds sterling may then be considered as interest on a capital of 500 pounds sterling. This, however, is and remains a purely illusory conception, except tlie case in which the source of the 25 pounds sterling, whether it be a mere title of ownership or claim of indebtedness, or an actual element of production, such as real estate, is directly transferable or assumes a form, in which it becomes transferable. Let us choose a govern- ment debt and wages for an illustration.
The state has to pay to his creditors annually a certain amount of interest for the money loaned from them. In this case the creditor cannot call on the state to give up the prin- cipal. He can merely sell his claim, his title of o\\'nership. The -capital itself has been consumed, spent by the state. It does not exist any longer. What the creditor of the state possesses is 1) a certificate of indebtedness from the state, amounting, say, to 100 pounds sterling; 2) this certificate gives to the creditor a claim upon the annual revenues of the The Composition of Banking Capital. 547 state, that is, the annual tax revenue, to a certain amount, say, 5 pounds, or 5 %; 3) the creditor may sell this certificate at his discretion to some other person. If the rate of interest if 5 %, and the security given by the state is good, the owner A of this certificate can sell it, as a rule, at its value of 100 pounds sterling to B; for it is the same to B, whether he loans 100 pounds sterling at 5 % annually, or whether he secures for himself by the payment of 100 pounds sterling an annual tribute from the state to the amount of 5 pounds sterling. But in all these cases the capital, the progeny of which (in- terest) is paid by tlie state, is illusory, fictitious capital. Not only does the amount loaned to the state exist no longer, but it was never intended at all to be invested as capital, and only by investment as capital could it have been transformed into a self-preserving value. For the original creditor A, the share of interest from taxes falling to him annually repre- sents so much interest on his capital, just as a certain share of the spendthrift's fortune does for the usurer, although in either case the loaned amount was not invested as capital. The possibility of selling his claim on the revenues of the state represents for A the possible return of his principal. As for B, his capital, from his own private point of view, is invested as interest-bearing capital. So far as the transac- tion is concerned, B has simply taken the place of A by buy- ing the latter's claim on the state's revenue. This transac- tion may be multiplied ever so often, the capital of the state debt remains a purely fictitious one, and from the moment that the certificates would become unsalable, the fiction of this capital would disappear. I*^evertheless this fictitious capital has its own movements, as we shall see presently.
The capital of the national debt appears as a minus, and interest-bearing capital generally is the mother of all crazy forms, so that, for instance, debts may appear in the eyes of the banker as commodities. Now let us look at wages. Wages are here conceived as interest, so that labor-power stands for capital, which yields this interest. For instance, if the wages for one year amount to 50 pounds sterling, and the rate of interest is 5%, the annual labor-power is equal 548 Capitalist Production.
to a capital of 1,000 pounds sterling. The insanity of the capitalist mode of conception reaches its climax here. For instead of explaining the self-expansion of capital out of the exploitation of labor-power, the matter is reversed and the productivity of labor-power itself is this mystic thing, inter- est-bearing capital. In the second half of the 17th century this used to be a favorite conception (for instance with Petty) but it is used even nowadays in good earnest by vulgar econo- mists and more particularly by German statisticians.^^ Unfortunately two disagreeable facts mar this conception. In the first place, tlie laborer must work, in order to secure this interest. In the second place, he cannot transform the capital-value of his labor-power into cash by transferring it. On the contrary, the annual value of his labor-power is equal to his average annual wages, and his labor has to make good to the seller of his labor-power this same value plus a sur- plus-value, the increment added by his labor. Under a slave system the laborer has a caf)ital-value, namely his purchase price. And when he is rented out, the renter has to pay, in the first place, the interest on this purchase price, and must fvirthermore make good the annual wear and tear of the cap- ital.
The forming of a fictitious capital is called capitalising. Every periodically repeated income is capitalised by calcu- lating it on the average rate of interest, as an income which would be realised by a capital at this rate of interest. For instance, if the annual income is 100 pounds sterling and the rate of interest 5%, then these 100 pounds sterling would represent the annual interest on 2,000 pounds sterling, and these 2,000 pounds sterling are regarded as the capital-value of the legal title of ownership upon these 100 pounds sterling annually. For him who buys this title of ownership these 100 pounds sterling of annual income represent indeed tlie *' " The laborer has a value as capital, which is found by considering the money- value of his annual wages as income from interest...By capitalising the average daily wages at 4% we find the average value of an agricultural laborer of the male sex to be: German Austria, 1500 Thalers; Prussia, 1500; England, 3750; France, 2000; Interior Russia, 750 Thalers." Von Reden, Vergleichende Kulturstatistik. Berlin, 1848, p. 134.
The Composition of Banking Capital. 549 interest on his capital at 5^. All connection with the actual process of self-expansion of capital is thus lost to the last vestige, and the conception of capital as something which ex- pands itself automatically is thereby strengthened.
Even when the certilicate of indebtedness — the security — does not represent a purely fictitious capital, as it does in the case of state debts, the capital-value of such papers is never- theless wholly illusory. We have seen previously in what manner the credit system creates associated capital. The papers are considered as titles of ownership, which represent this capital. The stocks of railroads, mines, navigation com- panies, and the like, represent actual capital, namely the cap- ital invested and used in such ventures, or the amount of money advanced by the stockholders for the purpose of being used as capital in such ventures. This does not exclude the possibility that they may become victims of swindle. But this capital does not exist twofold, it does not exist as the capital-value of titles of ownership on one side and as the ac- tual capital invested, or to be invested, in those ventures on the other side. It exists only in this last form, and a share of stock is merely a title of ownership on a certain portion of the surplus-value to be realised by it. A may sell this title to B, and B may sell it to C. These transactions do not alter anything in the nature of the case. A or B then have their title in the shape of capital, but C has his capital merely in the shape of a title on the surplus-value to be realised by the stock capital.
The independent movement of the value of these titles of ownership, not only of government bonds but also of stocks, adds weight to the illusion that they constitute a real capital by the side of that capital, or that title, upon which they may have a claim. For they become commodities, whose price has its own peculiar movements and is fixed in its own way. Their market value is determined differently from their nom- inal value, without any change in the value of the actual capital, which expands, of course. On the one hand their market value fluctuates with the amount and security of the yields, on which they have a claim. If the nominal value of 550 Capitalist Production.
a share of stock, that is, the invested sum originally repre- sented by this share, is 100 pounds sterling, and the enter- prise pays 10%, instead of 5%, then their market-value, other circumstances remaining the same, rises to 200 pounds sterling, so long as the rate of interest is 5%, for when cap- italised at 5%, it now represents a fictitious capital of 200 pounds sterling. He who buys it for 200 pounds sterling re- ceives a revenue of 5% on this investment of capital. If the success of the venture is such as to diminish the income from it, the reverse takes place. The market value of these papers is in part fictitious, as it is not determined merely by the ac- tual income, but also by the expected income, which is cal- culated in advance. But assuming the self-expansion of the actual capital to proceed at a constant rate, or, where no cap- ital exists, as in the case of state debts, the annual income to be fixed by law and otherwise sufficiently secured, the price of such securities rises and falls inversely as the rate of in- terest. If the rate of interest rises from 5% to 10%, then a security guaranteeing an income of 5 pounds sterling will represent only a capital of 50 pounds sterling. If the rate of interest falls from 5% to 2|%, then the same security